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DR. WILLIAM DUNKELBERG
Chief Economist
NATIONAL FEDERATION
OF INDEPENDENT BUSINESS
CHAIRMAN, LIBERTY
BELL BANK, NEW JERSEY
CHAIR, GLOBAL
INTERDEPENDENCE CENTER
TWO WAYS OUT, NEITHER DESIRABLE
THE 99 PERCENT
GDP AND EMPLOYMENT
7000
8000
9000
10000
11000
12000
13000
14000
'00 '03 '06 '09 '12
130000
132000
134000
136000
138000
140000
142000
144000
146000
148000
GDP2005$(left) EMPLOYMENT(right)
HUGE EMPLOYMENT GAP
HOUSING STARTS
500
800
1100
1400
1700
2000
91 93 95 97 99 '01 '03 '05 '07 '09 '11
UNITS
UN
ITS
000
HOME OWNERSHIP RATES
60
62
64
66
68
70
80 83 86 89 92 95 98 '01 '04
Perc
ent
USA
BARNEY’S “UNAFFORDABLE” HOUSING
CONSUMPTION SHARE OF
GDP & CONSUMER SAVING
58
60
62
64
66
68
70
72
78 83 88 93 98 '03
'08
0
2
4
6
8
10
12
14
CONSUMPTION SPENDING SAVING RATE
0
2000
4000
6000
8000
10000
12000
14000
16000
90 93 96 99 '02 '05 '08 '11
(00
0)
DEBT=.7GDP ACTUAL
“EXCESS” DEBT: PAYING FOR
THE “PARTY”
MAINTAINING DEBT/GDP RATIO IN 1999
TRADE DEFICIT
-800
-700
-600
-500
-400
-300
-200
-100
0
78 83 88 93 98 '03
'08
Source: BEA
BIL
LIO
NS
OF
CO
NS
TA
NT
DO
LL
AR
S
THE PARTY
INDEX OF CONSUMER
SENTIMENT
50
60
70
80
90
100
110
78 83 88 93 98 '03
'08
Source: University of Michigan
Ind
ex
Valu
e
RATING OF GOVERNMENT POLICY
-50
-40
-30
-20
-10
0
10
20
30
40
50
'00
'03
'06
'09
'12
Source: University of Michigan
Perc
en
t o
f C
on
su
mers
NET % POLICIES ARE GOOD 2008-12
HOUSE PRICES
0
50
100
150
200
250
87 90 93 96 99 '02
'05
'08
'11
Pe
rce
nt
FHFA CASE SHILLER
CONSUMER NET WORTH
05
10152025303540455055606570
78 80 82 84 86 88 90 92 94 96 98 '00 '02 '04 '06 '08 '10
TR
ILL
ION
S O
F D
OL
LA
RS
NET WORTH
SMALL BUSINESS FACTS
• 90% OF ALL EMPLOYERS HAVE
FEWER THAN 20 EMPLOYEES
• 99% HAVE FEWER THAN 500
• PRODUCE HALF OF THE PRIVATE
SECTOR GROSS DOMESTIC PRODUCT
• EMPLOY 50%+ OF PRIVATE SECTOR
EMPLOYEES
• PRODUCE 2/3RDS OF THE NEW JOBS
SMALL BUSINESS
OPTIMISM INDEX (QUARTERLY, 1986 = 100)
80
85
90
95
100
105
110
76 79 82 85 88 91 94 97 '00 '03 '06 '09 '12
SEASONALLY ADJUSTED MAY JUNE
FIRST MONTH IN EACH QUARTER
SMALL BUSINESS
OPTIMISM INDEX (RECOVERY FROM NBER TROUGH)
80
85
90
95
100
105
110
2009:Q2 2001:Q4 1991:Q1 1982:Q4 1975:Q1
SURVEY FIRST MONTH IN EACH QUARTER
MAY JUNE
EXPECTATIONS FOR GENERAL
BUSINESS CONDITIONS
IN 6 MONTHS (PCT “BETTER” - PCT “WORSE”)
-50
-30
-10
10
30
50
70
76 79 82 85 88 91 94 97 '00
'03
'06
'09
'12
Perc
en
t o
f F
irm
s
QUARTERLY MAY JUNE
SEASONALLY ADJUSTED
OUTLOOK FOR BUSINESS
EXPANSION (PCT “NOW IS A GOOD TIME”)
0
5
10
15
20
25
30
76 79 82 85 88 91 94 97 '00
'03
'06
'09
'12
(SEASONALLY ADJUSTED)
Perc
en
t o
f F
irm
s
QUARTERLY MAY JUNE
“NO” FOR 18 QUARTERS
BAD TIME TO EXPAND DUE TO THE POLITICAL CLIMATE
0
5
10
15
20
25
30
'01
'04
'07
'10
(SEASONALLY ADJUSTED)
Perc
en
t o
f F
irm
s
QUARTERLY MAY JUNE
% OF THOSE SAYING “BAD TIME”
REPORTED CHANGE IN PAST
SALES (last 3 months vs prior 3)
-40
-30
-20
-10
0
10
20
30
76 79 82 85 88 91 94 97 '00
'03
'06
'09
'12
[% "HIGHER" - % "LOWER", SEAS. ADJ.]
