Conference Presentation, Panel
U.S. Overview: Can the U.S. Engine Pull the Global Growth Train?
Milken InstituteRoss Duvall, Eric Spiegel, Bill Simon, Sarah Quinlan, Jim Moffitt, Maria Contreras-Sweet
- Economic readings for the first quarter are below expectations due to a government budget stalemate from October and severe winter weather, though effects are expected to dissipate; 2015 is forecast as a strong year for growth, with Jim Moffitt anticipating positive growth in the second half and a 3.4% rate for the next year, while Bill Simon predicts a "good 10 or 15-year run" driven by aligned variables.
- The private sector has recovered all recession-era jobs and is increasingly capital-commitment ready; capital goods orders are expected to regain strength from late 2012 levels, and the Federal Reserve plans to continue withdrawing approximately $10 billion monthly from its balance sheet while determining the timing for raising interest rates.
- Light vehicle sales are projected to reach the highest rate since 2007 at 16.3 million, and housing construction is expected to see continued job gains and equity appreciation despite low absolute levels, though affordability faces pressure from rising prices and mortgage rates.
- Technological advances in drilling and fracturing are projected to create a long-term natural gas cost advantage of plus or minus $4 per million BTU in the U.S. compared to $14 in Europe and $16 in Japan; the U.S. is expected to remain a low-cost manufacturing environment for at least the next couple of decades due to lower energy costs.
- Manufacturing activity is expected to see a resurgence over the next five to 10 years, potentially generating about one million jobs with three-quarters in small businesses, though modernization faces challenges from aging infrastructure and a workforce skills gap.
- Consumer spending patterns are shifting due to a 10% drop in gas prices between September and October and declining department store sales which are attributed to weather rather than structural issues; small business spending is expected to trend 3% to 5% above total retail spending as consumers seek value rather than just the cheapest options.
- The consumer is expected to increasingly rely on credit to participate in the economy, with older vehicles (averaging 11.1 years) driving income for auto workers and subsequent spending at small businesses; discretionary spending on jewelry and travel is anticipated to drive activity.
- Corporate strategies are expected to prioritize investment and differentiation despite uncertainty, as the risk of inaction is viewed as greater than the risk of investing; 30% of R&D investment and 30% of patents are forecast to continue originating in the U.S., fueling the economy.
- Policy expectations include the SBIR program and loan guarantees spurring activity, while the R&D tax credit renewal is seen as essential to encourage manufacturing investment and STEM education, preferably as a permanent fix rather than retroactive renewal.
- Small business ecosystems are expected to expand as major corporations and small firms collaborate, where opening one plant can attract dozens of ancillary small businesses; the SBA is expected to attract foreign interest through innovation and loan mechanisms.
- International markets face significant headwinds with consumer spending falling in regions like Brazil due to hyper food inflation, whereas the U.S. is expected to become a net exporter of advanced manufacturing and technology driven by university-industry R&D partnerships.
- Demographic and workforce challenges include the need for corporations to take responsibility for retraining staff due to rapid technological change, while programs like "Brother's Keeper" aim to address skills gaps in underserved communities to prevent overlooking domestic productivity.
- Growth rate expectations range from a baseline of 3% being described as "pathetic" to much higher anticipated rates if infrastructure and policy issues are resolved, with significant investment expected to flow back to the U.S. under improved conditions.