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NATIONAL FORECAST UPDATE

NATIONAL FORECAST UPDATE. Dr. Rajeev Dhawan Director. ECONOMIC FORECASTING CENTER. Presented at the Quarterly Forecast Conference GSU Student Center May 25 th , 2005. Office: 404-651-3291 email: rdhawan@gsu.edu http://www.robinson.gsu.edu/efc. Today’s Special: Conundrums.

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NATIONAL FORECAST UPDATE

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  1. NATIONAL FORECAST UPDATE Dr. Rajeev Dhawan Director ECONOMIC FORECASTING CENTER Presented at the Quarterly Forecast Conference GSU Student Center May 25th, 2005 Office: 404-651-3291 email: rdhawan@gsu.edu http://www.robinson.gsu.edu/efc

  2. Today’s Special: Conundrums Why Hasn’t Oil Crossed the $60 Mark? Why Hasn’t Housing Moderated? Why is the 10-Year Rate Falling Despite the FED’s 8 Rate Hikes? Why is GM’s Debt at Junk Bond Status? Why Haven’t Record Trade-Deficits Produced a Dollar Meltdown?

  3. Forecast Theme The Economy’s Inexorable Forward March – Despite Emerging Conundrums

  4. Data Revisions and the Employment Report Month Report Published Latest Month of Data

  5. Dow 30 Revenue Growth

  6. Breakdown of Retail Sales

  7. +25% -17%

  8. International Country Analysis GDP Growth Source: IMF & Blue Chip International

  9. Short-Term ForecastComparison

  10. Prediction Vs. Reality +++

  11. Anonymous Ventor My girlfriend demanded that I take her to someplace expensive, so I took her to a gas station Source: AJC, April 21st, 2005

  12. OIL’S WELL Excerpts from an interview with Art Smith, a veteran energy investor There's Saudi Arabian security and Middle Eastern security. Another big concern is Hugo Chavez in Venezuela. He is just an unpredictable fellow. He denied a bunch of drilling plants for the industry. Then he raised royalty rates on heavy oil. Venezuela is a very important supplier. Russia was our hope for new incremental supplies, yet post-Yukos there has been a real chill on investment programs there. …terror premium out of the current price. Who knows what that is, but it could be easily $10 a barrel because of concerns over not having any oil. Source: Barron’s, April 4th, 2005

  13. Testimony of Chairman Alan Greenspan Before the Economics Club of New York, May 20th 2005 Since the end of 2003, the rise in the value of imported oil—essentially a tax on U.S. residents —has amounted to about ¾ percent of GDP. The effects were far larger in the crises of the 1970’s

  14. Why Oil Will Touch $105 by 2007! • Global Rig Count Peaked in 1981 • Tanker Transportation Limits • Oil Refining Capacity Limits • New Oil Investments are a Two Decade Cycle

  15. Why Oil Will Touch $105 by 2007! Source: Allison Nathan, NABE Spring Conference, Washington DC 2005

  16. Anonymous Vent $5 a gallon for gas will cure Atlanta’s traffic problems! Source: AJC, April 5th, 2005

  17. Why Oil Won’t Touch $105 by 2007 • Alternate Fuels Become Viable at a Sustained Price of $35/barrell, Which Leads to a Reduction in Crude Oil Demand • Higher Prices Reduce Demand by Itself: • Conservation • Change in Driving Habits • Lower Speed Limits • New Supplies Rush into the Market in Response to High Prices: • Tar Sands in Alberta • Oil-Rigs Erected in Our Backyards!

  18. Breakdown of Consumer Prices

  19. Testimony of Governor Donald Kohn To the International Research Forum, Frankfurt am Main, May 20th 2005 …,the degree to which core inflation picked up in 2004 and 2005 also caught many economists, including this one on FOMC, by surprise.

  20. Is the Bond Market Listening to the FED? 10-Year is DOWN by 60 Basis Points! 8 Hikes Totaling 200 Basis Points in 10 Months

  21. Almost 6% of GDP!

  22. Source: May 2005, Forecast of the Nation 10-Year Bond Rate and Trade Deficit 10-Year Bond Regression

  23. Governor Ben S. Bernanke TRADE DEFICIT March 10th, 2005 “I see … the emergence of a global saving glut in the past eight to ten years.” “…global supply of saving is the recent metamorphosis of the developing world from a net user to a net supplier of funds to international capital markets.”

  24. Global Current Account Balances (Billions of U.S. Dollars) Source: Remarks by Governor Ben S. Bernanke, March 10, 2005

  25. Source: FRB Flow of Funds Data

  26. Trade and Holding of US Treasuries by Central Banks * All numbers are in billions of U.S. dollars Source: BEA (Trade) and US Treasury Department

  27. 2004 US Balance in International Trade * Billions of Dollars Source: US Bureau of Economic Analysis

  28. 2002 Passenger Car Production and Sales ü ü Source: Ward’s World Motor Vehicle Data

  29. Is GM Just in Business to Service Their Workers’ Pension Plans? • GM Has Lost 75% of its Market Value Since Spring of 2000 • Legacy Cost of $1600 Per Vehicle • Union Contracts Make Labor a Fixed Cost • Financing Arm Profits Were Financing Production Operations • No “Oomph” Factor in its Products

  30. Toyota GM Source: Dhawan and Lieberman (2002), forthcoming in Management Science

  31. Source: Dhawan and Lieberman (2002), forthcoming in Management Science

  32. What’s the Solution? • Dhawan & Lieberman (2002) Study • Increase Volume/Plant by Adopting Toyota’s JIT Practices • Negotiate with Unions • Bring Back Some Creative Designing • Issue to Top Management & Workers 30-Year Company Bonds as Part of their Compensation (with Restrictions on Re-sales)

  33. The Good,the Bad, and the Ugly

  34. Residential ConstructionA++ 57,100 Permits in 1998 • Georgia 4th in housing starts, 9th in population • Atlanta Permits hit 57,700 in 2004, highest since 1998 Source: Nat. Realtors Assoc., US Census Bureau & Greater Atl. Homebuilder’s Assoc.

  35. Commercial ConstructionA++ +5,000 Jobs • Current $$ Projects: • Fifth Runway ($5.4B) • Atlantic Station ($2B) • Allen Plaza ($300) • Aquarium ($200M) • 1180 P’tree ($100M) • 5,000 construction jobs created since Q1 2003 • Construction jobs are 16% of all new jobs created since Q1 2003

  36. Georgia Tax CollectionsA+ • 7 Straight Quarters of Revenue Growth • Total Tax Revenue Up 9.9% YTD Source: Georgia Department of Revenue

  37. Small/Self Business HiringA+ • 30,000 Payroll Jobs Created Last 12 Months • New Hires => More Personal Income Tax Collections • PIT Collections up 9.7% YTD • What Caused This Strong Growth? • Few Hiring Sprees from Largest Firms • HH Survey Reports 68,000 Jobs in Last 12 Months => Small Business + Self-Employed

  38. Georgia 2004 ExportsA+ • Georgia’s Exports Grew Faster than US • Georgia 20.6% • US 13.0% Source: www.Wisertrade.org

  39. Georgia 2004 ExportsA+ • Top Export Increase Destinations • Italy +$380 Mil ($300M in transport equipment) • Mexico +$330 Mil. (Many categories) • Singapore +$400 Mil. ($250 in transport equipment) • China +$160 Mil. (many categories) • Main Products: • Transportation Equipment +$1.4 Bil. • Non-Electric Machinery +$900 Mil. Source: www.Wisertrade.org

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