2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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The U.S. economy is improving at a modest but positive pace, and business experts expect that trend to continue into next year and beyond. This was a theme echoed by several speakers Oct. 3 at a …

The U.S. economy is improving at a modest but positive pace, and business experts expect that trend to continue into next year and beyond. This was a theme echoed by several speakers Oct. 3 at a McCombs event called “The Economy in 2014: The Year of the Rebound?”

See the summary and video: The U.S. economy is improving at a modest but positive pace, and business experts expect that trend to continue into next year and beyond. This was a theme echoed by several speakers Oct. 3 at a McCombs event called “The Economy in 2014: The Year of the Rebound?” - See the summary and video: http://www.texasenterprise.utexas.edu/2013/10/17/finance/2014-year-rebound

Highlights
Jay Hartzell, professor of finance, University of Texas at Austin McCombs School of Business
“There are roughly three ways to get out of the debt problem: You grow your way out, you tax your way out, or you print money,” Hartzell said. “The growth forecast is not very strong for the next few years. It’s not clear we have the political will to tax our way out of it. So that leaves inflation, which many people have concerns about.”

Tyson Tuttle, CEO of Silicon Labs
Tuttle said a surge in investment in connected smart devices is driving a transformation of the tech industry. He expects low-cost, low-power devices to enable home and industrial automation, development of efficient smart grid and mobile technologies, and the advent of “big data.” “All of this is going to be enabled by new types of devices, chips and applications that people haven’t even thought of before."“This is going to create a lot of opportunities for startups, software creators, infrastructure providers, and certainly in our world.”

Daniel Nelson, CEO and founder of Datical
“By the end of 2014, there will be a glut of failed startups — and this is a really good thing, because they’re supposed to fail. The real question is, after those startups fail, what do those founders do?” Nelson said. “The virtuous cycle of entrepreneurism starts with failure. It starts with failing, learning, and trying again — and then failing, learning, and trying again.

Dennis McWilliams, CEO and founder of Apollo Endosurgery
“No other state, even California and New York, can compare to the resources we have in Texas for early-stage investment in new technologies,” McWilliams said. “We really are becoming a global economy of healthcare, and innovation that’s happening here in Texas is moving around the world.”

