2014 economic forecast: year of the rebound? mccombs school of business

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The U.S. economy is improving at a modest but positive pace, and business experts expect that trend to continue into next year and beyond. This was a theme echoed by several speakers Oct. 3 at a McCombs event called “The Economy in 2014: The Year of the Rebound?” See the summary and video: The U.S. economy is improving at a modest but positive pace, and business experts expect that trend to continue into next year and beyond. This was a theme echoed by several speakers Oct. 3 at a McCombs event called “The Economy in 2014: The Year of the Rebound?” - See the summary and video: http://www.texasenterprise.utexas.edu/2013/10/17/finance/2014-year-rebound Highlights Jay Hartzell, professor of finance, University of Texas at Austin McCombs School of Business “There are roughly three ways to get out of the debt problem: You grow your way out, you tax your way out, or you print money,” Hartzell said. “The growth forecast is not very strong for the next few years. It’s not clear we have the political will to tax our way out of it. So that leaves inflation, which many people have concerns about.” Tyson Tuttle, CEO of Silicon Labs Tuttle said a surge in investment in connected smart devices is driving a transformation of the tech industry. He expects low-cost, low-power devices to enable home and industrial automation, development of efficient smart grid and mobile technologies, and the advent of “big data.” “All of this is going to be enabled by new types of devices, chips and applications that people haven’t even thought of before."“This is going to create a lot of opportunities for startups, software creators, infrastructure providers, and certainly in our world.” Daniel Nelson, CEO and founder of Datical “By the end of 2014, there will be a glut of failed startups — and this is a really good thing, because they’re supposed to fail. The real question is, after those startups fail, what do those founders do?” Nelson said. “The virtuous cycle of entrepreneurism starts with failure. It starts with failing, learning, and trying again — and then failing, learning, and trying again. Dennis McWilliams, CEO and founder of Apollo Endosurgery “No other state, even California and New York, can compare to the resources we have in Texas for early-stage investment in new technologies,” McWilliams said. “We really are becoming a global economy of healthcare, and innovation that’s happening here in Texas is moving around the world.”

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Page 1: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business
Page 2: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Economic Outlook 2014

Jay C. Hartzell Chair, Department of Finance, McCombs School of Business

The University of Texas at Austin

Page 3: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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

Page 4: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Real Gross Domestic Product §  Definition §  Historic average annual rate of growth

§  ~ 3.0%

§  Median forecasts (annual rate of growth) 2013 2.2% 2014 2.3% 2015 2.7% 2016 2.9%

§  Risk of negative quarter (probability) 2013: Q3 10.5% 2013: Q4 11.2% 2014: Q1 11.7% 2014: Q2 11.5% 2014: Q3 11.8%

Page 5: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Unemployment & Workforce Participation §  Unemployment (natural rate ~ 6.0%)

2013 7.5% (~12.5 million) 2014  7.1% 2015  6.6% 2016  6.1%

§  Under-employed (BLS “Alternatives”) § ~ 12%-18%

§  Workforce Participation Rate 2000 67.3% (143 million) 2008 66.3% (154 million) 2013 63.2% (155 million)

§  Okun’s Law § ~ 3.0% Real GDP Growth to reduce unemployment

Page 6: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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

Page 7: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Inflation (Consumer Price Index) §  Definition §  Historical average (annual rate)

§  ~ 4.0%

§  Median forecasts (annual rate)

§  Long-term forecasts (annual rate)

§  Comments of Fed on controlling inflation §  Managing liquidity (e.g., bank and non-bank reserves) §  Commitment to inflation

Headline CPI Core CPI 2013 1.4% 1.8%

2014 2.0% 2.0%

2015 2.3% 2.1%

Headline CPI 2012-2016 2.0%

2012-2021 2.0%

Page 8: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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

Page 9: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Latest Fed Forecasts

Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, September 2013

Embargoed for release at 2:00 p.m., EDT, September 18, 2013

Advance release of table 1 of the Summary of Economic Projections to be released with the FOMC minutes

