The 2016 Executive Education Roundtable Series: Eighth Year, Zeros Have Left the Building

2. The 2016 Executive Education Roundtable Series #IASACINVO

3. It is The Eighth Year: The Zeros Have Left The Building San Antonio, Texas June 13, 2016 John W. Mitchell

4. June 2016 Month 84-only 3 Longer Postwar Six Years of Growth Near 2% Inflation Near 1%, Unemployment at 5% Oil Price Volatility $110-$25-$50- General Commodity Weakness Net Worth Up $2.6 Trillion in 2015- More than ½ Holding Gains on Real Estate NIRP Enters the Vocabulary-Underwriting Pressure Grand Monetary Experiment Unfolding-None of Us have been Through Before

5. Real GDP 2015-16 Commerce Department (SAAR,%)

6. Labor Market DataTo April Monthly Change Payroll Employment 2015-2016 5.5 Million Jobs Above 1/08 Peak and 14.2 Million Above 2/10 Trough Participation Rate 62.8%-Above the Lows-Down for the Month All Super Sectors up except Mining, Logging and Manufacturing Part Time Economic Reasons 5.78 Million down by 589,000 Over the Year Hourly Earnings Growth-2.5%-Moving up?

7. Beige Book April, 2016 “Labor market conditions continued to strengthen.”–”difficulty in filling certain positions in a number of low and high skilled occupations.” Notably contacts reported difficulty in finding quality retail workers, low skilled manufacturing workers, construction workers and skilled professionals in occupations such as information technology, accounting, engineering and customers service.” NABE April Survey-Wage Pressures Highest in Transportation, Utilities, Information and Communication Walking Around, Watching and Listening

8. Atlanta Fed Wage Growth TrackerMedian Change in Hourly Earnings Same People Over 12 Months

9. Consumer Prices

10. The Dollar

11. Inflation Always A Mix: Food at Home , Apparel, Used Cars, Energy Down over the Year, Increases in Rent, Medical, Auto Insurance April CPI 1.1% and 2.1% Core Gasoline Down over 20.9% to March and 13.8% to April In April Import Prices rose .3% for the second consecutive month on a 3.3% Fuel Price- Year over Year -5.7% Year Fuel -36.4% and Other Imports down 2%- Year over Year down Every Month Since July 2014 Import Prices Falling from All Regions except France PCE March .8%, Core 1.6% Fed-Transitory Influence of Dollar and Oil- How Long?

12. Federal Funds Rate and 10 Year TreasurySource: Treasury, Fed

13. Rates Sweden, Switzerland, Denmark, Japan, ECB-Negative Central Bank Rates Applied to Central Bank Deposits-Not passed on in Negative Rates, but Fees for Deposits, No Interest Try to Encourage Lending, Hold Down Currency, Try to Increase the Rate of Inflation 10 Year US 1.76%, Japan -.11%, Germany .17%, Canada 1.37%, Denmark .48% Switzerland -.31% (Economist 5/21) Mortgage Rates 5/20 3.58% Search for Yield-Monetary Policy and Asset Prices

14. Outlooks(Note the Preponderance of 2’s) Consensus 1.8% in 2016 and 2.3% in 2017 Inflation 1.2% in 2016 and 2.3% in 2017- The December to December changes the last 2 years have been .8% and .7 Fed Long Term Median 2016 2.2%, 2017 2.1% and 2018 2%, Longer Run 2% (March) Consensus Forecasts, OMB, CBO- Annual Projections 2018-2022-Average Between 2.3% and 2.1%

15. Other Long Cycles-End of Recession to Year Seven Real GDP Growth

16. The No Show Acceleration Tsunami, Weather, West Coast Port Disruptions Budget Conflicts/Shutdown/Debt Ceiling/Episodes Old Oil Shocks-New Oil Shocks (US Production in 2010 5.5 MBD in 2015 9.7 MBD) Global Weakness and the Dollar Permanent Effect of Recession/Policy (Hysteresis) Something More Fundamental-Secular Stagnation? Old Idea Back in the News

17. Labor Productivity Growth in The Business Sector 1947-2015

18. BLS December, 2015 Labor Force Employment Projections

19. Blip-Trend-Leftover? Robert Gordon “The Rise and Fall of American Growth” 2016- Headwinds Demographics-Aging Population Educational System Inequality-Holding Down Median More Limited Impact of Technical Advances Others Leftovers from Great Recession Excess Savings Limiting Monetary Policy Regulatory/Policy Mix Measurement Problem