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  • 1. Economic Outlook 2014 Jay C. Hartzell Chair, Department of Finance, McCombs School of Business The University of Texas at Austin
  • 2. Economic Forecasts §  Research Department, Federal Reserve Bank of Philadelphia §  “Survey of Professional Forecasters” §  First quarter (August 16, 2013) §  Doing this since 1968 §  42 “Professional Forecasters” §  Provide advice used by large commercial institutions §  Members of National Association for Business Economics (NABE) §  Use a variety of techniques and assumptions to arrive at forecasts
  • 3. Real Gross Domestic Product §  Definition §  Historic average annual rate of growth §  ~ 3.0% §  Median forecasts (annual rate of growth) 2013 2014 2015 2016 2.2% 2.3% 2.7% 2.9% §  Risk of negative quarter (probability) 2013: Q3 2013: Q4 2014: Q1 2014: Q2 2014: Q3 10.5% 11.2% 11.7% 11.5% 11.8%
  • 4. Unemployment & Workforce Participation §  Unemployment (natural rate ~ 6.0%) 2013 2014  2015  2016  7.5% (~12.5 million) 7.1% 6.6% 6.1% §  Under-employed (BLS “Alternatives”) § ~ 12%-18% §  Workforce Participation Rate 2000 2008 2013 67.3% (143 million) 66.3% (154 million) 63.2% (155 million) §  Okun’s Law § ~ 3.0% Real GDP Growth to reduce unemployment
  • 5. Foundations of Low Growth §  Consumer spending and households §  §  §  §  Stagnant incomes High or under employment Deleveraging Uncertainty §  Business investment §  In aggregate, slim profit prospects §  Contraction in household and government sectors §  Uncertainty, particularly in government policy §  Government spending §  AAAAGGGGHHH! (debt-to-GDP ratio) §  Net Export §  Slowing global growth
  • 6. Inflation (Consumer Price Index) §  Definition §  Historical average (annual rate) §  ~ 4.0% §  Median forecasts (annual rate) Headline CPI Core CPI 2013 1.4% 1.8% 2014 2.0% 2.0% 2015 2.3% 2.1% §  Long-term forecasts (annual rate) Headline CPI 2012-2016 2.0% 2012-2021 2.0% §  Comments of Fed on controlling inflation §  Managing liquidity (e.g., bank and non-bank reserves) §  Commitment to inflation
  • 7. View from 30,000 Feet (2013-2016) §  Slow growth §  Improving private sector balance sheets §  Deteriorating (dramatically) public sector balance sheets §  High unemployment §  High under-employment §  Lower workforce participation §  Low interest rates §  Low-ish inflation §  More wealth re-distribution than creation §  Energy §  Health care §  Education
  • 8. Embargoed for release at 2:00 p.m., EDT, September 18, 201 Latest Fed Forecasts Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, September 2013 Advance release of table 1 of the Summary of Economic Projections to be released with the FOMC minutes Percent 2013 Change in real GDP . . . . . 2.0 to 2.3 June projection . . . . . . 2.3 to 2.6 Central tendency1 2014 2015 2016 2.9 to 3.1 3.0 to 3.5 2.5 to 3.3 3.0 to 3.5 2.9 to 3.6 n.a. Unemployment rate. . . . . . 7.1 to 7.3 June projection . . . . . . 7.2 to 7.3 6.4 to 6.8 6.5 to 6.8 5.9 to 6.2 5.8 to 6.2 PCE inflation. . . . . . . . . . . . 1.1 to 1.2 June projection . . . . . . 0.8 to 1.2 1.3 to 1.8 1.4 to 2.0 Core PCE inflation3 . . . . . 1.2 to 1.3 June projection . . . . . . 1.2 to 1.3 1.5 to 1.7 1.5 to 1.8 Variable Longer run 2.2 to 2.5 2.3 to 2.5 2013 1.8 to 2.4 2.0 to 2.6 2014 2.2 to 3.3 2.2 to 3.6 Range2 2015 2.2 to 3.7 2.3 to 3.8 5.4 to 5.9 n.a. 5.2 to 5.8 5.2 to 6.0 6.9 to 7.3 6.9 to 7.5 6.2 to 6.9 6.2 to 6.9 5.3 to 6.3 5.7 to 6.4 5.2 to 6.0 n.a. 5.2 to 6.0 5.0 to 6.0 1.6 to 2.0 1.6 to 2.0 1.7 to 2.0 n.a. 2.0 2.0 1.0 to 1.3 0.8 to 1.5 1.2 to 2.0 1.4 to 2.0 1.4 to 2.3 1.6 to 2.3 1.5 to 2.3 n.a. 2.0 2.0 1.7 to 2.0 1.7 to 2.0 1.9 to 2.0 n.a. 1.2 to 1.4 1.1 to 1.5 1.4 to 2.0 1.5 to 2.0 1.6 to 2.3 1.7 to 2.3 1.7 to 2.3 n.a. 2016 2.2 to 3.5 n.a. Longer run 2.1 to 2.5 2.0 to 3.0 Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant’s projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The June projections were made in conjunction with the meeting of the Federal Open Market Committee on June 18–19, 2013. 1. The central tendency excludes the three highest and three lowest projections for each variable in each year. 2. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year. 3. Longer-run projections for core PCE inflation are not collected.
