2003 09 25 Goss Presentation

The Economic Outlook: National, Regional & Local : 

The Economic Outlook: National, Regional & Local Nebraska Actuaries Club September 25, 2003 Ernie Goss Ph.D. Professor of Economics, Creighton University & MacAllister Chairholder

THE MID-AMERICAN REGION: 

THE MID-AMERICAN REGION

U.S. Recession (began March 2001—ended Nov. 2001): 

U.S. Recession (began March 2001—ended Nov. 2001) What produced recession: 1. Post Y2K cut back in technology spending 2. FED kept interest rates too high 3. Rising value of dollar hurt manufacturing Job losses since beginning of recession: 1. region has lost 300,900 (-2.4%) 2. U.S lost 2.6 million jobs ( -2.0% ) Why do job losses continue? 1. Productivity enhancements 2. Increase in hourly work week 3. Manufacturing movement overseas/restructuring 4. Capital spending remains weak 5. Businesses taking a “wait & see” approach

Slide4: 

U.S. growth rates 1995-2003 Consumption & housing still strong; capital spending-weak

Slide5: 

Overall Job Growth

Slide6: 

Bullish Bearish Sideways

Yield—10 yr. Vs. 6 Month Treasury: 

Yield—10 yr. Vs. 6 Month Treasury April 1978 April 2000 March 1989 Current yield = 3.25%

Slide8: 

Gap between 10 yr Treasury & inflation: Average last 50 years = 2.7%; highest 9.3% (1984); lowest –4.9%(1974) Current gap = 2.2% Long term-either inflation drops by 0.5% or Treasury rate rises by 0.5% (or combination of both) 1974 1984 2003

The Regional Economy:Survey of Purchasing Managers& Business Leaders: 

The Regional Economy: Survey of Purchasing Managers& Business Leaders A Partnership Among Creighton University, and St. Louis Purchasing Managers

Monthly Survey of Business Conditions: 

Monthly Survey of Business Conditions Leading Economic Indicator Released First Business Day of Each Month to Media Released Via WWWeb: www.outlook-economic.org Appears in media throughout U.S. Survey of 1,800 supply managers

Business Conditions Index: 

Business Conditions Index Recession began

Prices Paid Index: 

Prices Paid Index

Outlook—U.S. & Regional: 

Outlook—U.S. & Regional Growth for US, and Mid-Am improvement Qtr. III, 2003. Back to trend Qtr. II, 2004. Next move by FED will be to raise rates (some time in 2004—likely before mid-year) Short term interest rates will increase by 0.50% by end of Quarter II, 2004. Higher mortgage rates- 30 year mortgage rate increase by 0.3% by the end 2003 Employment will improve in the Quarter III of 2003 for the region & nation Lower oil prices will be extremely important—price will drop below $25/barrel before Sept. ‘03 Declining dollar will assist manufacturing (Chinese Yuan pegged to dollar will be campaign issue)

Opportunities/challenges for Nebraska-near term: 

Opportunities/challenges for Nebraska-near term Over last year tourism has been a very positive influence on the state (short distance tourism is a growth sector) Drought impact for farm sector without federal financial support will be a lingering problem for non-urban portions of the state Three factors will drive the non-farm economy—globalization, rising productivity, technology

The Risk Factors: 

The Risk Factors International uncertainty—terrorism, global partners’ economies do not improve (Switzerland, Euro Zone) Federal budget deficit ($450 b - $500 b)-will push long term rates higher once trend growth resumes Higher oil & energy prices would dampen recovery Dollar weakens dramatically No revival in business investment or business hiring What to watch for (next month): 1. Initial jobless claims released Sept. 25 Need number below 400,000 www.dol.gov 2. ISM Reports on Business Oct. 1, (watch employment index) www.ism.ws 3. Employment report released Oct. 3, job losses will be bad www.bls.gov 4. Sept. retail sales released Oct. 15th need growth above 0.6% www.census.gov 5. Industrial production Oct. 16th decline would be bad www.federalreserve.gov 6. Keep an eye on the value of $$ and oil prices daily WSJ

Prescriptions to improve growth:: 

Prescriptions to improve growth: What will not do it: Lower interest rates-short term lowest in 45 years Higher government spending--$450 billion fed. deficit Tax rebate, etc. Re-regulation What will work: Asian currencies must be set by market Cut marginal income tax rates for all Keep government spending “in-line” Tort reform Reform of workman’s compensation is a long term concern