Michael Knetter, Ph.D. - President of the University of Wisconsin Foundation


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The annual Economic Trends Event, presented by BizTimes Milwaukee, hosts a vibrant discussion between prominent Wisconsin business leaders, state representatives, and industry experts on the state of the economy. This annual event includes a macroeconomic outlook on the economy from Michael Knetter, Ph.D., the Albert O. Nicholas dean at the University of Wisconsin School of Business in Madison.

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Michael Knetter, Ph.D. - President of the University of Wisconsin Foundation

  1. 1. Prospects for Economic Recovery Michael M. Knetter President and CEO, UW Foundation Northern Trust Economic Trends Breakfast January 21, 2011
  2. 2. Forecast from January 2009 <ul><li>Stock Market: January 2009 (Obama team in place will reduce uncertainty) </li></ul><ul><li>GDP turning point: July 2009 (time needed to reverse “paradox of thrift”) </li></ul><ul><li>Unemployment turning point: January 2010 (unemployment follows output) </li></ul><ul><li>The economy has followed this projected path closely, thanks to massive stimulus </li></ul><ul><li>Our future path is still quite uncertain </li></ul>
  3. 3. My 2010 Forecast <ul><li>Stock market up modestly </li></ul><ul><ul><li>Markets have priced in recovery </li></ul></ul><ul><ul><li>Downside risks remain </li></ul></ul><ul><li>GDP growth 3% </li></ul><ul><ul><li>Muted for an early recovery </li></ul></ul><ul><ul><li>Stimulus removal hurts; dollar may help </li></ul></ul><ul><li>Unemployment will end the year near 9% </li></ul><ul><ul><li>Sluggish growth; many discouraged workers </li></ul></ul><ul><li>Inflation and the dollar stable around current levels </li></ul><ul><li>Little room for error! </li></ul>
  4. 4. GDP % Change (quarterly, 2007-present) Source: U.S. Dept. of Commerce: Bureau of Economic Analysis Source: U.S. Dept. of Commerce: Bureau of Economic Analysis
  5. 5. Job Loss Comparison Source: Bureau of Labor Statistics Source: Bureau of Labor & Statistics
  6. 6. Unemployment Rate (1960-Present) Source: Bureau of Labor Statistics Source: Bureau of Labor & Statistics
  7. 7. My 2011 Forecast <ul><li>Stock market +7% - an average year; equity markets may benefit from shift away from bonds due to inflation fears </li></ul><ul><li>Real GDP growth +3.5% - weak considering the amount of excess capacity </li></ul><ul><li>Unemployment below 9% at year end </li></ul><ul><li>Inflation and the dollar: Low but rising inflation; established currencies decline against emerging currencies </li></ul>
  8. 8. Challenges to the Recovery <ul><li>Unprecedented measures to resuscitate the economy </li></ul><ul><ul><li>Fed grew its balance sheet and created new facilities to support credit markets </li></ul></ul><ul><ul><li>Fiscal stimulus of epic proportions </li></ul></ul><ul><ul><li>Debate about usefulness of these acts </li></ul></ul><ul><li>New challenge: Reign in expansionary policy without killing recovery </li></ul><ul><ul><li>Is the US vulnerable to debt crisis? </li></ul></ul><ul><li>What source of private demand will replace government: technology investment, exports, or consumers? </li></ul>
  9. 9. Risks to Near Term Forecast <ul><li>Supply shocks: Unexpected disruptions, possibly in energy or commodities, perhaps due to unrest in Middle East </li></ul><ul><li>Policy uncertainty: Continued uncertainty in how politics and regulation will affect business </li></ul><ul><li>Policy sustainability: Once markets conclude policy is not sustainable, debt issuance is very costly. Need credible long term fiscal plan!! </li></ul>
  10. 10. My Long Term Forecast <ul><li>U.S. will remain among the most successful developed economies </li></ul><ul><li>U.S. economic strength comes from abundant land and capital (human and physical) and economic institutions that have provided strong incentives to take risks and work hard </li></ul><ul><li>U.S. challenges – improving alignment of incentives in finance, heath care, education; openness to immigration; and maintaining a climate where risk taking and innovation are rewarded </li></ul>
  11. 11. My National Policy Wish List <ul><li>Gradual and orderly reduction in monetary and fiscal stimulus </li></ul><ul><li>Maintain our leadership position in the knowledge economy by promoting: </li></ul><ul><ul><li>Innovation </li></ul></ul><ul><ul><li>Education </li></ul></ul><ul><ul><li>Immigration </li></ul></ul><ul><ul><li>Conservation (fossil fuel taxes?) </li></ul></ul>
  12. 12. My Wisconsin Wish List: Diversified Regional Strategy <ul><li>Manufacturing: promote in SE up to Fox Cities—proximity to major markets, multi-modal transport, etc. </li></ul><ul><li>Agriculture: promote move to R&D intensive high value products </li></ul><ul><li>Knowledge/Services: promote in Dane County (bio, education) and SE Wisconsin (finance, water) </li></ul><ul><li>Tourism: promote in the north and aim high—we are competing for Chi/Mpls $! </li></ul>