2. #IASACINVO The 2016 Executive Education Roundtable Series

3. It is The Eighth Year: The Zeros Have Left The Building San Antonio, Texas June 13, 2016 John W. Mitchell

4. June 2016  Month 84-only 3 Longer Postwar  Six Years of Growth Near 2%  Inflation Near 1%, Unemployment at 5%  Oil Price Volatility $110-$25-$48- General Commodity Weakness  Net Worth Up $2.6 Trillion in 2015- More than ½ Holding Gains on Real Estate  NIRP Enters the Vocabulary-Underwriting Pressure  Grand Monetary Experiment Unfolding-None of Us have been Through Before

5. Q1-15Q2-15Q3 15Q4-15Q1-16 GDP.63.921.4.5 Consumption 1.83.63.02.41.9 Equipment 2.3.39.9-2.1-8.8 Intell Prop 7.48.3-.8-.21.7 Non-Res -7.46.2-7.2-5.1-10.7 Residential 10.19.38.210.114.8 Federal 1.10.22.3-1.6 State and Local -.84.32.8-1.22.9 Exports -65.1.7-2-2.5 Imports 7.132.3-.7.2 Real GDP 2015-16 Commerce Department (SAAR,%)

6. Labor Market Data To April Monthly Change Payroll Employment 2015-2016  5.5 Million Jobs Above 1/08 Peak and 14.2 Million Above 2/10 Trough  Participation Rate 62.8%-Above the Lows-Down for the Month  All Super Sectors up except Mining, Logging and Manufacturing  Part Time Economic Reasons 5.78 Million down by 589,000 Over the Year  Hourly Earnings Growth-2.5%- Moving up?

7.  Beige Book April, 2016 “Labor market conditions continued to strengthen.”–”difficulty in filling certain positions in a number of low and high skilled occupations.” Notably contacts reported difficulty in finding quality retail workers, low skilled manufacturing workers, construction workers and skilled professionals in occupations such as information technology, accounting, engineering and customers service.”  NABE April Survey-Wage Pressures Highest in Transportation, Utilities, Information and Communication  Walking Around, Watching and Listening

8. Atlanta Fed Wage Growth Tracker Median Change in Hourly Earnings Same People Over 12 Months

9. Consumer Prices

10. The Dollar

11. Inflation  CPI.9% YoY in March  Core 2.2%  Always A Mix: Food at Home, Apparel, Airline Fares, Energy Down over the Year, Increases in Rent, Medical, Auto Insurance  Gasoline Down over 20.9% to March  In March Import Prices rose.2% on a 4.9% Fuel Price- Year over Year - 6.2% Year Fuel -38.3% and Other Imports down 2.5%- Year over Year down Every Month Since July 2014  Import Prices Falling from All Regions except France.1% Increase  PCE March.8%, Core 1.6%  Fed-Transitory Influence of Dollar and Oil- How Long?

12. Federal Funds Rate and 10 Year Treasury Source: Treasury, Fed

13. Rates  More than $8 Trillion of Government Debt Trades with Negative Interest Rates (WSJ 4/!5)  Sweden, Switzerland, Denmark, Japan, ECB-Negative Central Bank Rates  Applied to Central Bank Deposits-Not passed on in Negative Rates, but Fees for Deposits, No Interest  Try to Encourage Lending, Hold Down Currency, Try to Increase the Rate of Inflation  10 Year US 1.93%, Japan -.1%, Germany.29%, Canada 1.5%, Denmark.56% Switzerland -.22% (Economist 4/30)  Mortgage Rates 4/29 3.66%  Search for Yield-Monetary Policy and Asset Prices

14.  Consensus 1.8% in 2016 and 2.3% in 2017  Inflation 1.2% in 2016 and 2.3% in 2017- The December to December changes the last 2 years have been.8% and.7  Fed Long Term Median 2016 2.2%, 2017 2.1% and 2018 2%, Longer Run 2% (March)  Consensus Forecasts, OMB, CBO- Annual Projections 2018-2022-Average Between 2.3% and 2.1% Outlooks (Note the Preponderance of 2’s)

15. Other Long Cycles-End of Recession to Year Seven Real GDP Growth

16. The No Show Acceleration  Tsunami, Weather, West Coast Port Disruptions  Budget Conflicts/Shutdown/Debt Ceiling/Episodes  Fiscal Policy Headwinds –a la the late 30’s  Old Oil Shocks  New Oil Shocks (US Production in 2010 5.5 MBD in 2015 9.7 MBD)  Global Weakness and the Dollar  Permanent Effect of Recession/Policy (Hysteresis)  Something More Fundamental-Secular Stagnation? Old Idea Back in the News

