economic trends 2.0-05.21.2020-combined master deck-v6 · 2020. 5. 21. · michael knetter ph.d....
TRANSCRIPT
Webinar Title
Dan MeyerPublisher/OwnerBizTimes Media
Welcome to Economic Trends 2.0
Our Sponsor
Corey Davis, CTPSVP, Team Lead | Commercial Banking – Madison
Associated Bank
Our Presenters
Michael Knetter Ph.D.Economist, President & CEO
University of Wisconsin Foundation
John KissingerPresident & CEOGRAEF-USA Inc.
Jack SalzwedelCEO
American Family Insurance
Austin RamirezPresident & CEO
Husco International
Michael M. KnetterPresident and CEO Wisconsin Foundation and Alumni Association
Special thanks to colleagues Ananth Seshadri and Noah WilliamsCenter for Research on the Wisconsin Economy, UW-Madison
Economic Trends 2020 Goes Viral
Agenda
• Original 2020 Forecast• The Pandemic Addendum: May 21, 2020• Longer Term Challenges
The Year Ahead
2020: The BEST Expansion Rolls On
• Easy money is back … worldwide• A business-oriented President with laser focus on economy, markets• Light-touch regulation• Impact of corporate and personal tax cuts• Low unemployment, growing participation• Household wealth and consumer confidence• No sign of overheating
Real GDP Growth: Remarkably Steady
EHGDUSY Index (US Real GDP (Annual YoY%)) Bloomberg
Unemployment Rate: Lower than Ever
USURTOT Index (U-3 US Unemployment Rate Total in Labor Force Seasonally Adjusted) Bloomberg
S&P and MSCI Indexes: America’s Decade
SP Index (S&P 500 Index)MXWO (MSCI World Index)
Bloomberg
2020 Forecast• S&P 500: 0% (up and then down)• Real GDP growth: 1.7%• Unemployment: 3.8% at year-end• Labor Force Participation: Stable • Wage growth: 3.5%• Inflation: 2.5%• Nearing capacity, price pressures increase, growth slows, and the market cools.
The urgency to push economy eases as we approach November.
What Kept Me Up at Night Pre-Virus• Global environment. • Globally coordinated Quantitative Easing (QE) could hand unpayable bills to
future generations.• Large deficit and debt/GDP with so many unmet public infrastructure needs.• Disruption of the post–WWII international order. If alliances dissolve, uncertainty
will rise.• Erosion of trust in institutions and leaders (Edelman survey).
2020 Forecast: Viral Update• Public health actions to contain virus will cause a severe recession due to several
negative shocks:• Supply: labor force and consumers restricted from participation • Demand: employment falls, incomes cushioned by policy• Uncertainty: planning is more difficult and societal divisions grow due to
competing views of severity of virus • The fiscal and monetary policy responses have delivered massive personal
income and market support relative to 2008-10• Persistence of virus and associated uncertainty mean the recovery will be much
slower than the contraction
Source: Chetty, Friedman, Hendren, Stepner, and the OI Team (2020)
US: Consumption -20%; Groceries +19%
Total activity down 52% in April, hotels & restaurants 60%. GDP loss ~30%.
Source: SafeGraph
Wisconsin: Foot Traffic by Sector
Source: Cajner et al. 2020
US: Employment change by firm size (Feb-Apr)
Wisconsin: Estimated Unemployment Rate
Consumer Spend Amazon and Walmart
Fiscal Response: CARES Act: $2 T
• Cash payment ($290 B): $1200 lump sum for individuals• Extra unemployment benefit ($260 B): $600 weekly• PPP: Emergency grants and a forgivable loan program for companies
with 500 or fewer employees: $350 B• $500 B in loans for big corporations, include $58 B for airlines
Monetary Response
• Extraordinary rate cuts and asset purchases (Powell: “There is no limit to what the Fed can do”)• $4 trillion in loans for businesses, states and local governments• Incredible expansion of the Federal Reserve’s purview, in helping
firms and governments at risk of defaulting• Fed can ensure liquidity but not solvency
2020 Forecast: Viral Update
• Real GDP growth: -6% year on year with steep decline in Q2• Unemployment: 10% at year-end but peaking over 25% in between• Inflation: 0%, with huge variation in relative prices by product or service• S&P 500: 0% “In the land of the blind, a one-eyed man is King”. U.S. tech may
have become a safe haven due to our ability to adapt to pandemic. I believe the market will end the year close to where it started.
