dunk paris Dec 0506

U.S. ECONOMIC GROWTH AND ITS ENTREPRENEURIAL SECTOR BILL DUNKELBERG CHIEF ECONOMIST NATIONAL FEDERATION OF INDEPENDENT BUSINESS PROFESSOR OF ECONOMICS, TEMPLE UNIVERSITY CHAIR, GLOBAL INTERDEPENDENCE CENTER CHAIRMAN OF THE BOARD, LIBERTY BELL BANK

ECONOMIC GROWTH • LABOR GROWTH, QUALITY • CAPITAL WIDENING AND DEEPENING • PRODUCTIVITY – HOW WELL IS CAPITAL USED, LABOR REALLOCATED TO BEST USE, RETRAINED FOR NEW JOBS • SMALL BUSINESS AT THE CORE OF THIS GROWTH

PERCENTAGE CHANGE IN REAL GDP 20 15 10 5 0 -5 -10

76 79 82 85 88 91 94 97 '00 '03 '06

HOME OWNERSHIP RATES 70

66

64

62

'0 4

'0 1

9 8

9 5

9 2

8 9

8 6

8 3

60 8 0

Percent

68

RESIDENTIAL VACANCY RATES 10 8 6 4 2 VACANCY RATES

0

86

91

96

'01

ENTREPRENEURIAL FACTS • 90% OF ALL EMPLOYERS HAVE FEWER THAN 20 EMPLOYEES • 98% HAVE FEWER THAN 500 • PRODUCE HALF OF THE PRIVATE SECTOR GROSS DOMESTIC PRODUCT • EMPLOY 60% OF PRIVATE SECTOR EMPLOYEES • PRODUCE 2/3RDS OF THE NEW JOBS

THE UNEMPLOYMENT RATE ACTUAL

6.5

PREDICTED

6

Percent

5.5 5 4.5 4 FOURTH QUARTER FORECAST

3.5 3

95

98

'01

'04

'07

66

RATIO OF # EMPLOYED TO POPULATION AGE 16 YEARS +

64 62 60 58

10% + UNEMPLOYMENT

56

'0 6

'0 5

95

85

75

65

54

JOB CREATION BY FIRM SIZE 2000:1 - 2001:1 (000) 1200

1,111,183

1000 800 600 400

39,692

200

-150,905

0 -200

UNDER 20

20-499

500+ EMPLOYEES

IMMIGRATION STATISTICS FOREIGN BORN POPULATION (MM) % FOREIGN BORN LEGAL IMMIGRATION PER 1000 POPULATION 35 30 25 20 15 10 5 0

1850

1870

1890

1910

1930

1950

1970

1990

2010

IMMIGRATION • NUMBER OF ILLEGALS LOWERED BY AMNESTY OF 1987-88 • 300,000 + ILLEGAL ENTRANTS PER YEAR • HALF ENTER LEGALLY AND OVERSTAY • CONCENTRATED IN YOUNG LABOR FORCE GROUP • GROWING % OF SCIENTIFIC PROFESSIONALS • FIRST AND SECOND GENERATION IMMIGRANT CHILDREN DO EXCEPTIONALLY WELL IN SCHOOL • 200,000 PEOPLE LEAVE THE U.S. EACH YEAR • ILLEGAL IMMIGRANT FLOWS DEPEND ON ECONOMIES IN THE SOURCE COUNTRIES

SMALL BUSINESS OPTIMISM INDEX (QUARTERLY, 1986 = 100) SEASONALLY ADJUSTED

MONTHLY APR-AUG

QUARTERLY

110 105 100 95 90 85

GREEN DOTS=APR,JUL,OCT QUARTERLY

80 76

79

82

85

88

91

94

97

'00

'03

'06

UNFILLED JOB OPENINGS % WITH AT LEAST ONE UNFILLED OPENING QUARTERLY

MONTHLY, APR-NOV

40

30 25 20 15 10 5

06

03

00

97

94

91

88

85

82

79

0 76

Percent of Firms

35

JOB CREATION PLANS % PLAN INCREASE - % PLAN DECREASE QUARTERLY

MONTHLY, APR-NOV

25

15 10 5 0 -5

06

03

00

97

94

91

88

85

82

79

-10 76

Percent of Firms

20

PRODUCTIVITY (OUTPUT PER HOUR) OUTPUT PER HOUR (1992=100)

MFG OUTPUT PER HOUR

200

INDEX

150

100

50

0 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002

TRADE

EDUCATION IS ONE OF OUR LARGEST EXPORTS (MOST RETURN HOME) US WORKERS SEND MONEY TO THEIR HOME COUNTRIES IMPORTS = HIRING FOREIGN LABOR TO PRODUCE IN THEIR COUNTRIES RATHER THAN MOVING HERE “OUTSOURCING” IS OFTEN A “NEW” JOB, NOT THE LOSS OF A DOMESTIC JOB

U.S. TRADE DEFICIT EXPORTS-IMPORTS [CONSTANT DOLLARS] 100 0 -200 -300 -400 -500 -600

TALK ABOUT OUTSOURCING!!

-700

5 '0

2 '0

99

96

93

90

87

84

81

-800 78

Billions of Dollars

-100

MOST IMPORTANT PROBLEMS LABOR COST

LABOR QUALITY

20

FIRST MONTH IN EACH QUARTER: + NOV 15 10 5

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

0 76

Percent of Firms

25

MOST IMPORTANT PROBLEMS INFLATION

45

FIRST MONTH IN EACH QUARTER: + NOV

35 30 25

CENTRAL BANK MUST CONTROL INFLATION AND CREDIT DEMAND

20 15 10 5

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

0

76

Percent of Firms

40

CREDIT

SMALL BUSINESS CREDIT PROBLEMS (% HARDER TO GET - % EASIER)

QUARTERLY

MONTHLY, APR-NOV

25 20 15 10 5 0

'0 4

'0 2

98

95

92

89

86

83

80

77

-5

74

Percent of Firms

30

INFLATION: CONSUMER PRICE INDEX PREDICTED BY NFIB SURVEY

Percent

18 16 14 12 10 8 6 4 2 0 -2 -4

PREDICTED

ACTUAL

NFIB Q3 FORECAST 4.7%

CORE CPI INFLATION PREDICTED BY NFIB SURVEY PREDICTED

16

ACTUAL

14 12 8 6 4 2

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

0

76

Percent

10

INDEX OF CONSUMER SENTIMENT

110

Index Value

100 90 80 70 60 50 78

80 82 84 86 88 90 92 Source: University of Michigan

94

96

98

'00 '02 '04 '06

STOCK MARKET S&P

NYSE

NASDQ

9000 8000 7000 6000 5000 4000 3000 2000 1000

'0 3

'0 0

97

94

91

88

85

82

79

76

73

70

0

INTEREST RATES 16

2 YEAR

10 YEAR

FED FUNDS

14 12 10 8 6 4 2

'0 5

'0 0

95

90

85

80

0