dr. yandle's quarterly economic update: march 2012

Getting off the Ground The Incredible Boom Why Not Here? The Nation Regions Outlook

Bruce Yandleyandle@bellsouth.net

Mercatus Capitol Hill CampusMarch 15, 2012

The Coming Global Boom

• In 2011, world GDP stood at $71 trillion dollars. • If over the next 30 years, real GDP grows at an

average rate of 2.5%, the long historic average, then the 2042 level of real GDP will double to $142 trillion dollars.

• There will be as much total GDP generated in those 30 years as has been generated cumulatively over history.

• That’s a lot of stuff!

Will Population Growth Eliminate the Gain?

No!

• In 2011, the world population stood at 7 billion. Per capita GDP was $10,100, in 2011 dollars.

• The world 2040 population is estimated to reach 9.0 billion.

• If GDP grows at 2.5% annually, then per capita GDP will stand at $15,777. $15,777 is lot a more than $10,100.

Will the U.S. Connect to the Global Engine?

 Qat

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 Rep

ublic

of C

hina

(Tai

wan)

 Indi

a

 Peo

ple's

Rep

ublic

of C

hina

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kmen

istan

 Arg

entin

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 Sri

Lank

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 Con

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eria

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hani

stan

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key

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en

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iopi

a

 Mal

dive

s

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iland

 Dom

inica

n Rep

ublic

 Lao

s

 Zam

bia

0

2

4

6

8

10

12

14

16

18

Top 25 Countries, 2010 GDP GrowthAn

nual

Gro

wth

Rat

e

International Monetary Fund

 Qat

ar

 Sin

gapo

re

 Par

agua

y

 Rep

ublic

of C

hina

(Tai

wan)

 Indi

a

 Peo

ple's

Rep

ublic

of C

hina

 Tur

kmen

istan

 Arg

entin

a

 Sri

Lank

a

 Con

go, R

epub

lic o

f

 Zim

babw

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eru

 Bot

swan

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 Uzb

ekist

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guay

 Nig

eria

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hani

stan

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key

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en

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iopi

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dive

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iland

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inica

n Rep

ublic

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s

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bia

0

2

4

6

8

10

12

14

16

18

Top 25 Countries, 2010 GDP GrowthAn

nual

Gro

wth

Rat

e

International Monetary Fund

North Korea vs. South Korea

2009 Per Capita Income

= $1,800

2009 Per Capita Income

= $30,000

Wait a minute!

What about the good ole

USA?

Unite

d Sta

tes

Brazil

Bangl

ades

h

Russia

Mex

ico

Vietn

am

Germ

any

Turke

y

Congo

(Kin

shas

a)

Franc

eIta

ly

South

Afri

ca

Spain

Colom

bia

Tanza

nia

Kenya

Alger

ia

Ugand

aPer

u0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

2010 Population, Top 40 Countries, China & India Omitted

We are third most populous. Lots of people!

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

0

10,000

20,000

30,000

40,000

50,000

60,000

Mean Household Income Earned by Top 60%, 1967 - 2010(Constant 2010 Dollars)

$49,309 for 2010

AND (still) able to pay our bills.

We are young!

Unite

d Sta

tes

China

Japa

n

Germ

any

Franc

e

Unite

d Kin

gdom

Brazil

Italy

Indi

a

Canad

a

Russia

n Fed

erat

ion

Spain

Mex

ico

Korea

, Rep

.

Austra

lia

Nethe

rland

s

Turke

y

Indo

nesia

Switzer

land

Polan

d

Belgi

um

Sweden

Saudi

Ara

bia

Norway

Venez

uela

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

Top 25 Countries based on 2010 GDPM

illio

ns

of P

PP

Do

llars

World Bank

HUGE ECONOMIC ENGINE

Producer of World Reserve Currency

We print money, and the world takes it!

Alas, there are some problems.

1960

-01-

01

1962

-01-

01

1964

-01-

01

1966

-01-

01

1968

-01-

01

1970

-01-

01

1972

-01-

01

1974

-01-

01

1976

-01-

01

1978

-01-

01

1980

-01-

01

1982

-01-

01

1984

-01-

01

1986

-01-

01

1988

-01-

01

1990

-01-

01

1992

-01-

01

1994

-01-

01

1996

-01-

01

1998

-01-

01

2000

-01-

01

2002

-01-

01

2004

-01-

01

2006

-01-

01

2008

-01-

01

2010

-01-

01

-$1,600,000

-$1,400,000

-$1,200,000

-$1,000,000

-$800,000

-$600,000

-$400,000

-$200,000

$0

$200,000

$400,000

Federal Deficit, 1960-2011Millions

1970

1972

1974

1976

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

est

imat

e

2015

est

imat

e

2017

est

imat

e

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

Total Federal Deficit as Percent of GDP,1970-2017 est.

Since 1970, four years with a surplus.

22

1970-011973-011976-011979-011982-011985-011988-011991-011994-011997-012000-012003-012006-012009-01

-5

0

5

10

15

20

25 U.S. Misery Index, 1970-2011

Unemployment Rate Inflation Rate

1990M1 1991M5 1992M9 1994M1 1995M5 1996M9 1998M1 1999M5 2000M9 2002M1 2003M5 2004M9 2006M1 2007M5 2008M9 2010M1 2011M50

500

1000

1500

2000

2500

U.S. Housing Starts, 1/1990 - 1/2012(Thousands, SA)

U.S. Nonagricultural Employment, 1/2001 – 1/2012

Down 6.29 million from January 2008 peak.