Severe Temporary Disruption Scenario
• We will have a slow reboot over the summer and operate in a new normal in fall assuming no major reversal to lockdowns.
• My math: I’m guessing our “lockdown” will be close to losing a month of GDP, about 8% drop
• Some of that could be recouped if there is a rapid reboot but certainly not all (travel, lodging, etc.).
Severe Temporary Disruption Scenario
• Financial market volatility is understandable given uncertainty about the virus, treatments, and the policy response.
• I expect the bottom is in on the S&P 500 and that thanks to the Fed and the desirability of US tech we will close the year close to where we began
• Active investment management may finally outperform passive due to big shifts across sectors.
Undesirable Consequences of Policy
• The Fed Bazooka. • If QE is so good, why wait for recessions? • Who benefits most from QE? HNW risk takers• What will we be able to buy when we cash in our retirement savings? The
mother of all inflations• Unemployment insurance booster: The firms we are keeping alive will not be able
to outbid unemployment payments to get their workers back now• Free money. And no place to shop but Amazon.• PPP. Good luck with the audit!• Sanders’ Revenge: The overhang of Federal debt and deficits papered over by the
Fed. We are essentially witnessing the Modern Monetary Theory he was ridiculed for believing
We estimate 20% in reduction in activity (4 of 20 pct pts) due to the order
Impact of the Wisconsin Safer-at-Home Order
Silver Linings
• Remote work arrangements will persist, which will boost productivity and efficiency.
• Remote education business will thrive and consumers will want the savings from that.
• Telemedicine will become commonplace.• We will value science and community more than ever before.
Conclusion
• The U.S. economy will go through the sharpest contraction in modern history over six months.
• The U.S. will fare better than most of the world but recovery will be slow.• Fiscal and monetary policies help in the short term but will be a drag on growth
for decades to come.• The supply side of the economy may benefit from innovation that results from
the crisis in spite of the human toll that seems inevitable.
Presented byJohn KissingerGRAEF-USA Inc.
When we Were last Together
in January
•2020 Trend Line Very Favorable• Three “Big Trends”
• Climate Change• Aging and Deteriorating
Infrastructure• Labor Shortage as Limiting
Factor to Success
What happened
since then…so long ago?
•COVID-19 Shuts Down World Economy•US Economy Rocked
• 15% Unemployment and HeadingHigher
• Huge Drop Forecast in Q2 GDP After 4.8% Q1 Drop
• 11-Year Bull Market Comes Crashing Down, with A Partial Recovery After
• Congress Passes $3 Trillion plus inRelief Packages, with PotentiallyMore to Come
How Does All This Change Affect These Big Picture
Trends?
• Climate Change• Hit “Pause Button”• Some Small Relief as Driving and Industrial
Output Drop Dramatically• Still a Generational or Longer Challenge and a
Good Long-Term Investment for A Business
How Does All This Change Affect These Big Picture
Trends?• Aging and Deteriorated Infrastructure
• Opportunity To Invest with a Federal Infrastructure Stimulus Package (Never Waste a Good Crisis)• If No Federal Help, It Is Likely to Get Much Worse
• Falling Gas Tax, Sales Tax and Income Tax receipts crush State and Local Governments and Agencies
How Does All This Change Affect These Big Picture
Trends?