Percent

VariableCentral tendency1 Range2

2013 2014 2015 2016 Longer run 2013 2014 2015 2016 Longer run

Change in real GDP . . . . . 2.0 to 2.3 2.9 to 3.1 3.0 to 3.5 2.5 to 3.3 2.2 to 2.5 1.8 to 2.4 2.2 to 3.3 2.2 to 3.7 2.2 to 3.5 2.1 to 2.5June projection . . . . . . 2.3 to 2.6 3.0 to 3.5 2.9 to 3.6 n.a. 2.3 to 2.5 2.0 to 2.6 2.2 to 3.6 2.3 to 3.8 n.a. 2.0 to 3.0

Unemployment rate. . . . . . 7.1 to 7.3 6.4 to 6.8 5.9 to 6.2 5.4 to 5.9 5.2 to 5.8 6.9 to 7.3 6.2 to 6.9 5.3 to 6.3 5.2 to 6.0 5.2 to 6.0

June projection . . . . . . 7.2 to 7.3 6.5 to 6.8 5.8 to 6.2 n.a. 5.2 to 6.0 6.9 to 7.5 6.2 to 6.9 5.7 to 6.4 n.a. 5.0 to 6.0

PCE inflation. . . . . . . . . . . . 1.1 to 1.2 1.3 to 1.8 1.6 to 2.0 1.7 to 2.0 2.0 1.0 to 1.3 1.2 to 2.0 1.4 to 2.3 1.5 to 2.3 2.0

June projection . . . . . . 0.8 to 1.2 1.4 to 2.0 1.6 to 2.0 n.a. 2.0 0.8 to 1.5 1.4 to 2.0 1.6 to 2.3 n.a. 2.0

Core PCE inflation3 . . . . . 1.2 to 1.3 1.5 to 1.7 1.7 to 2.0 1.9 to 2.0 1.2 to 1.4 1.4 to 2.0 1.6 to 2.3 1.7 to 2.3

June projection . . . . . . 1.2 to 1.3 1.5 to 1.8 1.7 to 2.0 n.a. 1.1 to 1.5 1.5 to 2.0 1.7 to 2.3 n.a.

Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are from the fourth quarter of the previous year tothe fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumptionexpenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in thefourth quarter of the year indicated. Each participant’s projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent eachparticipant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to theeconomy. The June projections were made in conjunction with the meeting of the Federal Open Market Committee on June 18–19, 2013.1. The central tendency excludes the three highest and three lowest projections for each variable in each year.2. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.3. Longer-run projections for core PCE inflation are not collected.

Page 10: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

US Economic Policy Uncertainty Index

Page 11: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

US Economic Policy Uncertainty Index 9/20/13 11:09 AMEconomic Policy Uncertainty Index

Page 1 of 1http://www.policyuncertainty.com/index.html

Zoom

Monthly US Economic Policy Uncertainty Index

Sep '12 Nov '12 Jan '13 Mar '13 May '13 Jul '13

100

150

200

75

125

175

1990 2000 2010

1m 3m 6m YTD 1y All

Highcharts.com

Page 12: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Fed Policy: Growth and Inflation Forecasts Figure 1. Central tendencies and ranges of economic projections, 2013–16 and over the longer run

Change in real GDP

Percent

3

2

1

0

1

2

3

4

5

-

+

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

Central tendency of projectionsRange of projections

Actual

Unemployment rate

Percent

5

6

7

8

9

10

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

PCE inflation

Percent

0

1

2

3

4

5

-

+

2008 2009 2010 2011 2012 2013 2014 2015 2016 Longerrun

Note: Definitions of variables are in the general note to the projections table. The data for the actual values ofthe variables are annual.

Figure 2. Overview of FOMC participants’ assessments of appropriate monetary policy

3

12

2

Appropriate timing of policy firming

Number of participants

1

2

3

4

5

6

7

8

9

10

11

12

2014 2015 2016

Appropriate pace of policy firming Percent

Target federal funds rate at year-end

0

1

2

3

4

5

6

2013 2014 2015 2016 Longer run

Note: In the upper panel, the height of each bar denotes the number of FOMC participants who judge that, underappropriate monetary policy, the first increase in the target federal funds rate from its current range of 0 to 1/4 percentwill occur in the specified calendar year. In June 2013, the numbers of FOMC participants who judged that the firstincrease in the target federal funds rate would occur in 2013, 2014, 2015, and 2016 were, respectively, 1, 3, 14, and 1.In the lower panel, each shaded circle indicates the value (rounded to the nearest 1/4 percentage point) of an individualparticipant’s judgment of the appropriate level of the target federal funds rate at the end of the specified calendar yearor over the longer run.

