The Economic Outlook for Manufacturers - Dr. Ernie Goss, economist, Creighton University

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While some manufacturers have had record years, and in some respects, helped to jump start the economic recovery, the outlook may be cloudy. Manufacturing is weakening in Minnesota, and across the nation, according to a closely watched Creighton University Index. Presented at the Minnesota Chamber Manufacturers Summit on October 23, 2012

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The Economic Outlook for Manufacturers - Dr. Ernie Goss, economist, Creighton University

  1. 1. Mid-America and the Global Economy:Short and Long Term Challenges & Opportunities Minnesota Manufacturers Summit Ernie Goss Ph.D. Professor of Economics MacAllister Chairholder Creighton University Web: www.ernestgoss.com Twitter.com/erniegoss Web: www.outlook-economic.com
  2. 2. 2008-12 Never has so much been done to achieve so little?• Two stimulus bills ($1 trillion)• Bailouts—GM, Bear Stearns, AIG, Fannie Mae, Freddie Mac, Chrysler, 19 Large Banks• Interest rates: QE1, QE2, QE3,Operation Twist, Funds Rate = 0% - ¼%• Cash for clunkers, appliances, caulking, windows, Green vehicles,• Tax credit for first time home buyers• Mortgage forgiveness & writedowns
  3. 3. Threats
  4. 4. Opportunities• Opportunities – Record low interest rates (bond market looking for quality issues) – International opportunities – Great bargains in real estate market – Cash is king – How can you take advantage of uncertainty?
  5. 5. Housing/ConstructionSource: Lodmell & Lodmell http://www.lodmell.com/protect-wealth/strategic-defaults-mortgages
  6. 6. Price changes, 2007-12 Why Build New? New construction costs = 4 x existing
  7. 7. Case-Shiller home price index 2001- July 201220.0%15.0% End of federal tax credit10.0% E 5.0% 0.0% -5.0%-10.0%-15.0% Year over year price change-20.0%
  8. 8. Debt
  9. 9. Federal spending as % of GDP, 1947-2012
  10. 10. Public debt as % of GDP The 25% problem?
  11. 11. Agriculture
  12. 12. Monthly Survey of Rural Bank CEOs• 10 states, 210 bank executives• Released 3rd Thursday of each month• Average community size = 1,300• CO, IA, IL, KS, MN, MO, ND, NE, SD, WY
  13. 13. Rural Mainstreet Economy Jan. ‘08 – Oct. ‘12
  14. 14. Bullish on Agriculture/food: Long term• Fast growth for emerging economies (China, India): Food & energy demand income elastic (e.g. income up 8%, food demand up 12%)• Cheap value of dollar (makes U.S. food & energy more competitive abroad): U.S. trade deficit, budget deficit, higher inflation.• Biofuels & alternative fuel production: wind farms, ethanol, solar.
  15. 15. Manufacturing The Regional Economy: Survey of Purchasing ManagersA Partnership Among Creighton and State Supply Managers Associations
  16. 16. U.S. & Mid-America PMI’s, 2007 – September 2012
  17. 17. Minnesota’ exports, 1999 vs 2011 1999 2011
  18. 18. Indicators to Watch (next month)• Case-Shiller home index for August• Trade weighted value of dollar• Sovereign bond default (PIIGS)• Yield on the 10-Year U.S. Treasury Bond• Retail sales (Nov. 14)• GDP (Oct. 26)• PMIs (Nov. 1)• Employment report (Nov. 2)
  19. 19. Economic Medicine• Look internationally for sales & investment• Need fundamental tax reform—flatter & fairer• Simpson/Bowles tax/spending plan• Shorten period of UI benefits• Commitment to reducing federal spending• Keep 2001 & 2003 tax cuts for all until spending cuts• Reduce barriers to trade• Must convert pensions to defined contribution plans for public employees• Encourage repatriation of U.S. earnings

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