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Economic Forecast 2014 Energy Focus: W. Keith Maxwell, CEO Spark Energy and Marlin Midstream, Oct. 17, 2013

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Keith W. Maxwell of Spark Energy, joins McCombs Finance Professor Jay Hartzell, Craig Cordola, CEO of Memorial Hermann Hospital -Texas Medical Center in Houston, and Greg Peters, CEO of Zillant, to take a look ahead at not just the national economy as a whole, but also at the state of Texas.

The U.S. is now the world's largest producer of hydrocarbons, because technology has enabled us to produce “tight” oil, or shale oil, Maxwell said.

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Economic Forecast 2014 Energy Focus: W. Keith Maxwell, CEO Spark Energy and Marlin Midstream, Oct. 17, 2013

  1. 1. October 17, 2013 Federal Reserve BankHouston Branch 2014 Economic Forecast Keith Maxwell CEO Sparks Energy
  2. 2. Economic Outlook 2014 Jay C. Hartzell Chair, Department of Finance, McCombs School of Business The University of Texas at Austin
  3. 3. 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
  4. 4. 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%
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. Latest Fed Forecasts
  10. 10. US Economic Policy Uncertainty Index
  11. 11. US Economic Policy Uncertainty Index Econom ic Policy Uncertainty Index Monthly US Econom ic 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
  12. 12. Fed Policy: Growth and Inflation Forecasts
  13. 13. Texas Job Growth
  14. 14. Texas Leading Index

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