Transcript Long-Term Trend#1

Fiduciary and Investment Risk
Management Association
“What Are the Risks Facing the Economy?”
Joel L. Naroff, Ph. D.
President, Naroff Economic Advisors
Chief Economist, Commerce Bank
Short-Term Issue #1:
Rising Interest Rates and Housing:
Bubbles burst, really, they do!
20%
Incredibly Low Rates Drove Home Sales:
That Could Change Dramatically
Mortgage Rate
18%
7.0
Total Home Sales
16%
6.0
14%
5.0
12%
10%
4.0
8%
3.0
6%
2.0
4%
1.0
2%
0%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
0.0
2006
Total Home Sales (In Millions - 3 mo. Average)
30 Year Conventional Mortgage Rate (3 mo. Average)
8.0
Short-Term Issue #2:
Where Goes Energy Costs?
The Rise in Enery Costs Is A Real Drag
And Has Inflationary Risks
Energy Expenditures (Billions of Dollars)
370
360
Household energy costs have skyrocketed
350
340
330
320
310
300
2001 Q1 2001 Q3 2002 Q1 2002 Q3 2003 Q1 2003 Q3 2004 Q1 2004 Q3 2005 Q1 2005 Q3
Short-Term Issue #3
What will happen to the dollar?
The Dollar Is Becoming More Volatile,
Adding Currency Risk To Investment Risk
100
Trade Weighted Exchange Index: Major
Currencies
Trade Weighted Dollar Value
95
90
85
80
75
2003
2004
2005
2006
Long-Term Trend#1: Globalization
• Globalization: Competition is worldwide, costs
containment is key.
• Productivity: Labor is the most expensive portion
of costs, so their costs must be contained.
• Job Growth: Forget the nineties, restrained job
gains are with us for as far as the eye can see.
The Drive For Productivity Gains Will
Keep Job Growth Down
8%
400
Productivity Growth
Job Gains
300
7%
6%
5%
200
100
4%
3%
2%
0
-100
1%
-200
0%
-1%
1996 Q1 1997 Q1 1998 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1
-300
Payroll Gains-2 Quarter Moving Average
(In Thousands)
Productivity Growth - 4 Quarter Moving Average
9%
Long-Term Trend #2: Wireless
• The technology: Imagine it five years from now.
• Older buildings: Too expensive to refurbish using today’s
technology, but may no longer be so.
• Locations: Older, architecturally interesting buildings in older
locations have renewed value.
The advantage of new construction may fade and older buildings could
become competitive in central cities and smaller towns.
Long-Term Trend #3:
Retiring Baby-Boomers
• Aging Boomers: Demographic shift to more retirees
will accelerate sharply over next decade.
• Wealth: Boomers are the richest retirees in history.
They will once again change the nation’s spending
patterns.
• Locations: Boomers want to locate to amenity rich
locations that match their new, retirement lifestyles.
The Demographic Makeup of the
Population is Changing Dramatically
Percent of Total Population
U.S.
Age
2000
2020
0-19
28.6%
26.5%
20-44
36.9%
32.3%
45-64
22.1%
24.9%
65-84
10.9%
14.1%
85 & over
1.5%
Source: Census Bureau
2.2%