1 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved The US Economic Outlook: How Long Can the Good Times Roll? TVB New York September 7, 2000 David Wyss Chief Economist

2 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Rolling to New Records  The oldest expansion in history  Inflation is at a 30-year low  Lowest unemployment since 1970  Consumers are driving the economy  Wealth is driving consumer spending  Risks seem modest

3 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Slow But Steady (Average annual percent change in real GDP)

4 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Core Inflation a 30-Year Low

5 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Oil Prices Still Low ($/barrel, refiners acquisition price)

6 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved We Use Much Less Oil (Cost of crude oil and natural gas liquids as percent of GDP)

7 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved (Percent) The Fed is Raising Rates

8 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Only Treasury Yields Have Dropped (Percent)

9 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Surpluses As Far As the Eye Can See (Share of real GDP)

10 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved The Puzzle is Growth  Productivity has accelerated late  Instead of slowing as usual  Equipment at record share of GDP  Thanks to low interest rates  And reduced construction

11 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Investment At Record Share Of GDP (Nominal investment as a share of GDP)

12 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Declining Unemployment Among Less Educated Workers (Unemployment rate, persons 25 & older, June)

13 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved A More Educated Workforce (Educational attainment, percent of persons 25 & older)

14 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved The Poor Begin to Catch Up (Percent growth in real income by quintile)

15 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved The Sources of Growth (Percentage point contribution to GDP growth)

16 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Latin America Bouncing Back (Change in real GDP)

17 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Companies that are: New * “Fast-growing”** *Start-ups, merged companies ( ) **Companies whose turnover doubled in reference period ( )

18 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Saving Plunges As Wealth Hits A Record High (Percent of Income)

19 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Why Not Buy a New Vehicle?

20 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Debt Is Hitting New Records, Dominated By Mortgages (Household debt as share of after-tax income)

21 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Affordable Housing Allows More Households To Own

22 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Debt Service Burden High (Debt service as percent of after-tax income)

23 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Poor Households More Likely in Heavy Debt (Percent of households whose debt service is over 40% of after-tax income)

24 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Five Years of 20%-Plus Returns (Percent)

25 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Long Swings In Stock Returns (Average annual total return, percent)

26 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved (January 1996=1.0, S&P 500 Components) Technology Stocks are Running Away from the Market

27 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved High P/E Ratios in Tech (Forward p/e ratios)

28 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved The Risks Remain High  A stock market correction threatens an early recession  As consumer confidence falters  But all postwar expansions have ended in inflation  Followed by higher interest rates and a recession

29 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Recession Now Or Later Real Gross Domestic Product (Chained 1992 dollars, percent change from year earlier)

30 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved Sunbelt Achieves the Strongest Growth (Annual percent change, 1999 to 2004) 1.9 to to to to1.0

31 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved The Midwest Has the Lowest Unemployment Rates (Percent of labor force, May, 2000)

32 Copyright  2000 by The McGraw-Hill Companies, Inc. All rights reserved The US Economic Outlook: How Long Can the Good Times Roll? TVB New York September 7, 2000 David Wyss Chief Economist