  • 9. US Economic Policy Uncertainty Index
  • 10. US Economic Policy Uncertainty Index Economic Policy Uncertainty Index Monthly US Economic Policy Uncertainty Index Zoom 1m 3m 6m YTD 1y All 200 175 150 125 100 75 Sep '12 Nov '12 1990 Jan '13 Mar '13 2000 May '13 Jul '13 2010 Highcharts.com 9/20/13 11:09 AM
  • 11. Figure 2. Overview of FOMC participants’ assessments of appropriate monetary policy Fed Policy: Growth and Inflation Forecasts Number of participants Appropriate timing of policy firming 12 Figure 1. Central tendencies and ranges of economic projections, 2013–16 and over the longer run 12 11 Percent 10 9 Change in real GDP Central tendency of projections Range of projections 5 8 4 7 6 5 4 3 3 Actual 2 2 3 2 1 + 0 1 1 2 2014 2008 2009 2010 2011 2012 2013 2015 2014 Appropriate pace of policy firming 2015 2016 2016 Longer run 3 Percent Target federal funds rate at year-end 6 Percent 5 Unemployment rate 10 4 9 3 8 2 7 1 6 0 2013 2008 2009 2010 2011 2012 2014 2013 2014 2015 2016 Longer run 2015 2016 Longer run 5
  • 12. www.silabs.com How the Internet of Things Is Transforming Our Economy Tyson Tuttle, CEO, Silicon Labs October 3, 2013
  • 13. Silicon Labs Background Ø  Austin’s largest home-grown semiconductor company §  Founded in 1996; Public since 2000 (NASDAQ: SLAB) §  Strong track record of diversification, revenue growth and profitability §  Fabless model with >1,000 employees and 10 R&D locations worldwide Ø  Focused on mixed-signal innovation §  Broad portfolio addressing consumer, industrial and communications markets §  Serve >10,000 customers with >5 billion devices shipped §  >1,300 patents issued or pending 14
  • 14. Key Industry Trends Green Technology Internet of Things Drive  to  improve   energy  efficiency  and   reduce  power   consump5on  creates   new  markets  for   mixed-­‐signal  ICs       15 Bandwidth Expansion Demand  for  data   drives  infrastructure   investment  in   telecommunica5ons,   cloud  compu5ng  and   wireless  infrastructure   The  connec5on  of     low-­‐cost,  low-­‐power   devices  to  enable   home  and  industrial   automa5on,  smart   grid  and  more  
  • 15. More Connected Devices Than People Source: Silicon Labs, Thomson Reuters, Morgan Stanley 16
  • 16. The Internet of Things Is a Game Changer Smart Grid Safety Security Connected Home Building Automation Lighting Control Smart Devices Health Fitness Broad range of technologies and applications creates opportunities for new products and entrants 17
  • 17. Convergence of Technologies Multiple technologies converging simultaneously – all enabled by semiconductors and software – + Massive data centers for cloud computing 18 Mobile computing and connected devices Internet of Things
  • 18. The Internet of Things Is Here Today Ø  Availability of low-cost, integrated end devices §  §  §  §  Embedded processors and microcontrollers (ARM) Wireless connectivity (Wi-Fi, Bluetooth, ZigBee) Sensors and actuators Long battery life or energy harvesting Ø  Big Data / Analytics + Internet of Things §  Increased asset utilization §  Improved energy efficiency and reduced environmental impact §  Increased employee productivity §  Elimination of waste in supply chain and logistics §  Improved customer experience §  Reduced time to market across all industries Ø  Economic impact across all industries estimated to be $14.4 trillion over the next decade (Source: Cisco) 19
  • 19. www.silabs.com Thank You www.silabs.com
  • 20. Austin Start-Up Forecast 2014 October 3, 2013
  • 21. Austin Start-Up Forecast "   Austin Start Up Demographics "   Local Investment Environment "   Talent Pool "   2014 Forecast
  • 22. Austin Start-up Demographics "   It’s getting bigger…fast •  But we are still pretty small, comparatively "   More start-ups •  More resources -  •  More talent -  •  Incubators, UT programs, Angel & VC Home grown and transplants Cultural shift -  Entrepreneurism more part of the local ethos "   Founders are tending to be: •  •  Less experienced Focused on solving market problems rather than “hard” business problems (except Big Data).