• Labor Shortage• With 35 M Unemployed, Do We Have a Labor Shortage?• Previous Labor Shortage Driven by Demographics and Long-
Term Educational Issues• Companies That Come Out of This With Strong labor Force
Will be Winners
Trends/Forecast
• Climate Change Issues Will Need Attention No Matter When/How This Ends and For a Long time After
• Infrastructure is Binary – Will Either Make the Investment Now Or It Will Deteriorate at an Increasing Pace. All Depends on Federal Government
• To Emerge at Maximum Strength, Most Firms Should Keep the Good Labor They Have and Pick Up More if They Can Possibly Afford It
Presented byAustin Ramirez, Husco International
Presented byJack SalzwedelAmerican Family Insurance
REMOTE WORK
TRACKING MILES DRIVEN (AND OTHER CONSUMER BEHAVIOR CHANGES)
AUTO INSURANCEPREMIUM RELIEF PAYMENT
Pandemic Team
Deployed
Auto Relief Discussions
Begin
Daily Pandemic Team Mtgs
Weekly Huddles,
Board Mtgs
Virtual, Remote
Full Remote Work
$6.8M COVID charity
Premium Relief
Approved
1st Insurer w/premium
relief
Auto Relief Discussions
Begin
Major Summer Events
Cancelled
Premium Relief
DistributedReNoTeams Active
AMERICAN FAMILY COVID TIMELINE – 2020
May Board Retreat
February March April May
SAMPLE AGENDA – BOARD, ENTERPRISE HUDDLE
THE OLDNORMAL
THE NEWNORMAL
THECURRENT
• 75% of workforce in office setting• Are remote workers
productive? • On-boarding in person• Culture builds when we
are together• Innovation and creativity
happens in the office• Hiring obstacles
• 98% of workforce remote • 84% of employees felt
productive• 62% reported feeling/doing well• Life/work balance and
well-being • Risk aversion and
physical safety • Sudden availability of
new talent
RE-IMAGINE NORMAL: PEOPLE
System wide collapse of economic activity. Massive government support to stabilize downturn. Business destruction and defaults.
Partial opening of economy but activity remains well below pre-crisis level.
Activity drops. but not to previous lows as activity retrenches. Further business destruction, defaults. Second round of government programs.
Gradual buildup of activity as business are rebuilt, businesses make adjustments and social distancing is replaced by “back to normal.” Full normalization doesn’t occur until vaccine distributed.
Virus cases rise, health care taxed, supply shortages.
Virus cases level off and decline, system gets some relief.
Virus cases begin to rise as second wave arrives, but more limited.
Virus cases to level off and decline again and keep doing so.
Vaccine distributed and virus threat reduced to flu level.
Scramble to meet surge in cases.
Development of convalescent plasma, antibody testing, off-label adjuvant treatments, mass production of supplies.
Previous developments improve throughput of curve and amplitude of curve.
Vaccination moving through test phases.
Vaccine in production.
GDP
THE SHAPE OF THINGS TO COME
BELIEFS THAT WILL IMPACT OUR STRATEGY1) Businesses will TRANSITION to
more technologically oriented workforces
2) More companies will engage in SOCIAL JUSTICE efforts and EMPLOYEE ACTIVISM will grow
3) Climate change is a TODAY issue
4) Cyber risk is one of our TOP business risks
5) Marketing will SHIFT
1) Businesses will TRANSITION to more technologically oriented workforces
2) More companies will engage in SOCIAL JUSTICE efforts and EMPLOYEE ACTIVISM will grow
3) Climate change is a TODAY issue
4) Cyber risk is one of our TOP business risks
Pandemic-Related Cyber Risk1. Loss of visibility for devices off network2. Potential for illness
within IT workforce3. Third parties ability to join and disrupt
meetings4. Multi-factor authentication needed for all
users5. Potential for disruption due
to attacks on suppliers6. Increase in malware
5) Marketing will SHIFT
Q&A
Michael Knetter Ph.D.Economist, President & CEO
University of Wisconsin Foundation
John KissingerPresident & CEOGRAEF-USA Inc.
Jack SalzwedelCEO
American Family Insurance
Austin RamirezPresident & CEO
Husco International
Andrew WeilandModerator
EditorBizTimes Media
Presented by
Our Sponsor
Thank You to our Presenters
Michael Knetter Ph.D.Economist, President & CEO
University of Wisconsin Foundation
John KissingerPresident & CEOGRAEF-USA Inc.
Jack SalzwedelCEO
American Family Insurance
Austin RamirezPresident & CEO
Husco International