20. Monetary Policy 4/27/16 “labor market conditions have improved as growth in economic activity appears to have slowed” “household spending moderated”, “housing sector has improved further, but business fixed investment and net exports have been soft.” “Inflation continued to run below ..objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports.” “The Committee continues to closely monitor inflation indicators and global economic and financial developments.” Inflation “ to rise to 2 percent over the medium term as the transitory effects of the declines in energy prices and import prices dissipate and the labor market strengthens further.”

21. When the next downturn arrives, what happens? Rate Cuts, Forward Guidance, Quantitative Easing, Negative Rates- Bernanke (2016) Helicopter Money-An Expansionary Fiscal Policy financed by an increase in the Money Supply

22. Fiscal Policy Two Year Budget Deal late in 2015-Kick the Can CBO(2016) Budget Deficit Increase for the first Time in 6 Years as a Share of GDP 7% Increase in Mandatory, 3% Discretionary and 14% Increase in Net Interest Health Care Related 11%- 60% of the Increase in Mandatory Squeeze on Discretionary CBO makes its Usual Warnings Non-Issue at the Moment 55-60% of Federal Spending Increases to 2040-Attibutable to Aging of the Population ( Olivia Mitchell, Business Economics 1/2016)

23. Residential Permits- (,000) A Long RoadA 12% Increase in 2015 and 2.9% to April, 2016

24. Housing Questions Millennial Behavior-Apartments or Houses (TV Commercial) Employment Growth, Household Formation Gain, Ease in Lending Standards Capacity to Produce-Workers-Permits-Lots-Backlog of Permits Not Started Increasing Homeownership Rate Ticking Up Negative Equity down to 10.7% in Q4-CoreLogic Nevada High at 18.7%, Texas 2.1% Case-Shiller-February National 5.3%-Prices Back to Winter 2007-Portland, Seattle, Denver and San Francisco at the top of the List FHFA House Price Index up All States other than Vermont Q1 2016

25. Idaho 1 Oregon 2 Utah 3 Tennessee 4 Arizona 5 Washington 6 Georgia 7 Florida 8 Virginia 9 Colorado 10 South Carolina 11 Nevada 12 California 13 Hawaii 14 Delaware 15 Job Growth Update March 2016 DataYear over Year Change – 43 States UpSource: BLS, ASU North Carolina 16 Maryland 17 Arkansas 18 Michigan 19 Kentucky 20 Rhode Island 21 New Jersey 22 Ohio 23 Massachusetts 24 New Hampshire 25 Mississippi 26 Vermont 27 Wisconsin 28 New York 29 Texas 30 Nebraska 31 Illinois 32 Minnesota 33 • Pennsylvania 34 • Alabama 35 • Indiana 36 • Missouri 37 • Iowa 38 • Maine 39 • Connecticut 40 • South Dakota 41 • Montana 42 • New Mexico 43 • Kansas 44 • Oklahoma 45 • Alaska 46 • Louisiana 47 • West Virginia 48 • Wyoming 49 • North Dakota 50

26. Texas Job Growth Year to April, 2016 (1.6%)

27. California Job Growth Year to April, 2016 (2.8%)

28. North Dakota Job Growth Year to April 2016 (-3.7%)

29. 2016 Themes National Expansion Should Continue Risks-Slow Growth/Shock –Carl Dietz Theory-Robert Shiller-”Basically, global recessions begin when newly popular narratives reduce individuals motivation to spend money. Psychology matters a great deal.” (May 1 NYT) Opening Weeks of 2016 Tightening Labor Markets Inflation Pick Up- As Transitory Events Pass-Energy Adjustments Tech Sector Strength Residential Markets Improving Implications of Overseas Events Gradual Rate Increases-Data Driven –Volatility Regions float on a global sea, buffeted by local tides and winds.

30. Before You Go To Sleep Is 2% Growth the New Normal? Will There Be A Policy Response? Will We Be Able to Enhance Mobility and Enable Potential To Be Realized? How Do Expansions End? How Long Do They Last? (Netherlands 26 Years, Australia 25 Years and Still Going, Economist 5/21) Prime Rate Formula