The Next Decade:What Washington Bankers Should Do

TODAY to Prepare for Tomorrow

Dr. Bill Conerly

for

Community Bankers of Washington

September 15, 2017

Issues for the Next Decade

•Current Outlook

• Economic environment

• Taxes

• Labor Force

•Real estate & autonomous cars

• Your grandchildren’s lives

Long-run Average

0

1

2

3

4

2014 2015 2016 2017 2018 2019

% c

han

ge

GDP ForecastInflation Adjusted

10-year Treasury

Fed Funds

0

1

2

3

4

2014 2015 2016 2017 2018 2019

perc

en

tInterest Rate Forecast

0

1

2

3

4

2014 2015 2016 2017 2018 2019

% c

han

ge

Washington Job Growth

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-10

-5

0

5

10

15

1950 1960 1970 1980 1990 2000 2010

% c

han

ge

Economic CyclesGDP growth adjusted for inflation

Shaded areas

denote recessions.

0

1

2

3

4

5

6

7

1950 1960 1970 1980 1990 2000 2010

40-q

ua

rter

roll

ing

sta

nd

ard

devia

tio

nCyclicality of Economy

Standard deviation of % change

The Great

Moderation

Washington Cyclicality

• Wood Products

• Boeing

• Tech ?

Retail sales

Advertising

Business productivity

How to Manage in a

More Cyclical Economy

• More tuned in to customers

• More capital

• Big projects fast & modular

• Shift to less cyclical sectors

0

10

20

30

40

50

60

70

80

90

1980 1985 1990 1995 2000 2005 2010 2015 2020est

perc

en

tFederal Debt

% GDPWhite House

projections

Social Security

Medicare

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

1970 1990 2010 2030 2050 2070

% o

f ta

xab

le p

ayro

llEntitlement Deficits

Washington Issues

• Public Pensions: Unfunded liabilities

= $103 billion (28% personal income)

•Other benefits: Unfunded liabilities =

$11billion (3% personal income)

• Seattle: $3.2 billion pension deficit

0

1

2

3

4

5

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

mil

lio

ns

US Births

Baby

Boomers Millennials

0

2

4

6

8

10

12

2000 2005 2010 2015 2020 2025

mil

lio

ns

Population Change Ages 25-645-year increments

0

50

100

150

200

250

300

350

2000 2005 2010 2015 2020 2025

10

00

sWash. Pop Change Ages 25-64

5-year increments

Strategies for Tight Labor

• Retain good workers

• Keep seniors working longer

• Look for the overlooked:

Immigrants, handicapped, rural

• Technology for productivity

Labor

Computers

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

2014 2015 2016 2017

ind

exed

to

2014=

1Cost Trends

Seattle Surface Parking Lots

Marysville Surface Parking Lots

Real Estate Implications of

Self-Driving Cars

• Urban real estate prices fall

• Low-value space in existing

underground garages

• Transit-oriented development dies

• Easier commutes = higher

demand for suburban living

200

300

400

500

600

700

1996 2006 2016

per

10

0,0

00

in

hab

ita

nts

Violent Crime Rate

-100

-80

-60

-40

-20

0

20

40

60

80

1990 1995 2000 2005 2010 2015

% a

bo

ve

/belo

w n

ati

on

al

sta

nd

ard

National Air Quality Concentration Averages

CO (8-hour)

NO2 (annual)

NO2 (1-hour)

O3 (8 hour)

PM2.5 (annual)

PM2.5 (24-hour)

PM10 (24-hour)

SO2 (1-hour)

0.5

1.0

1.5

2.0

2.5

3.0

1950 1960 1970 1980 1990 2000 2010

ind

ex:

1950=

1.0

U.S. Agricultural Productivity

1.9

0.8

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1990 2000 2010

bil

lio

ns

World Poverty<$1.90 / day

Questions?

Bill @ ConerlyConsulting.com

one “n”