Page 13: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

www.silabs.com

How the Internet of Things Is Transforming Our Economy

Tyson Tuttle, CEO, Silicon Labs October 3, 2013

Page 14: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

14

Silicon Labs Background

Ø Austin’s largest home-grown semiconductor company §  Founded in 1996; Public since 2000 (NASDAQ: SLAB) §  Strong track record of diversification, revenue growth and profitability §  Fabless model with >1,000 employees and 10 R&D locations worldwide

Ø  Focused on mixed-signal innovation §  Broad portfolio addressing consumer, industrial and communications markets §  Serve >10,000 customers with >5 billion devices shipped §  >1,300 patents issued or pending

Page 15: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

15

Key Industry Trends

Drive  to  improve  energy  efficiency  and  

reduce  power  consump5on  creates  new  markets  for  mixed-­‐signal  ICs    

 

Green Technology

The  connec5on  of    low-­‐cost,  low-­‐power  devices  to  enable  

home  and  industrial  automa5on,  smart  grid  and  more  

Internet of Things

Demand  for  data  drives  infrastructure  

investment  in  telecommunica5ons,  cloud  compu5ng  and  wireless  infrastructure  

Bandwidth Expansion

Page 16: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

16

More Connected Devices Than People

Source: Silicon Labs, Thomson Reuters, Morgan Stanley

Page 17: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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The Internet of Things Is a Game Changer

Connected Home

Lighting Control

Smart Grid

Building Automation

Health Fitness

Safety Security

Smart Devices

Broad range of technologies and applications creates opportunities for new products and entrants

Page 18: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Convergence of Technologies Multiple technologies converging simultaneously – all enabled by semiconductors and software –

Massive data centers for cloud computing

Mobile computing and connected devices

Internet of Things

+

Page 19: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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The Internet of Things Is Here Today

Ø Availability of low-cost, integrated end devices §  Embedded processors and microcontrollers (ARM) §  Wireless connectivity (Wi-Fi, Bluetooth, ZigBee) §  Sensors and actuators §  Long battery life or energy harvesting

Ø Big Data / Analytics + Internet of Things §  Increased asset utilization §  Improved energy efficiency and reduced

environmental impact §  Increased employee productivity §  Elimination of waste in supply chain and logistics §  Improved customer experience §  Reduced time to market across all industries

Ø Economic impact across all industries estimated to be $14.4 trillion over the next decade (Source: Cisco)

Page 20: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

www.silabs.com

Thank You

www.silabs.com

Page 21: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Austin Start-Up Forecast 2014 October 3, 2013

Page 22: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Austin Start-Up Forecast

"   Austin Start Up Demographics

"   Local Investment Environment

"   Talent Pool

"   2014 Forecast

Page 23: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Austin Start-up Demographics

"   It’s getting bigger…fast •  But we are still pretty small, comparatively

"  More start-ups •  More resources

-  Incubators, UT programs, Angel & VC •  More talent

-  Home grown and transplants •  Cultural shift

-  Entrepreneurism more part of the local ethos

"   Founders are tending to be: •  Less experienced •  Focused on solving market problems rather than “hard” business

problems (except Big Data).

