U.S. ECONOMIC GROWTH

AND ITS ENTREPRENEURIAL SECTOR

BILL DUNKELBERG

CHIEF ECONOMISTNATIONAL FEDERATION OF INDEPENDENT BUSINESS

PROFESSOR OF ECONOMICS, TEMPLE UNIVERSITYCHAIR, GLOBAL INTERDEPENDENCE CENTER

CHAIRMAN OF THE BOARD, LIBERTY BELL BANK

ECONOMIC GROWTH

• LABOR GROWTH, QUALITY• CAPITAL WIDENING AND DEEPENING• PRODUCTIVITY – HOW WELL IS CAPITAL

USED, LABOR REALLOCATED TO BEST USE, RETRAINED FOR NEW JOBS

• SMALL BUSINESS AT THE CORE OF THIS GROWTH

-10

-5

0

5

10

15

20

76 79 82 85 88 91 94 97 '00 '03 '06

PERCENTAGE CHANGE IN REAL GDP

HOME OWNERSHIP RATES

60

62

64

66

68

70

Perc

ent

RESIDENTIAL VACANCY RATES

0

2

4

6

8

10

86 91 96 '01

VACANCY RATES

ENTREPRENEURIAL FACTS

• 90% OF ALL EMPLOYERS HAVE FEWER THAN 20 EMPLOYEES

• 98% HAVE FEWER THAN 500• PRODUCE HALF OF THE PRIVATE

SECTOR GROSS DOMESTIC PRODUCT• EMPLOY 60% OF PRIVATE SECTOR

EMPLOYEES• PRODUCE 2/3RDS OF THE NEW JOBS

3

3.5

4

4.5

5

5.5

6

6.5

95 98 '01 '04 '07

Perc

ent

ACTUAL PREDICTED

THE UNEMPLOYMENT RATE

FOURTH QUARTER FORECAST

54

56

58

60

62

64

66

RATIO OF # EMPLOYED TO POPULATION AGE 16

YEARS +

10% + UNEMPLOYMENT

JOB CREATION BY FIRM SIZE2000:1 - 2001:1 (000)

-200

0

200

400

600

800

1000

1200

UNDER 20 20-499 500+ EMPLOYEES

1,111,183

39,692 -150,905

IMMIGRATION STATISTICS

0

510

15

2025

30

35

1850 1870 1890 1910 1930 1950 1970 1990 2010

FOREIGN BORN POPULATION (MM)% FOREIGN BORNLEGAL IMMIGRATION PER 1000 POPULATION

IMMIGRATION• NUMBER OF ILLEGALS LOWERED BY AMNESTY

OF 1987-88• 300,000 + ILLEGAL ENTRANTS PER YEAR• HALF ENTER LEGALLY AND OVERSTAY• CONCENTRATED IN YOUNG LABOR FORCE

GROUP• GROWING % OF SCIENTIFIC PROFESSIONALS• FIRST AND SECOND GENERATION IMMIGRANT

CHILDREN DO EXCEPTIONALLY WELL IN SCHOOL• 200,000 PEOPLE LEAVE THE U.S. EACH YEAR• ILLEGAL IMMIGRANT FLOWS DEPEND ON

ECONOMIES IN THE SOURCE COUNTRIES

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

SEASONALLY ADJUSTED MONTHLY APR-AUG QUARTERLY

GREEN DOTS=APR,JUL,OCT QUARTERLY

UNFILLED JOB OPENINGS% WITH AT LEAST ONE UNFILLED OPENING

0

5

10

15

20

25

30

35

40

Perc

ent

of F

irms

QUARTERLY MONTHLY, APR-NOV

JOB CREATION PLANS % PLAN INCREASE - % PLAN DECREASE

-10

-5

0

5

10

15

20

25

Perc

ent

of F

irms

QUARTERLY MONTHLY, APR-NOV

PRODUCTIVITY(OUTPUT PER HOUR)

0

50

100

150

200

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002

IND

EX

OUTPUT PER HOUR (1992=100) MFG OUTPUT PER HOUR

TRADEEDUCATION IS ONE OF OUR LARGEST

EXPORTS(MOST RETURN HOME)

US WORKERS SEND MONEY TO THEIR HOME COUNTRIES

IMPORTS = HIRING FOREIGN LABOR TO PRODUCE IN THEIR COUNTRIES RATHER THAN MOVING HERE

“OUTSOURCING” IS OFTEN A “NEW” JOB, NOT THE LOSS OF A DOMESTIC JOB

U.S. Trade Deficit

-800

-700

-600

-500

-400

-300

-200

-100

0

100

Bill

ions

of D

olla

rs

EXPORTS-IMPORTS [CONSTANT DOLLARS]

TALK ABOUT OUTSOURCING!!

MOST IMPORTANT PROBLEMS

0

5

10

15

20

25

Perc

ent

of

Firm

s

LABOR COST LABOR QUALITY

FIRST MONTH IN EACH QUARTER: + NOV

MOST IMPORTANT PROBLEMS

0

5

10

15

20

25

30

35

40

45

Perc

ent

of F

irms

INFLATION CREDIT

FIRST MONTH IN EACH QUARTER: + NOV

CENTRAL BANK MUST CONTROLINFLATION AND CREDIT DEMAND

SMALL BUSINESS CREDIT PROBLEMS

(% HARDER TO GET - % EASIER)

-505

1015202530

Perc

ent

of F

irms

QUARTERLY MONTHLY, APR-NOV

-4-202468

1012141618

Perc

ent

PREDICTED ACTUAL

INFLATION: CONSUMER PRICE INDEXPREDICTED BY NFIB SURVEY

NFIB Q3 FORECAST 4.7%

02468

10121416

76 79 82 85 88 91 94 97 '00 '03 '06

Perc

ent

PREDICTED ACTUAL

CORE CPI INFLATIONPREDICTED BY NFIB SURVEY

INDEX OF CONSUMER SENTIMENT

50

60

70

80

90

100

110

78 80 82 84 86 88 90 92 94 96 98 '00 '02 '04 '06Source: University of Michigan

Inde

x V

alue

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

70 73 76 79 82 85 88 91 94 97 '00 '03

NYSE S&P NASDQ

STOCK MARKET

INTEREST RATES

0

2

4

6

8

10

12

14

16

80 85 90 95 '00 '05

2 YEAR 10 YEAR FED FUNDS