The 2013 Hilliard Lyons INVESTKentucky Equity Conference

Transcription

1 The 2013 Hilliard Lyons INVESTKentucky Equity Conference

2 Keynote Address William Ford Ph.D. Weatherford Chair of Finance Middle Tennessee State University

3 THE ECONOMIC OUTLOOK FOR THE U.S. & KENTUCKY ECONOMY by William F. Ford, Ph.D. Weatherford Chair of Finance Middle Tennessee State University presented to

4 THE ECONOMIC OUTLOOK Since the end of the Dec June 2009 recession, the U.S. economy has grown at a distinctly subpar pace of about 2%. We expect GDP to grow by about 2.1% in 2013 & 2.6% in 2014 The unemployment rate is likely to decline moderately over the next few quarters, but remain at historically high levels compared to prior postwar recoveries. Corporate profits and cash flows are strong & should continue growing moderately. The U.S. fiscal policy outlook depends on the outcome of the ongoing deficit/ sequester and debt ceiling negotiations. The Federal Reserve is locked into a prolonged policy of fostering abnormally low interest rates, hoping to promote faster GDP and employment growth. That policy severely hurts savers, risks fueling an eventual outburst of inflation and is of questionable value as a growth stimulant. No major changes in the bond market are likely until the Fed begins to curtail its quantitative easing (QE) programs. The pace of the stock market s growth is likely to slow unless the economy and corporate profits exceed our forecast. The outlook for Kentucky s economy over the next 18 months is generally favorable if the U.S. economy performs as indicated above. Finally, there are some major risks to this forecast. 2

5 REAL GDP GROWTH (Year over Year changes) Percent Change 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% 4.2% 3.1% 2.7% 1.9% 0.2% -3.1% 2012** GDP: $15.68 Trillion Real GDP: $13.59 Trillion 2.4% 1.8% 2.2% 2.1% 2.6% * * *Source: W.F. Ford Associates forecast; **BEA: 2012 current dollar GDP and real (chained 2005) dollars. 3

6 REAL GDP GROWTH RATES (%) * 2014* REAL GDP (YOY) Consumption Business Fixed Invest Industrial Production Residential Investment Government Purchases Exports Imports * * * * * * * * * * * * * * * * * * Inventory Change($billions) -$114 $59 $31 $43 $44 $42 *Source: W.F. Ford Associates. 4

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8 RESIDENTIAL CONSTRUCTION Housing Starts Millions of Units Forecast*: 2013: 1.05m 2014: 1.15m *Source: W.F. Ford Associates forecast 6

9 PACE OF PAYROLL GAINS Annual Avg. % Change 6% 4% 2% 0% -2% -4% Non-farm payrolls, YOY Change Forecast*: 2013: 1.5% 2014: 1.3% -6% * Sources: W.F. Ford Associates forecast and BLS data. 7

10 U.S. UNEMPLOYMENT RATE 14% 12% 10% 8% 6% 4% 2% 0% U.S. Labor Force** (millions) Employed Unemployed % 5.5% 5.1% 4.6% 4.6% 5.8% 9.3% 9.6% 9.0% 8.1% 7.3% * 7.0% * Sources: *W.F. Ford Associates forecast and **BLS data. 8

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12 AFTER-TAX CORPORATE PROFITS Percent Change 35% 30% 25% 20% 15% 10% -10% -5% 0% 5% -15% 32.6% 19.0% 13.9% 11.8% 3.6% -4.1% -11.8% 5.1% 5.0% 6.3% * 7.3% * * Source: BEA & *W.F. Ford Associates forecast. 10

13 FEDERAL DEFICIT Fiscal Years (Oct. 1 Sept. 30) $ Billions $0 -$200 -$400 -$600 -$800 -$1,000 -$1,200 -$1,400 -$1,600 -$1,800 -$2,000 04/ 05 05/ 06 06/ 07 07/ 08 08/ 09 09/ 10 10/ 11 11/ 12 12/13 13/14 -$319 -$248 -$163 -$459 -$1,413 -$1,349 -$1,299 -$1,084 *CBO -$560 *CBO -$642 **-$750 **-$650 Source: **W.F. Ford Associates and *CBO forecasts 11

14 U.S. NET EXPORTS AND MERCHANDISE TRADE BALANCE: $ * 2014 * -$100 -$200 $ Billions -$300 -$400 -$500 -$600 -$700 -$800 -$900 -$494 -$509 -$535 -$601 -$650 -$714 -$710 -$696 -$759 -$787 -$809 -$838 -$363 -$375 -$422 -$408 -$415 -$451 -$449 -$500 -$523 -$499 -$528 -$566 Net Exports Merchandise Trade Balance *Sources: BEA and W.F. Ford Associates forecast. 12

