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Dimkoff presentation jan. 2012

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Dimkoff presentation jan. 2012

  1. 1. Dr. Gregg DimkoffSeidman College of Business January 17, 2012 1
  2. 2. Gross Domestic Product GDP is the most common way to measure how the economy is performing. It usually is reported as REAL GDP. Real GDP removes inflation from its measure of growth. 2
  3. 3. GDP DefinitionThe sales value of all final goods and services inthe US.  Excludes sales outside the USA by US companies  Includes sales in the US by foreign businesses  Measured indirectly – Based on estimates of wages and salaries received, dividends, personal consumption, etc.  The best overall measure of economic growth 3
  4. 4. Historical GDP Growth Rates 4
  5. 5. Why is GDP Growth Important?The higher the growth, The higher the standard of living The lower the unemployment rate Higher stock prices 5
  6. 6. 2012 GDP Forecasts The Conference Board 1.8% Kiplinger 2.3 Org. for Economic Cooperation and Development – OECD 2.0 Congressional Budget Office 3.1 Wall Street Journal Survey of Economists 2.4 Federal Reserve 2.4 – 2.9 2011 Growth 1.8% 6
  7. 7. Conclusions about GDP in 2012 Consensus average is about 2.3%, about 1/3 more than in 2011 2.5 – 3.5% growth is considered to be strong Economic growth in 2012 will be moderate. 7
  8. 8. The Outlook for Interest Rates 8
  9. 9. Current Interest Rates – National Averages91-day Treasury bills 0.01%1-year CDs 0.345-year CDs 1.1730-year fixed mortgage 4.1815-year fixed mortgage 3.3810-year Treasury 1.8730-year Treasury 3.0310-year Munis 1.7830-year Munis 3.66% 9
  10. 10. What will happen in 2012? No significant increases in interest rates. Why not? Two reasons: Economy is still soft – Policymakers will keep the spigots open to keep rates low. The Federal Reserve has a “hands off” policy as presidential elections approach. 10
  11. 11. A Warning Interest rates are at, or near, lows for the past 60 or more years. They have one way to change – up. Once they begin rising, the prices of existing bonds will fall. The more rates rise, the great the decline in bond prices. 11
  12. 12. US Unemployment Rate 12
  13. 13. Unemployment 13
  14. 14. Unemployment Rate Forecasts –End of 2012 Currently 8.5% Kiplinger 8.5 Indiana U economists 8.4 Congressional Budget Office 8.2 Moody’s Analytics 8.7 Federal Reserve 8.5 – 8.7 Wells Fargo Securities 9.2 Bloomberg News Survey 8.3% 14
  15. 15. Unemployment Rates in MI – November 2011Michigan 9.8%Ann Arbor 5.2Grand Rapids – Wyoming 6.5Holland – Grand Haven 6.5Kalamazoo – Portage 6.9Muskegon – Norton Shores 8.4 15
  16. 16. Conclusions about the 2012 Unemployment Rate Most forecasters don’t think the rate will fall much. If it doesn’t, economic growth – GDP – will grow slowly. 16
  17. 17. Federal Debt 17
  18. 18. Ratio of Publicly Held Debt to GDPGreece 144%US 100Ireland 94Portugal 83Hungary 80Germany 79A ratio over 90% constrains economic growth. 18
  19. 19. US Debt is Getting Bigger On 1/1/12, 2011 US GDP was $15,064,816,000,000 US debt was: $15,170,600,000,000 19
  20. 20. When Interest Rates Rise A 1% rise in US Treasury interest rates will add this amount to the national debt: 1% times $15 trillion = $150 billion per year That’s $1.5 trillion over 10 years. 20
  21. 21. What’s the Answer? Higher economic growth A cap on spending increases Changes to Social Security and Medicare No new expensive social programs 21
  22. 22. Stock Market Returns 2011 2010 2009 West Michigan -5.7% 41.4% 32.5% Dow Jones Industrial 5.4 10.1 18.8 S&P 500 - 0.5 11.8 23.5 NASDAQ Composite - 1.9 16.8 43.9 22
  23. 23. The Stock Market 23
  24. 24. Dow Jones Industrial Index 24
  25. 25. S&P 500 Index 25
  26. 26. NASDAQ Composite 26
  27. 27. Dow Jones Precious Metals Index 27
  28. 28. Concerns for 2012 European recession will affect the US economy China’s growth appears to be slowing, affecting world-wide demand (GDP) Gridlock in Washington, D.C. prevents the US from dealing with its problems 28
  29. 29. Positives for 2012 Economy will continue to strengthen during the year, with GDP growth stronger than in 2011. Unemployment rate will continue to fall modestly Stock prices will be volatile Manufacturing will continue to be strong 29
  30. 30. Final Comments The economy is recovering moderately. The unemployment rate will continue to fall slowly. 2012 looks like a good year, and even the real estate industry will recover. 30

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