Transcript Institutional Causes of Macroeconomic Performance

ECONOMIC UPDATE
2015
Dr. Matthew Metzgar
Belk College of Business
UNC Charlotte
CURRENT CONDITIONS

3rd Quarter GDP growth: 2.1 %

Unemployment rate: 5.0% (Nov 2015)

Inflation rate: 0.2% (Oct 2015)

Seems positive
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TRENDS
3
4
UNEMPLOYMENT
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INFLATION
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TARGETS
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TARGETS

Real GDP Quarterly Growth:
Current: 2.1% (annualized)
 Target: 2.5% (annual)


Unemployment Rate:
Current: 5.0%
 Target: 5.5%


Inflation:
Current: 0.2% (annualized)
 Current: 1.9% (annualized without food and energy)
 Target: 2.0% (annual)

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TARGETS




NAIRU – non-accelerating inflation rate of
unemployment
Unemployment-Inflation Trade-off
As unemployment continues to fall, inflation will
slowly rise
Inflation data is skewed by lower gas prices
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FORECAST
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FORECASTS (CBO)

GDP Growth:


Unemployment Rate:



Annual GDP Growth Rates will peak in 2016, and
slowly decline (though remaining positive) through
2024
CBO predicted unemployment would decline to 5.5%
in 2024; it’s already at 5%
New CBO prediction is that unemployment will stay
around 5% the next 9 years
Inflation:

Will slowly increase and reach 2.4% per year in 2024
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FORECASTS


Overall, the CBO forecast predicts a 9-year
period of economic growth & stability through
2024
So why worry?
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POTENTIAL ISSUES
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A LOOK AT SOME KEY ISSUES
1.
Shadow Banking
2.
Technology & Income Inequality
3.
Presidential Election/Congress
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SHADOW BANKING
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SHADOW BANKING



The Fed will most likely raise interest rates soon
But how much impact does the Fed’s interest rate
really have?
$9 trillion in US banks; $15 - $20 trillion in US
shadow banking
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SHADOW BANKING



Nonbanks that serve as intermediaries for credit
(Ex. GE Financial, Lehman Brothers)
Securitization vehicles, mutual funds, insurance
companies, finance companies, etc.
Strong long-term growth that wasn’t much
affected by the financial crisis
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SHADOW BANKING
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SHADOW BANKING



Movement of money outside of traditional banks
may increase efficiency
May also increase long-term systematic risk
(little oversight)
Fed showing signs of tightening regulation on
shadow banking
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TECHNOLOGY &
INCOME INEQUALITY
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TECHNOLOGY & INCOME INEQUALITY



The way it’s supposed to work: technology makes
workers more productive, which in turn increases
their wages
The reality: wages have been stagnant while the
gains are going to the corporations
CBO predicts wages will be flat from 2017 to
2024
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EXAMPLES



Uber – Some estimates have net pay at $10 per
hour; Uber corporation is worth $50 billion
Airbnb hosts make $19,279 annually after fees;
Airbnb company is worth $20 billion
56% of people who work in the on-demand
economy through online platforms report total
earnings of $40,000 or less
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INCOME INEQUALITY


Forms of employee ownership (ESOPs) may
increase employee wealth
(http://www.esopassociation.org/newslanding/2013/01/14/research-indicates-esopssave-federal-government-billions-due-to-fewerlayoffs)
Worker Cooperatives have great potential

(http://coop.econ.iastate.edu/presentations_publicatio
ns/businessownership.pdf)
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CONGRESS/ELECTIONS
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TRUMP?
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2016 ELECTIONS

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How much impact will the new President have?
Many people/businesses are happy with the
status quo in Congress
Those gaining from income inequality would like
to keep it that way
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CONGRESS


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Increased partisanship has led to an
unproductive Congress
Approval rate at 11%
Last 2 Congresses were two of the least
productive in US history
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THE 1% OF THE 1%
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ECONOMIC FUTURE
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ECONOMIC FUTURE



Will shadow banking lead to a future economic
crisis?
Will the gains from economic growth continue to
be concentrated at the top?
Will elections have any impact on policy and
wage growth?
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THANK YOU!
Dr. Matthew Metzgar
[email protected]