15 INFLATION OUTLOOK (%) April 13 vs. April 12 CPI (all items): -0.4% PCE (core items): 0.2% PPI (finished goods): 1.8% 5.3% 4.7% 3.2% 2.8%* 3.7%* 2.1% 2.2%* 1.5% 1.5%* 1.8% 1.2%* 1.4%* CPI (YOY) CORE PCE (YOY) PPI (YOY) *Sources: BLS and estimates from W.F. Ford Associates 13

16 FED FUNDS TARGET RATE 14

17 INTEREST RATE OUTLOOK Percent Effective Fed Funds Rate 10 Yr T-Note 1.9 à à Forecast* à à * Sources: Historical data from St. Louis Fed (FRED); Forecast from William F. Ford Associates. 15

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19 S&P 500 OUTLOOK May 22, 2013 S&P 500: 1,659 P/E: * Source: BIG.com through April 15,

20 KENTUCKY S OUTLOOK IS IMPROVING Economic expectations in Kentucky for 2013 are the brightest in at least five years. The Lane Report,1/16/2013 A resurgent auto manufacturing sector expects U.S. sales of 15 million vehicles, which will give a nice push to Kentucky s nearly 450 first-, second- and third-tier vehicle makers/suppliers. The Lane Report,1/16/2013 Kentucky s $12 billion and growing tourism industry is riding a tide of good publicity. Give some credit to the commonwealth s booming bourbon sector and its successful Kentucky Bourbon Trail program, which National Geographic recommends as one its top worldwide Drives Of A Lifetime. The Lane Report,1/16/

21 KENTUCKY S OUTLOOK IS IMPROVING Kentucky s exports have been growing by an average of $1 billion annually in recent years, despite the weak economy. The Lane Report, 1/16/2013 Kentucky is very well prepared to compete in the global marketplace for more investments and jobs. [Kentucky is] ranked among the top states in the United States for rate of job growth over the past year. Governor Steve Beshear, 1/16/2013 Positive momentum is building within Kentucky s manufacturing and supportive service industries, and the commonwealth is in a prime position to capitalize on significant opportunities in Larry Hayes, Secretary, Kentucky Cabinet for Economic Development 18

22 KENTUCKY S OUTLOOK IS IMPROVING Standard & Poor s downgraded Kentucky s economic outlook citing unfunded pension liabilities totaling more than $33 billion for all of Kentucky's retirement systems combined. The Louisville Courier-Journal, 2/2/13 So far, the recovery is only very slowly shrinking the state s jobs deficit. At the worst point in the recession, Kentucky had lost an estimated 118,300 jobs. We have since gained back 85,700 of those jobs for a net loss of 32,600. Jason Bailey, Director, Kentucky Center for Economic Policy Director Governor Beshear s decision today [5/9/13] to expand Medicaid will increase the health of Kentuckians and strengthen the foundation of our economy. Jason Bailey, Director, Kentucky Center for Economic Policy Director 19

23 GDP FORECAST RISKS A Prolonged Debt Ceiling or Deficit Reduction Political Impasse? Further Deterioration of the Euro/International Economy? An Inflation Bubble Causes Bond Prices to Collapse? Rising Mortgage Rates Trigger a Renewed Housing Downturn? Major Political Crises in Asia and/or the Middle East Severely Interrupt International Trade, Possibly Causing Prolonged Global Energy Supply Interruptions? 20

24 WILLIAM F. FORD, PH.D.* Professor William F. Ford holds the Weatherford Chair of Finance in the College of Business at Middle Tennessee State University. He formerly served as Dean of the Business School at the University of Denver; President and CEO of the Federal Reserve Bank of Atlanta; President of First Nationwide Bank; Senior Vice President of Wells Fargo Bank; and as Executive Director and Chief Economist of the American Bankers Association. Dr. Ford often appears on nationwide and regional TV and radio business news shows as an economic policy expert and served as TeleCheck s Senior Economic Advisor from He has also authored or coauthored about 100 articles in business and academic journals, has served on the boards of six corporations, the U.S. Chamber of Commerce and NABE, the National Association for Business Economics. A veteran of the U.S. Navy Submarine Service, Dr. Ford earned his B.A. in economics (summa cum laude), from the University of Texas; his M.A. and Ph.D. degrees from the University of Michigan and is a graduate of the Senior Executive Program at Stanford University s Business School. He is an elected Fellow of both the Phi Beta Kappa Society and NABE. *Contact information: <William.Ford@mtsu.edu> or (615)