Panel, Conference Presentation
U.S. Overview: First Recovery, Then Takeoff?
Milken InstituteAbby Joseph Cohen, Gary Loveman, Raymond McGuire, Jim Moffatt, Maggie Wilderotter, Ross DeVol, Ross Duvall, Abby Cohen
- Global economic momentum is projected to accelerate in 2013 outside of Europe, with China expected to grow at 7% to 8% and Japan anticipated to show reinvigoration.
- Western European nations are expected to seriously reconsider austerity programs due to prolonged recessions and rising budget deficits.
- U.S. equity and high-yield debt markets may pull back if they have moved ahead of underlying fundamentals.
- A divergence in capital access is expected to persist between large and small U.S. companies, potentially requiring corporate tax reform or a shift to a territorial tax system to encourage capital repatriation and investment.
- Long-term investment in R&D, basic research, and education is deemed critical to regaining U.S. economic leadership, as current educational attainment ranks 12th globally and R&D spending relative to GDP has declined.
- If consumer and business confidence stabilizes, the U.S. economy may transition into a self-reinforcing cycle of job creation and growth.
- Corporate strategies are shifting toward external growth, with clients targeting emerging markets like Latin America and China alongside innovative products.
- Uncertainty is characterized as the "new abnormal," prompting leading companies to make investments rather than waiting for clarity, particularly regarding exponential technologies like robotics, 3D printing, and cloud computing.
- Over the next 12 to 24 months, U.S. corporations are expected to continue downsizing and focusing on productivity to free up capital for reinvestment.
- Small business formation has increased, though purchasing cycles have extended by 9 to 12 months, and growth is contingent on access to capital.
- Broadband investment is projected to drive significant job creation, with a $10 billion increase potentially generating 180,000 jobs annually, while 10% penetration could improve employment by 2% to 3% and productivity by 1.3%.
- Energy independence is expected to be achievable within five to seven years, transforming U.S. foreign policy and export potential, while broadband sales in energy-rich regions like northern Pennsylvania may lead other markets.
- The recovery must shift from efficiency-driven gains to substantial organic growth driven by re-enlivened consumer balance sheets and the deployment of innovative production functions.
- Comprehensive immigration reform is predicted to boost skilled labor, housing sectors, and consumer spending if implemented alongside housing recovery.
- Current recovery growth remains efficiency-focused rather than revenue-focused, with capital allocation favoring share buybacks and dividends over capital expenditures.
- Regulatory burdens and Basel regulations are expected to dampen leverage markets, particularly below-investment-grade debt in Asia, with slower adaptation in Western Europe.
- The U.S. economy could grow at 4% or more if regulatory burdens are reduced and the financial environment is clarified, potentially doubling growth rates compared to current levels.
- Addressing entitlement issues, such as raising eligibility ages, is viewed as necessary for economic healing and the reduction of secular debt burdens.
- Cyber threats are accelerating faster than corporate capabilities, becoming a permanent cost and a key topic in international trade pacts, with small and mid-sized businesses being particularly vulnerable.
- U.S. companies remain reluctant to increase foreign direct investment in China due to intellectual property concerns.
- Middle-aged consumers may stay conservative regarding spending until debt service burdens decrease, though potential exists for increased spending if debt levels fall.
- Confidence in leadership and policy direction is critical to altering the economic equation, alongside the need for capital markets to adapt to new global competitive dynamics.