Day with the Superintendent Ernie Goss Ph.D. Professor of Economics,

Creighton University, MacAllister Chairholder www.twitter.com/erniegoss Websites: www.ernestgoss.com www.outlook-economic.com Podcast: Itunes

http://coba3.creighton.edu/econoutlook/goss-rss3.xml

The Economy of the Next Decade:

A New Normal for Rural & Urban America?

Debt/Savings D

.C. U

ncer

tain

ties

Trade/international

Value of $,Inflation,

Interest Rates & Exports

Uncertainty

U.S., and Iowa Job Growth 2000-10

-9.0%

-7.0%

-5.0%

-3.0%

-1.0%

1.0%

3.0%

Iowa US

• Health care reform & taxes to pay for program• Cap & Trade & taxes to pay for program• Making home affordable program • Cash for “clunkers, appliances, caulking, etc.”• Another stimulus program?• What is your bra size? 34B & above?• End of 2001 & 2003 tax cuts• 2 stimulus packages, TARP, auto bailouts, AIG,

etc. = $2,000 billion - $3,000 billion

D.C. Uncertainties

Trade & Value of Dollar

U.S. & Iowa Export Growth, 1999-2009

52%

121.0%104%

227.0%

0%

50%

100%

150%

200%

250%

U.S. Iowa

Total

Food

Chinese manipulation of dollar By buying $1.0 Trillion+ in U.S.

Treasury bonds, Chinese have pushed dollar up in value

Has meant lower U.S. inflation Has meant lower U.S. short & long

term interest rates Forcing the Chinese to float their

currency would mean higher U.S. inflation & interest rate.

It would mean a significant boost to farm income (12%+).

Bullish on Agriculture/food, Energy & Stock Market: Long term Fast growth for emerging

economies (China, India): Food & energy demand income elastic (e.g. income up 8%, food demand up 12%)

Cheap value of dollar (makes U.S. food & energy more competitive abroad): U.S. trade deficit, budget deficit, higher inflation.

Biofuels & alternative fuel production: wind farms, ethanol, solar.

Public Debt

U.S., Greece & Great Britain Public Debt, 2010

$12,600

$525

$1,496

94.0%

113.0%

68%

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

U.S. Greece Great Britain

Deb

t in

bil

lio

ns

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Deb

t as

% G

DP

Debt (billions) (left axis)

As % GDP (right axis)

U.S. Interest Rates on 10-Year bond, 1960 - 2010

4.9%

7.5%

10.6%

6.6%

4.4%4.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1960s 1970s 1980s 1990s 2000s Current

Deb

t in

bil

lio

ns

The Mainstreet Economy

A monthly survey of community bank CEOS

Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Wyoming

Intended to gauge the economic conditions in the non-urban areas of region

Average community size is 1,300 population

Available at: www.outlook-economic.com www.economictrends.blogspot.com

The Rural Mainstreet Economy(index over 50 indicates expansion)

Apr-09 Mar-10 April 2010Area economic index 21.7 47.4 44.2Loan volume 50.8 55.2 61.1Checking deposits 66.7 56.2 62.7Certificates of deposit 61.0 54.4 52.5Farmland prices 41.2 58.2 59.5Farm equipment sales 29.6 41.4 57.2Home sales 30.8 46.5 52.5Hiring in area 15.8 45.7 46.7Retail business 20.5 42.4 43.4Confidence index 45.6 54.3 60.2

Rural Mainstreet Economy, 2007-10

The Regional Economy:Survey of Purchasing Managers&

Business Leaders

A Partnership Among Creighton, and State Supply Managers Associations

Monthly Survey of Business Conditions Leading Economic Indicator Released First Business Day of

Each Month to Media Released Via WWWeb: www.outlook-economic.org www.ernestgoss.com Appears in media throughout U.S. Survey of supply managers in over

900 firms

U.S. & Mid-America PMIs, 2007-10

30

35

40

45

50

55

60

65

70

Jan-07

Feb. '09

Apr-09

Aug-09

Mar-10

U.S. MA

U.S. & Mid-America Price Indices, 2003-10

0

10

20

30

40

50

60

70

80

90

100

Jan-07

July '07

Jan. '08

Sep-09

Mar-10

U.S. Mid-America

Economic Medicine:>Make 2001 and 2003 tax cuts on dividends & capital gains permanent>Reduce Gov. spending to less than 20% of GDP> Reject lifting the cap on taxable social security wages>Artificially supporting the dollar is a losing proposition>Reduce barriers to trade>”Draw a line in the sand” bailouts are over

Important indicators: keep an eye on: The employment report for April will be released on May 7th . I expect the

report to show job gains but less than 100,000 with no change in the unemployment rate (9.7%) (www.bls.gov).

First time and continuing claims for unemployment insurance. Released every Thursday. First time claims above 460,000 will be bearish (www.doe.gov ).

The first and most important indicator for May will be the Mid-America and U.S. January PMIs released May 3rd .( www.outlook-economic.com and www.ism.ws ). Another increase will be very bullish.

Keep an eye on the yield for 10-year U.S. Treasuries. If this yield approaches 4.0% within the next month the Fed will be “between a rock and a hard place.” The rapidly rising yields reflect: 1) Concerns regarding the large increases in the U.S. budget deficit, 2) Rising inflation expectations (but not a large factor yet) and 3) Investors reduced the risk perceptions and are pulling money out of treasuries and putting it into equity markets (a good thing) (http://finance.yahoo.com ).

Investors will be closely watching the value of the dollar, especially against the Euro.

A New Normal? A Trifecta!

1) Higher taxes, 2) inflation rates, 3) interest rates.

Less $$s available for consumption (taxes higher)

China allows Yuan to rise in value—cheap dollar, upward pressure on U.S. prices.

Federal Reserve keeps interest rates higher Businesses & government must move to

defined contribution plans & away from defined benefit plans