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