The document discusses the state of the US and global economies. It provides statistics showing that while the US unemployment rate is slowly improving, the labor force participation rate remains low due to retirements and long-term unemployment from the Great Recession. The average duration of unemployment also remains elevated. The government shutdown cost the US economy $24 billion in lost GDP growth. Continued political brinksmanship around the debt ceiling undermines global investor confidence in US institutions. Housing markets are improving but may cool as the Fed tapers quantitative easing. The Eurozone is starting to recover and global GDP growth is forecast to increase to 3.6% in 2014. However, political risks from the US government remain the top threat to both the

1. Tales of Madcap Economic Science
Or, What They Never, Ever Taught Me
in Grad School
November 2013
Dr. Anne M. Alexander
University of Wyoming
For the
Wyoming Business Report
Southeast Wyoming Economic Forecast Luncheon

2. Hooray!
Slowly improving unemployment picture, Wyo’s 5th lowest
unemployment rate in US
WY

3. Jan-03
Apr
Jul
Oct
1-Jan
Apr
Jul
Oct
Jan-05
Apr
Jul
Oct
Jan-06
Apr
Jul
Oct
Jan-07
Apr
Jul
Oct
Jan-08
Apr
Jul
Oct
Jan-09
Apr
Jul
Oct
Jan-10
Apr
Jul
Oct
Jan-11
Apr
Jul
Oct
Jan-12
Apr
Jul
Oct
Jan-13
Apr
Jul
US Economic Outlook*
September 2013 rate
= 7.2%
U.S. UNEMPLOYMENT RATE
12.0
10.0
8.0
6.0
4.0
2.0
0.0

4. September rate = 63.2%
Lowest participation rate
since late 1970’s.
US Economic Outlook*
U.S. LABOR FORCE PARTICIPATION RATE
Civilian labor force participation rate
67.0
66.0
65.0
64.0
63.0
62.0
Sep
May
Jan-13
Sep
May
Jan-12
Sep
May
Jan-11
Sep
May
Jan-10
Sep
May
Jan-09
Sep
May
Jan-08
Sep
May
Jan-07
Sep
May
Jan-06
Sep
May
Jan-05
Sep
May
Jan-04
Sep
May
Jan-03
61.0

5. • Increasing rate of retirements
• Severe rates of extremely
long-term unemployment
because of Great Recession
US Economic Outlook*
U.S. EMPLOYMENT-POPULATION RATIO
Employment-population ratio
64.0
63.0
62.0
61.0
60.0
59.0
58.0
57.0
56.0
55.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

6. US Economic Outlook
REMINDER: This was a
really, really, really bad
recession, aggravated by a financial
crisis.
Recessions caused or
aggravated by financial
crises historically
damage the economy
for a decade. We tend
to see unemployment
rates, asset
prices, credit
issued, and GDP
growth return to
normal only after 10
years or so.
And, we are now
creeping up on 6
years since the
Great Recession
began

7. US Economic Outlook
In the Great Recession, on average, this
group tended to have been in their late
40’s or early 50’s when laid off from
their job. They are facing higher rates of
perceived skills obsolescence than
younger demographics.

8. • Current # Weeks Unemployed = 36.9 (over 9 months)
• High during Great Recession = 40.7 (over 10 months)
• Average, Jan. 2003-Dec. 2007 = 18.2 (around 4.5
months)
• Average, Jan. 2008-present = 31.6 (around 8 months)
AVERAGE WEEKS UNEMPLOYED – ENTIRE WORKFORCE
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
May
Jan-13
Sep
May
Jan-12
Sep
May
Jan-11
Sep
May
Jan-10
Sep
May
Jan-09
Sep
May
Jan-08
Sep
May
Jan-07
Sep
May
Jan-06
Sep
May
Jan-05
Sep
May
Jan-04
Sep
May
Jan
0.0

9. Federal Government
Budget Debates – Shutdown!
 We won’t know for at least a month what damage the
shutdown did to growth.
 Early estimates - the government shutdown cost at least $24
billion, according to Standard & Poor's and The Economist. Forecast
GDP growth in 4th quarter 2013 cut by > 0.6% and annual GDP growth
from 3% to 2%.

11. Federal Government
Budget Debates – Shutdown!
 Agricultural price collection in many markets (free price info to
producers) was shut down – producers had to pay private firms for prices
of, for example, cut hogs so they could infer what the price of a whole
hog should be.
 Firms who work with other firms with some government contracts were
seized up in their activities.
 Widespread reported slowdown at oil and gas transport facilities along
the Mississippi.
Also, gathering and analysis of data for GDP
growth, unemployment, inflation, regional prices and
growth, producer prices, import values, export values, hourly
earnings, job openings, occupational outlooks…. All stopped for 17
days. So, there’s also that.

12. Federal Government
Budget Debates – Debt Ceiling
 Probably more damage done because of the fact government went up to
a line that can bring catastrophic results – the debt ceiling.
 Treasuries would have, and did, continue to sell at par.
 The harm done to the global financial system by a Treasury debt default would not be
caused by cash losses to our bond investors.
 But, global investor faith in US institutions has already been undermined.
The full faith and credit of the United States is now in question.
Want to know why we economists were
freaking out about the debt ceiling??
NEXT SLIDE, PLEASE!

13.  If US Treasury payments can’t be
trusted, then all risk instruments
- stocks, bonds, futures and
forward
contracts, swaps, options, all
derivatives of all kinds – all the
stuff of our
corporate, personal, and
government investment
portfolios - need to be repriced, as does the most basic
counterparty risk of all, the
political risk posed by the US
government. BECAUSE THE US
GOVERNMENT, in one form or
another, IS A COUNTERPARTY TO
EVERY SINGLE FINANCIAL
PLAYER AND TRANSACTION IN
THE WORLD.
• In other words, the US
government’s payments on
obligations already made, for
services already rendered, MUST
BE CERTAIN. If they are not the
whole web of the financial system
could collapse, starting with the
multi-trillion-dollar interest-rate
derivatives market, and moving
rapidly from there to all financial
markets.
• Would have rippled through
financial markets, foreign
capitals, corporate
boardrooms, state budget
offices and the bank
accounts of everyday
investors.

14. Some good news! National housing market
improving substantially
But, expect home
prices to cool as
Fed tapers on
quantitative
easing policy

15. And, private debt is falling – deleveraging is happening
National Debt and Credit Report – Federal Reserve

16. The Eurozone
 Euro area growth has been anemic this year, but
prospects for 2014 are much better (Economist
Intelligence Unit)
2013
2014

17. Global Growth Forecast, 2014
• Despite the self-inflicted fiscal
crisis in the US, continued
austerity in Europe, and more
subdued growth in China, global
economic growth is poised to
accelerate next year.
• Political risk remains high in the
US, and there is also a risk of
severe disruption in emerging
markets as US monetary policy
shifts away from quantitative
easing.
• The Eurozone is starting to sustain
a recovery, and in 2014 all major
developed markets will probably
see robust growth all at once for
the first time in four years.
• Global GDP will grow by 3.6%
in 2014, according to the EIU.
This is up from an estimated
2.8% in 2013

18. Global Growth Forecast, 2014

19. The greatest
risk to the US
economy in
2014 is….
The US
Government
And, the
greatest risk to
the global
economy in
2014 is….
The US
Government