Mid-America and the Global Economy: Short and Long Term Challenges & Opportunities
Ernie Goss Ph.D.
Professor of Economics
MacAllister Chairholder
Creighton UniversityWeb: www.ernestgoss.com
Twitter.com/erniegoss
Web: www.outlook-economic.com
Minnesota Manufacturers Summit
2008-12Never has so much been done to achieve so little?
• Two stimulus bills ($1 trillion)
• Bailouts—GM, Bear Stearns, AIG, Fannie Mae, Freddie Mac, Chrysler, 19 Large Banks
• Interest rates: QE1, QE2, QE3,Operation Twist, Funds Rate = 0% - ¼%
• Cash for clunkers, appliances, caulking, windows, Green vehicles,
• Tax credit for first time home buyers
• Mortgage forgiveness & writedowns
Threats
Opportunities
• Opportunities–Record low interest rates (bond
market looking for quality issues)– International opportunities–Great bargains in real estate market –Cash is king–How can you take advantage of
uncertainty?
Housing/Construction
Source: Lodmell & Lodmell http://www.lodmell.com/protect-wealth/strategic-defaults-mortgages
Price changes, 2007-12
Why Build New?
New construction costs = 4 x existing
Case-Shiller home price index 2001- July 2012
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Year over year price change
E
End of federal tax credit
Debt
Federal spending as % of GDP, 1947-2012
Public debt as % of GDPThe 25% problem?
Agriculture
Monthly Survey of Rural Bank CEOs
• 10 states, 210 bank executives
• Released 3rd Thursday of each month
• Average community size = 1,300
• CO, IA, IL, KS, MN, MO, ND, NE, SD, WY
Rural Mainstreet Economy Jan. ‘08 – Oct. ‘12
Bullish on Agriculture/food: Long term
• Fast growth for emerging economies (China, India): Food & energy demand income elastic (e.g. income up 8%, food demand up 12%)
• Cheap value of dollar (makes U.S. food & energy more competitive abroad): U.S. trade deficit, budget deficit, higher inflation.
• Biofuels & alternative fuel production: wind farms, ethanol, solar.
ManufacturingThe Regional Economy:
Survey of Purchasing Managers
A Partnership Among Creighton and State Supply Managers Associations
U.S. & Mid-America PMI’s, 2007 – September 2012
Minnesota’ exports, 1999 vs 2011
1999 2011
Indicators to Watch (next month)
• Case-Shiller home index for August• Trade weighted value of dollar• Sovereign bond default (PIIGS)• Yield on the 10-Year U.S. Treasury
Bond• Retail sales (Nov. 14) • GDP (Oct. 26)• PMIs (Nov. 1)• Employment report (Nov. 2)
Economic Medicine
• Look internationally for sales & investment• Need fundamental tax reform—flatter & fairer• Simpson/Bowles tax/spending plan• Shorten period of UI benefits• Commitment to reducing federal spending• Keep 2001 & 2003 tax cuts for all until
spending cuts• Reduce barriers to trade• Must convert pensions to defined contribution
plans for public employees• Encourage repatriation of U.S. earnings
