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Pace 2014 Presentation

Pace 2014 Presentation. Economic Overview. John Slavic . The PEOPayroll Employment Index. The Slavic PEOPayroll Employment Index . 2014. 2013. 2012. 2009. 2010. 2011. 2008. The Slavic PEOPayroll Employment Index . PEO Index GDP. 2013. 2014. 2009. 2008. 2012.

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Pace 2014 Presentation

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  1. Pace 2014 Presentation Economic Overview John Slavic

  2. The PEO\Payroll Employment Index

  3. The Slavic PEO\Payroll • Employment Index 2014 2013 2012 2009 2010 2011 2008

  4. The Slavic PEO\Payroll Employment Index PEO Index GDP 2013 2014 2009 2008 2012 2010 2011

  5. The Slavic PEO\Payroll Employment Index 2013 2014 2009 2008 2012 2010 2011

  6. The Slavic PEO\Payroll Employment Index 2013 2014 2009 2008 2012 2010 2011

  7. EconomicOverview

  8. Economic Overview Most reliable indicator of future economic activity Dow Jones 5-Year Chart

  9. Economic Overview

  10. Economic Overview Lending Standards Relaxing

  11. Economic Overview Four Key Indicators (Weather Affected) Point to Continued Strength

  12. Most Monetary Indicators Are Positive

  13. Most Monetary Indicators Are Positive Bank lending is at a healthy rate. - Business investment growth is accelerating.

  14. Most Monetary Indicators Are Positive The Fed's current policy of buying $55B per month has continued to climb to $4T by the end of April.

  15. Most Monetary Indicators Are Positive The strength of the economy, apart from housing, is coming from increased commercial demand combined with relaxed lending standards. - Other forms of more costly financing are diminishing as bank lending is increasing.

  16. Strengthening Economy Is Still Percolating

  17. Strengthening Economy Is Still Percolating • US Philly Fed indicates strength following the harsh winter conditions. • - shipments index +22.7% from 5.7% • - new orders +14.8% from 5.7% • - employment index +6.9% from 1.7% • - work week +5.0 from 3.1% • The Philly Fed report is consistent with most other national reports.

  18. Strengthening Economy Is Still Percolating • First Quarter GDP increased at an annual rate of 1.7%; second quarter could be as strong as 3.5%. • We might finally break out of the five-year funk, with projected growth of: • 2.8% in 2014 • 3.0% in 2015

  19. Strengthening Economy Is Still Percolating Manufacturing output strengthens in March reflecting some pent-up demand from the winter weather slowdown. Manufacturing output strengthens in March reflecting some pent-up demand from the winter weather slowdown.

  20. Strengthening Economy Is Still Percolating Inflation is beginning to pick-up; soon to be above 2%.

  21. Strengthening Economy Is Still Percolating Retail sales rebound sharply (70% of all economic activity is directly related to the consumer).

  22. Productivity in America

  23. Productivity in America Productivity has declined across all sectors of the economy. Productivity growth in America surged in response to the IT revolution in the 80s and 90s. IT peaked in 2005 at 3.1% but has leveled out at 1.6% in the last few years.

  24. Productivity in America Software improvements have grown, but hardware development has declined. In the 1960s and 1970s chip speeds doubled every two years, however, now it is stagnating.

  25. Productivity in America The aging population has a very negative impact on productivity. Generational differences account for some of the decline.

  26. Productivity in America Innovation as measured by patents and trademarks has increased to record levels at $255B annually. Research & Development Have Rebounded

  27. Productivity in America New firm formation continues its long-term trend lower.

  28. Productivity in America Productivity Conclusion The slowdown in productivity is principally due to the fading effects of the IT revolution and the aging population. Likely, productivity will level-out at .6%, requiring additional skilled labor to fill the gap. If R&D pays-off unexpectedly, it could be a positive disrupter.

  29. Labor Dynamics

  30. Labor Dynamics The unemployment rate has fallen from 10% in late 2009 to 6.6% only marginally above the Fed's 6.5% threshold.

  31. Labor Dynamics The participation rate has also fallen consistently since 2000 hitting a 35-year low.

  32. Labor Dynamics The aging population has a negative structural impact on the participation rate, dropping by more than 900,000 in the next four years.

  33. Labor Dynamics Prime-age workers are also cyclically declining as they are ill-adapted to the changing economy and have had the moral-hazard of protracted Federal entitlements.

  34. Labor Dynamics The low participation rate trend is removing "slack" from the labor markets likely prompting wage inflation soon. Here are eight reasons why:

  35. Labor Dynamics

  36. Labor Dynamics

  37. Labor Dynamics

  38. The Positive Long-Range View

  39. The Positive Long-Range View The energy revolution in the US is fundamentally changing the economy. By 2020 it is projected that the US will be energy self-sufficient. This will be achieved by the combination of expansive new oil and gas production and energy conservation and efficiency. Source: Bloomberg

  40. The Positive Long-Range View International demand, especially from developing countries, will keep oil prices at $100 per barrel despite the new supplies being produced domestically. The US is now very close to being a net exporter of natural gas and the world's largest untapped reserves.

  41. The Positive Long-Range View By 2020 GDP could increase as much as 2% to 3% based on energy calculations alone; thereby creating 2.7 million new jobs. 515,000 will be manufacturing where businesses are structurally re-aligned based on this energy paradigm.

  42. The Positive Long-Range View 60% of the current trade deficit comprises energy imports. By 2020 the trade deficit could be substantially reduced and the US dollar could substantially appreciate against other currencies.

  43. The Positive Long-Range View By 2020 Europe's demand for natural gas will increase by 65%. Most of Germany's manufacturing relies on natural gas. German Mercedes Benz production is 100% run on LNG. This makes the Ukrainian crisis very complex, as nearly all of Europe's LNG is imported via that country.

  44. The Negative Long-Range View

  45. The Negative Long-Range View April 2014 marks the centennial of World War II. Events in eastern Europe sparked the start of the war, which was largely unexpected by the rest of the world. The Russian invasion of Crimea and the ensuing Ukrainian crisis could be the start of a protracted conflict with Russia. Newt Gingrich's podcast on Putin's Chess game explains the history and high stakes game presented by the determined leader - Putin.

  46. The Negative Long-Range View The debt issue could reach a tipping point as wage inflation resumes and interest rates begin to rise back to historically normal levels such as 4% to 5%. US debt service at 5% interest rates, would require all of last year's tax revenue just to pay the interest. If the economy can grow at +4%, then tax revenues would be sufficient to survive, but short of that, we will enter another financial crisis far more powerful than was prompted by housing.

  47. Thank you

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