Perc
en
t o
f F
irm
s
QUARTERLY MAY JUNE
EXPECTED REAL SALES
-30
-20
-10
0
10
20
30
40
50
76 79 82 85 88 91 94 97 '00
'03
'06
'09
'12
[% "HIGHER" - % "LOWER", SEAS. ADJ.]
Perc
en
t o
f F
irm
s
QUARTERLY MAY JUNE
ACTUAL PRICE INCREASES SEASONALLY ADJUSTED
-40
-20
0
20
40
60
80
76 79 82 85 88 91 94 97 '00
'03
'06
'09
'12
Perc
en
t o
f F
irm
s
RAISED (NET) MAY JUNE
FIRST MONTH IN EACH QUARTER
EMPLOYMENT
3000
8000
13000
18000
23000
28000
75 80 85 90 95 '00
'05
'10
Em
plo
ym
en
t
CONSTRUCTION MANUFACTURINGRETAIL PROF/BUS SERVICESGOVERNMENT
AVERAGE CHANGE IN EMPLOYMENT
PER FIRM
-1.2
-0.8
-0.4
0
0.4
79 82 85 88 91 94 97 '00
'03
'06
'09
'12
NU
MB
ER
OF
WO
RK
ER
S
WORKERS PER FIRM MAY JUNE
QUARTERLY: FIRST MONTH IN EACH QUARTER
JOB CREATION PLANS % PLAN INCREASE - % PLAN DECREASE
-10
-5
0
5
10
15
20
25
76 79 82 85 88 91 94 97 '00
'03
'06
'09
'12
Perc
en
t o
f F
irm
s
QUARTERLY MAY JUNE
REAL INVESTMENT
• CREATION OF REAL PRODUCTIVE ASSETS
– MAINTENANCE MODE
• SOLD OFF EXCESS INVENTORY, NEW
ORDERS WEAK
• FIRE SALE IS OVER, SATISFIED WITH
CURRENT STOCKS
• HOUSING: NO HELP FOR PRODUCTIVITY
40
45
50
55
60
65
70
75
82 85 88 91 94 97 '00
'03
'06
'09
'12
Perc
en
t o
f F
irm
s
% SPENDING %SPEND + LEASE
ACTUAL CAPITAL OUTLAYS
FIRST MONTH IN EACH QUARTER+MAY JUNE
LEASING ADDED
PLANNED CAPITAL OUTLAYS
(NEXT SIX MONTHS)
15
20
25
30
35
40
45
77 80 83 86 89 92 95 98 '01
'04
'07
'10
Perc
en
t o
f F
irm
s
QUARTERLY MAY JUNE
MOST IMPORTANT PROBLEMS
0
5
10
15
20
25
30
35
76 79 82 85 88 91 94 97 '00
'03
'06
'09
'12
Perc
en
t o
f F
irm
s
TAXES REGULATIONS WEAK SALES INSURANCE
FIRST MONTH IN EACH QUARTER+MAY JUNE
CREDIT
• FEW USES FOR LOANS
• PRIVATE LOAN DEMAND WEAK,
GOVERNMENT DEMAND STRONG
• LOTS OF UNCERTAINTY: RETURNS
• PLANNING HORIZONS LONGER THAN
6 MONTHS
• TOO MUCH “TEMPORARY” STUFF
SMALL BUSINESS
CREDIT PROBLEMS (% HARDER TO GET - % EASIER)
-5
0
5
10
15
20
25
30
74 77 80 83 86 89 92 95 98 '01
'04
'07
'10
'13
Perc
en
t o
f F
irm
s
QUARTERLY MAY JUNE
LOAN DEMANDS WEAKEN THROUGH
THE RECESSION
35
40
45
50
55
93 96 99 '02
'05
'08
'11
Perc
en
t o
f F
irm
s