  • 23. Local Investment Environment "   More firms doing deals •  •  But smaller size funds Both local and outside Austin "   More angels •  And more sophisticated, networked, and organized and funded "   Smaller deal sizes •  •  •  More “activity” More shut downs Higher expectations
  • 24. Talent "   Austin has great engineers •  Which is why Google, Apple, IBM, Facebook, BMC, HP, etc., all opened offices here "   Small companies have to be competitive on wages and benefits •  And differentiate on environment, responsibility, excitement and upside "   More startups then there are good managers •  Founders vs Operators "   Certain specialties are very hard to find: •  Mobile, UIX, Data Analytics/Scientist
  • 25. 2014 Start Up Forecast "   Talent “crunch” will hurt growth "   More deals, but increasingly small in size •  •  Venture investment will remain the same or decline slightly More “micro-VC” and angel deals "   By the end of 2014 there will be a glut of failed start-ups •  Big Question: Do those founders leave town or start fresh?
  • 26. apollo endosurgery Life  Science  LiCoff  In  Texas     Dennis  McWilliams   CEO  /  Founder   Apollo  Endosurgery  
  • 27. Healthcare  Innova4on  Ma5ers   apollo endosurgery apollo endosurgery
  • 28. Health  Care  Spend  as  %  of  GDP   9.6% 6.3% 11.3% 11.4% 11.7% 17.7% 9.6% 3.9% 5.8% apollo endosurgery apollo endosurgery 8.9%
  • 29. apollo endosurgery apollo endosurgery
  • 30. For  notes  only  on  previous  slide   For  notes  only  on  previous  slide:   Healthcare  spend  as  %  of  GDP  (Avg  2009-­‐2012)   Country  Name   United  States   France   Germany   Spain   Sweden   Brazil   Swaziland   Russian  Federa5on   Nigeria   apollo endosurgery China   India   apollo endosurgery Avg   17.7   11.7   11.4   9.6   9.6   8.9   8.2   6.3   5.8   5.1   3.9  
  • 31. Life  Science  Impact  in  Texas   $75  Billion  es5mated   economic  impact  of  biotech   in  Texas  (2009)   89,000+  Number  of  biotech   workers  in  Texas   apollo endosurgery apollo endosurgery #2  in  Clinical  Trials  in  the  US    
  • 32. Public   Investment   Venture           Capital     apollo endosurgery apollo endosurgery Industry   Investment  
  • 33. Top  Ten  Texas  Ins4tu4ons  for   Biomedical  R&D     FY  2012  Expenditures   Ins4tu4on   $2.6  Billion   invested  by  Texas   Public  Ins3tu3ons   in  life  science  R&D   Total  R&D   (Millions)   Univ.  of  Texas  (UT)  M.D.  Anderson  Cancer       $528.1   Baylor  College  of  Medicine-­‐Houston       $450.6   UT  Southwestern  Medical  Center   $389.0   UT  Health  Science  Center  at  Houston       $226.7   Texas  A&M  University       $189.3   UT  Health  Science  Center  at  San  Antonio       $163.8   UT  Medical  Branch  (UTMB)  at  Galveston       $139.4   endosurgery     $82.5   Texas  A&M  Health  Science  Center   apollo The  University  of  Texas  at  Aus5n       $77.5   Texas  Tech  University  Health  Science  Ctr.       Total   $60.6   $2,361.4   Source:  Texas  Higher  Educa3on  Coordina3ng  Board     apollo endosurgery
  • 34. Number  of  Biotechnology-­‐Related  Degrees   Awarded,  2009-­‐2012   All  Texas  Public  Universi5es,  All  Degree  Levels   Biological  and   Biomedical  Sciences     26,084   Healthcare   Professionals  and   Technicians     14,413   Plant  and  Agricultural   Sciences     6,842   Animal  Sciences     3,318   apollo endosurgery Total   apollo endosurgery 50,657   Source:  Texas  Higher  Educa3on  Coordina3ng  Board    
  • 35. apollo endosurgery apollo endosurgery
  • 36. Life  Science  Investment  in  Aus4n   Economy   apollo endosurgery apollo endosurgery
  • 37. Public  Investment  in  Healthcare  Innova4on   Texas   Enterprise   Fund   $277.9M   apollo endosurgery apollo endosurgery $98.1M   $3B  
  • 38. Venture  Investment  in  Innova4on   $1.4  billion   Peripheral  stents   invested  by  VC  firms   (2007-­‐2012)  in   Texas  biotech  &   medical  device   apollo Less  invasive  AV  fistulas   endosurgery apollo endosurgery Heart  valves   Cancer  Therapies  
  • 39. Apollo  Endo-­‐  Impor5ng  Technology…   apollo endosurgery apollo endosurgery
  • 40. Endoscopy   apollo endosurgery apollo endosurgery Endoscopic  Surgery   Laparoscopy  
  • 41. Global  innova5on  chain   apollo endosurgery apollo endosurgery