Construction Employment, 2002 - 2012

Down 2.4 million from April 2006 peak.

2015

U.S. Nonagricultural Employment, 1/2001 – 11/2011

Down 6.29 million from January 2008 peak. 2014 2013

Unemployment Rates, 2/2012, 25 and older.

12.9% Less than H.S.

8.3% High School Diploma

7.3% Associate Degree

4.2% Bachelors and higher.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

2

4

6

8

10

12

14

16

18

Unemployment Rate & Educational AttainmentJune, 2001 - 2011

Less than H.S. Diploma Bachelor Degree or Higher

Un

em

plo

yme

nt R

ate

How are we doing in manufacturing?

Okay, if I could just find qualified workers!

1500 2000 2500 3000 3500 4000 4500 5000 55000

2000

4000

6000

8000

10000

12000

14000

16000

18000Job Openings versus Unemployed, 1/2000 - 12/2011

(thousands, s.a.)

Job Openings

Une

mpl

oyed

TOP 10 Manufacturing Economies: 1980 - 2010

Billions

2000

-01-

01

2000

-06-

01

2000

-11-

01

2001

-04-

01

2001

-09-

01

2002

-02-

01

2002

-07-

01

2002

-12-

01

2003

-05-

01

2003

-10-

01

2004

-03-

01

2004

-08-

01

2005

-01-

01

2005

-06-

01

2005

-11-

01

2006

-04-

01

2006

-09-

01

2007

-02-

01

2007

-07-

01

2007

-12-

01

2008

-05-

01

2008

-10-

01

2009

-03-

01

2009

-08-

01

2010

-01-

01

2010

-06-

01

2010

-11-

01

2011

-04-

01

2011

-09-

0160

65

70

75

80

85

90

95

100

105

U.S. Industrial Production, 1/2000 - 12/2011

2013

4500

6500

8500

10500

12500

14500

16500

18500

2050019

39

1941

1943

1945

1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

U.S. Employment in Manufacturing1939 - 2011

(thousands) Employment peaked in 1978. Disintegration took off after that.

Reduction accelerates in recessions.

0

20

40

60

80

100

12020

00M

1

2000

M5

2000

M9

2001

M1

2001

M5

2001

M9

2002

M1

2002

M5

2002

M9

2003

M1

2003

M5

2003

M9

2004

M1

2004

M5

2004

M9

2005

M1

2005

M5

2005

M9

2006

M1

2006

M5

2006

M9

2007

M1

2007

M5

2007

M9

2008

M1

2008

M5

2008

M9

2009

M1

2009

M5

2009

M9

2010

M1

2010

M5

2010

M9

2011

M1

2011

M5

2011

M9

Auto and Light Vehicle Production2000 - 2011

200000

250000

300000

350000

400000

45000020

00M

1

2000

M6

2000

M11

2001

M4

2001

M9

2002

M2

2002

M7

2002

M12

2003

M5

2003

M10

2004

M3

2004

M8

2005

M1

2005

M6

2005

M11

2006

M4

2006

M9

2007

M2

2007

M7

2007

M12

2008

M5

2008

M10

2009

M3

2009

M8

2010

M1

2010

M6

2010

M11

2011

M4

2011

M9

Mill

ion

s,

SA

U.S. Retail Sales & Food Service

TWO KEY U.S. INDICATORS…

A Year Ago!

42

The Two ISM IndicatorsNow!

How about the 50 states, sweetheart?

It’s a mixed bag!

????

State Per Capita Real GDP Growth: 2007 - 2010

20

07

Q1

20

07

Q2

20

07

Q3

20

07

Q4

20

08

Q1

20

08

Q2

20

08

Q3

20

08

Q4

20

09

Q1

20

09

Q2

20

09

Q3

20

09

Q4

20

10

Q1

20

10

Q2

20

10

Q3

20

10

Q4

20

11

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

12

Q1

20

12

Q2

20

12

Q3

20

12

Q4

-10

-8

-6

-4

-2

0

2

4

Real GDP Growth: 1Q2007 - 4Q2012Real Annual Growth Growth Rate

2011: 1.70%2012: 2.30%2013: 3.00%

2011-12 Outlook• GDP growth will range from 2.2% to 2.5% across 2012.• The U.S. unemployment rate will stay in 8.2% to 8.9% range. • Inflation will rise to 2.0%-3.0%, compared to 2011’s 2.5%.• Interest rates will rise, with a 100 basis point increase at the long end of the

yield curve by the end of 2012.

There are six hazards or ghosts from the past that may disturb the outlook.

 • Fear-driven increases in personal savings, which means rebuilding consumer

net worth but further reductions in retail sales.• Rising energy prices.• A potential for massive inflation or credit market manipulation by the Fed to

avoid it.• Government entanglement in the economy that regulates and otherwise limits

economic freedom.• A huge deficit that must be dealt with. Taxes? Cut spending? Print money?• Gradual loss of reserve currency status• Election year craziness.