PERCENT OF ALL FIRMS NOT WANTING A LOAN MAY JUNE
RECESSION STARTS
SINGLE MOST IMPORTANT
PROBLEM FACING OWNERS
0
5
10
15
20
25
30
35
40
45
76 79 82 85 88 91 94 97 '00
'03
'06
'09
'12
Perc
en
t o
f F
irm
s
INFLATION CREDIT
FIRST MONTH IN EACH QUARTER+MAY JUNE
CREDIT: NO PROBLEM
Deposit $100 REQUIRED
RESERVE $10
ASSETS LIABILITIES
CASH $10 Deposit $100
ASSETS LIABILITIES
BANK BANK
EXCESS
RESERVE $90
LOAN $90
TS
LF
-3/1
1/0
8, 9
50
"TD
WP
-8
/1
7/0
7"
TA
F-1
2/1
2/0
7
PD
CF
-3/1
6/0
8
Se
ries B
rea
k
Se
ries B
rea
k
$450
$600
$750
$900
$1,050
$1,200
$1,350
$1,500
$1,650
$1,800
$1,950
$2,100
$2,250
$2,400
$2,550
$2,700
$2,850
$3,000
27
-Ju
n-0
7
8-A
ug
-07
28
-No
v-0
7
9-J
an
-08
20
-Fe
b-0
8
2-A
pr-0
8
24
-Se
p-0
8
5-N
ov-0
8
17
-De
c-0
8
28
-Ja
n-0
9
11
-Ma
r-09
20
09
-04
-22
20
09
-06
-03
20
09
-07
-15
20
09
-08
-26
20
09
-10
-07
18
-No
v-0
9
30
-De
c-0
9
10
-Fe
b-1
0
24
-Ma
r-10
5-M
ay-1
0
16
-Ju
n-1
0
28
-Ju
l-10
8-S
ep
-10
20
-Oct-1
0
1-D
ec-1
0
12
-Ja
n-1
1
23
-Fe
b-1
1
6-A
pr-1
1
18
-Ma
y-1
1
29
-Ju
n-1
1
10
-Au
g-1
1
21
-Se
p-1
1
2-N
ov-1
1
14
-De
c-1
1
25
-Ja
n-1
2
Factors Using Reserves on Federal Reserve's Balance Sheet (Liabilities)
from 6/27/2007 to 2/15/2012
Reserve Balances
Other Liabilities and Capital
Deposits - Not Reserve
Balances
Treasury Cash Holdings
Reverse-RPs with Dealers
Reverse RPs: Foreign
Official and International
AccountsCurrency in Circulation
TSLF-3/11/08
"TDWP - 8/17/07"
TAF-12/12/07
Billions
AVERAGE RATE PAID ON
SHORT TERM LOANS
0
5
10
15
20
25
81 84 87 90 93 96 99 '02
'05
'08
'11
Perc
en
t o
f F
irm
s
RATE PAID 1 YR TREASURY
RATIO OF GOVERNMENT
SPENDING TO GDP
25
30
35
40
78 83 88 93 98 '03
'08
Source: BEA
PE
RC
EN
T
U.S. Federal Deficit
-1500
-1000
-500
0
500
78 81 84 87 90 93 96 99 '02
'05
'08
CROWDING OUT?
SO, WHERE ARE WE? • ECONOMIC GROWTH SLOW
• UNEMPLOYMENT HIGH
• SMALL BUSINESS, HALF OF GDP, STALLED
• MOST IMPORTANT PROBLEMS?
– HEALTH CARE COST, TOP FOR 25 YEARS
– UNCERTAINTY ABOUT THE ECONOMY #2
– UNCERTAINTY ABOUT GOVERNMENT POLICY #4
– ADMINISTRATIVE LAW, EPA, HHS REGS ETC
• CHALLENGES ARE LOCAL, NATIONAL, GLOBAL
TRICKLE DOWN