Conference Presentation, Panel
U.S. Overview: Will the Economic Tailwind Continue?
Milken InstituteRoss DeVol, John Chen, Francisco González Díaz, Vasant Prabhu, Steven Rattner, Alan Schwartz
- Consumer and business confidence have surged in recent months with a disconnect from hard data, while credit card and debit card spending grew at high single to mid-single digit rates through 2016 and into 2017.
- Global growth is returning and inventory constraints have lifted, with consumer spending and housing identified as the economy's strongest areas, though their sustainability remains uncertain.
- Economic growth is projected to average around 2% in the coming period, with second-quarter figures potentially reaching the "threes," driven by fundamentals rather than policy expectations alone.
- Middle-income households and mid-tier cities have driven spending growth over the last four to six quarters, replacing the top 10 metros, while millennials remain below the typical home-buying age with financial strain from student loans.
- U.S. manufacturing expansion is limited by global productivity shifts and a shrinking labor force, with Mexico's auto sector offering competitive wages of $7 to $10 per hour compared to $55 in the U.S., making production shifts costly.
- Corporate capital commitment relies on a return of "animal spirits," and while innovation in technology is expected to remain strong, the healthcare sector is anticipated to generate significantly more jobs.
- Tax reform efforts face a less than 50% to 55% probability of passage in 2017 due to partisanship, though a territorial tax system with repatriation incentives is viewed as a strong business case.
- Trade negotiations for a new NAFTA are expected by the end of 2017 or early 2018, though supply chains are deeply integrated with parts crossing borders up to twelve times annually.
- Legislation regarding the Affordable Care Act faces significant hurdles with a lower probability of success than tax reform, potentially resulting in modifications that fit reconciliation rules while keeping the law largely intact.
- Long-term growth above 2% is deemed virtually impossible due to low productivity, and payroll tax burdens on the working population are considered unsustainable without structural change.
- Skills mismatches regarding 5 million unfilled job openings are currently unaddressed, while corporate behavior is increasingly driven by the pressure to extract profit to satisfy shareholders.
- Trade policy adjustments involving Mexico, China, and Canada carry risks of altering policies from campaign promises, with specific tariffs potentially adding $3,000 to average pickup truck costs.