17. Labor Productivity Growth in The Business Sector 1947-2015

18. BLS December, 2015 Labor Force Employment Projections Distribution 2004 Distribution 2014 Distribution 2024 1994- 2004 AGR 2004-14 AGR 2014-24 AGR Total1.2%.6%.5% 16-2415.1%13.7%11.3%.3-.4-1.4 25-5469.364.663.9.8-.1.4 55- Older 15.621.724.843.91.8

19. Blip-Trend-Leftover?  Robert Gordon “The Rise and Fall of American Growth” 2016- Headwinds  Demographics-Aging Population  Educational System  Inequality-Holding Down Median  More Limited Impact of Technical Advances Others  Leftovers from Great Recession  Excess Savings Limiting Monetary Policy  Regulatory/Policy Mix

20.  4/27/16 “labor market conditions have improved as growth in economic activity appears to have slowed” “household spending moderated”, “housing sector has improved further, but business fixed investment and net exports have been soft.” “Inflation continued to run below..objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports.”  “The Committee continues to closely monitor inflation indicators and global economic and financial developments.”  Inflation “ to rise to 2 percent over the medium term as the transitory effects of the declines in energy prices and import prices dissipate and the labor market strengthens further.” Monetary Policy

21. When the next downturn arrives, what happens?  Rate Cuts, Forward Guidance, Quantitative Easing, Negative Rates- Bernanke (2016)  Helicopter Money-An Expansionary Fiscal Policy financed by an increase in the Money Supply

22. Fiscal Policy  Two Year Budget Deal late in 2015-Kick the Can  CBO(2016) Budget Deficit Increase for the first Time in 6 Years as a Share of GD  7% Increase in Mandatory, 3% Discretionary and 14% Increase in Net Interest  Health Care Related 11%- 60% of the Increase in Mandatory  Squeeze on Discretionary  CBO makes its Usual Warnings

23. Residential Permits- (,000) A Long Road A 12% Increase in 2015 and 7.1% to March, 2016

24. Housing Questions  Millennial Behavior-Apartments or Houses (TV Commercial)  Employment Growth, Household Formation Gain, Ease in Lending Standards  Capacity to Produce-Workers-Permits-Lots-Backlog of Permits Not Started Increasing  Homeownership Rate Ticking Up  Negative Equity down to 10.7% in Q4-CoreLogic Nevada High at 18.7%, Texas 2.1%  Case-Shiller-February National 5.3%-Prices Back to Winter 2007- Portland, Seattle, Denver and San Francisco at the top of the List  FHFA House Price Index up All States other than Connecticut Q4 2015

25.  Idaho 1  Oregon 2  Utah 3  Tennessee 4  Arizona 5  Washington 6  Georgia 7  Florida 8  Virginia 9  Colorado 10  South Carolina 11  Nevada 12  California 13  Hawaii 14  Delaware 15 Job Growth Update March 2016 Data Year over Year Change – 43 States Up Source: BLS, ASU  North Carolina 16  Maryland 17  Arkansas 18  Michigan 19  Kentucky 20  Rhode Island 21  New Jersey 22  Ohio 23  Massachusetts 24  New Hampshire 25  Mississippi 26  Vermont 27  Wisconsin 28  New York 29  Texas 30  Nebraska 31  Illinois 32  Minnesota 33  Pennsylvania 34  Alabama 35  Indiana 36  Missouri 37  Iowa 38  Maine 39  Connecticut 40  South Dakota 41  Montana 42  New Mexico 43  Kansas 44  Oklahoma 45  Alaska 46  Louisiana 47  West Virginia 48  Wyoming 49  North Dakota 50

26. Texas Job Growth Year to March, 2016 (1.5%)

27. California Job Growth Year to March, 2016 (2.8%)

28. North Dakota Job Growth Year to March 2016 (-4.1%)

29. 2016 Themes  National Expansion Should Continue  Risks-Slow Growth/Shock –Carl Dietz Theory-Robert Shiller- ”Basically, global recessions begin when newly popular narratives reduce individuals motivation to spend money. Psychology matters a great deal.” (May 1 NYT) Opening Weeks of 2016  Tightening Labor Markets  Inflation Pick Up- As Transitory Events Pass-Energy Adjustments  Tech Sector Strength  Residential Markets Improving  Implications of Overseas Events  Gradual Rate Increases-Data Driven –Volatility  Regions float on a global sea, buffeted by local tides and winds.

30. Before You Go To Sleep  Is 2% Growth the New Normal? Will There Be A Policy Response?  Will We Be Able to Enhance Mobility and Enable Potential To Be Realized?  How Do Expansions End?