Page 24: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Local Investment Environment

"  More firms doing deals •  But smaller size funds •  Both local and outside Austin

"  More angels •  And more sophisticated, networked, and organized and funded

"   Smaller deal sizes •  More “activity” •  More shut downs •  Higher expectations

Page 25: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

Talent

"   Austin has great engineers •  Which is why Google, Apple, IBM, Facebook, BMC, HP, etc., all

opened offices here

"   Small companies have to be competitive on wages and benefits •  And differentiate on environment, responsibility, excitement and

upside

"  More startups then there are good managers •  Founders vs Operators

"   Certain specialties are very hard to find: •  Mobile, UIX, Data Analytics/Scientist

Page 26: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

2014 Start Up Forecast

"   Talent “crunch” will hurt growth

"  More deals, but increasingly small in size •  Venture investment will remain the same or decline slightly •  More “micro-VC” and angel deals

"   By the end of 2014 there will be a glut of failed start-ups •  Big Question: Do those founders leave town or start fresh?

Page 27: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

apolloendosurgery

Life  Science  LiCoff  In  Texas  

 Dennis  McWilliams  CEO  /  Founder  Apollo  Endosurgery  

Page 28: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Healthcare  Innova4on  Ma5ers  

Page 29: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Health  Care  Spend  as  %  of  GDP  

17.7%

8.9%

11.3%

9.6%

6.3%

5.8%

11.7% 11.4%

3.9%

9.6%

Page 30: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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For  notes  only  on  previous  slide  

Country  Name   Avg  United  States   17.7  France   11.7  Germany   11.4  Spain   9.6  Sweden   9.6  Brazil   8.9  Swaziland   8.2  Russian  Federa5on   6.3  Nigeria   5.8  China   5.1  India   3.9  

For  notes  only  on  previous  slide:  Healthcare  spend  as  %  of  GDP  (Avg  2009-­‐2012)  

Page 32: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Life  Science  Impact  in  Texas  

$75  Billion  es5mated  economic  impact  of  biotech  

in  Texas  (2009)  

89,000+  Number  of  biotech  workers  in  Texas  

#2  in  Clinical  Trials  in  the  US  

 

Page 33: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Public  Investment  

Venture          Capital    

Industry  Investment  

Page 34: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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$2.6  Billion  invested  by  Texas  Public  Ins3tu3ons  in  life  science  R&D  

Ins4tu4on   Total  R&D  (Millions)  

Univ.  of  Texas  (UT)  M.D.  Anderson  Cancer       $528.1  

Baylor  College  of  Medicine-­‐Houston       $450.6  

UT  Southwestern  Medical  Center   $389.0  

UT  Health  Science  Center  at  Houston       $226.7  

Texas  A&M  University       $189.3  

UT  Health  Science  Center  at  San  Antonio       $163.8  

UT  Medical  Branch  (UTMB)  at  Galveston       $139.4  

The  University  of  Texas  at  Aus5n       $82.5  

Texas  A&M  Health  Science  Center       $77.5  

Texas  Tech  University  Health  Science  Ctr.       $60.6  

Total   $2,361.4  

Top  Ten  Texas  Ins4tu4ons  for  Biomedical  R&D    FY  2012  Expenditures  

Source:  Texas  Higher  Educa3on  Coordina3ng  Board    

Page 35: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Number  of  Biotechnology-­‐Related  Degrees  Awarded,  2009-­‐2012  All  Texas  Public  Universi5es,  All  Degree  Levels  

Biological  and  Biomedical  Sciences     26,084  

Healthcare  Professionals  and  Technicians    

14,413  

Plant  and  Agricultural  Sciences     6,842  

Animal  Sciences     3,318  

Total   50,657  

Source:  Texas  Higher  Educa3on  Coordina3ng  Board    

Page 36: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Life  Science  Investment  in  Aus4n  Economy  

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Public  Investment  in  Healthcare  Innova4on  

Texas  Enterprise  

Fund  

$3B  $98.1M  $277.9M  

Page 39: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Venture  Investment  in  Innova4on  

$1.4  billion  invested  by  VC  firms  

(2007-­‐2012)  in  Texas  biotech  &  medical  device  

Peripheral  stents  

Heart  valves  

Less  invasive  AV  fistulas  

Cancer  Therapies  

Page 40: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Apollo  Endo-­‐  Impor5ng  Technology…  

Page 41: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Endoscopy   Laparoscopy  Endoscopic  Surgery  

Page 42: 2014 Economic Forecast: Year of the Rebound? McCombs School of Business

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Global  innova5on  chain