Bill Dunkelberg, Presentation - October 20, 2011

DR. WILLIAM DUNKELBERG Chief Economist NATIONAL FEDERATION OF INDEPENDENT BUSINESS ECONOMIC STRATEGIST

CHAIRMAN, LIBERTY BELL BANK, NEW JERSEY PROFESSOR OF ECONOMICS

CHAIR, GLOBAL INTERDEPENDENCE CENTER

CONSUMPTION SHARE OF GDP & CONSUMER SAVING CONSUMPTION SPENDING SAVING RATE

8

64

6

62

4

60

2

58

0 '0 8

66

'0 3

10

98

68

93

12

88

70

83

14

78

72

“EXCESS” DEBT: PAYING FOR THE “PARTY” 16000 14000

DEBT=.7GDP

ACTUAL

MAINTAINING DEBT/GDP RATIO IN 1999

12000 (000)

10000 8000 6000 4000 2000 0

90

93

96

99

'02

'05

'08

'11

TRADE DEFICIT -100 -200 -300

THE PARTY

-400 -500 -600 -700

Source: BEA

'0 8

'0 3

98

93

88

83

-800

78

BILLIONS OF CONSTANT DOLLARS

0

DELINQUENCY RATES (AT COMMERCIAL BANKS) CARDS RESIDENTIAL COMMERCIAL

C&I

13 12 11 10 PERCENT

9 8 7 6 5 4 3 2 1 91

93

95

97

99

'01

'03

'05

'07

'09

'11

INDEX OF CONSUMER SENTIMENT 110

90 80 70

QUARTERLY+AUG,SEPT

60

Source: University of Michigan

'0 8

'0 3

98

93

88

83

50

78

Index Value

100

GDP AND EMPLOYMENT GDP(left)

EMPLOYMENT(right)

14000

146000 144000

13000

142000 140000

12000

138000 11000

136000 134000

HUGE EMPLOYMENT GAP

10000

132000 9000

130000 '00

'03

'06

'09

Manufacturing employment was increasing up until 1979 and has been moving lower over the past 30 years

Manufacturing employment millions

20 18 0.8%

16 -1.6%

14 12 10 1940

'50

'60

'70

'80

'90

'00

'10

This translated into an almost 600 percent increase in manufacturing output over this time period

Manufacturing Index 2007=100

millions

120

120

100

100

output - left scale

80

80

60

60

40

40

20

20 employment - right scale

0

0 1940

'50

'60

'70

'80

'90

'00

'10

What took 1,000 workers to produce in 1950 takes 177 workers today

Manufacturing sector: Number of workers needed to do the work of 1,000 workers in 1950 Number of workers

1,000 900 800 700 600 500 400 300 200 100 0

1,000 813 627 485 362 243

1950

1960

1970

1980

1990

2000

177 2010

Manufacturing employment losses have occurred across numerous countries – among 20 big economies, 22 million jobs were lost Percent change in manufacturing employment: 1995-2002 percent

25 20 15 10 5 0 -5 -10 -15 -20 -25

We are producing more in our farm sector than at any time in our history

Real gross value added: farm business Billions of chained 2005 dollars

120 100 80 60 40 20 0 1947

'57

'67

'77

'87

'97

'07

And we are accomplished this remarkable feat with less than 2.0% of our employment devoted to farming Share of total employment percent

90 80

services

70 60 50 40 30

manufacturing

20 10 0

agriculture

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

This difference has led to China having the largest trade deficit with the U.S.

Trade balance (customs value) billions of dollars

100 0 China

-100 -200 -300

Mexico Japan

-400

Germany Canada Korea UK

-500 -600

rest of trade deficit

-700 -800 -900 1975

'80

'85

'90

'95

'00

'05

'10

While China has increased its share of imports to the U.S., the Pacific Rim as a whole has had a declining share since the mid-90s Share of U.S. imports percent

45 40

Pacific Rim

35 30

Pacific Rim excluding China

25 20 15 10

China

5 0 1974

'78

'82

'86

'90

'94

'98

'02

'06

'10

Manufacturing jobs have been rising beginning in 2010

Manufacturing employment percent

5 0 -5 Percent change from a year earlier

-10 -15 Quarterly change (saar)

-20 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

SMALL BUSINESS OPTIMISM INDEX AND COMPONENTS

SMALL BUSINESS OPTIMISM INDEX (QUARTERLY, 1986 = 100) MANUFACTURING

115 110 105 100 95 90 85 80 76

79

82

85

88

91

94

97

'00

'03

'06

'09

EXPECTATIONS FOR GENERAL BUSINESS CONDITIONS IN 6 MONTHS (PCT “BETTER” - PCT “WORSE”)

MANUFACTURING

90

50 30 10 -10 -30

'09

'06

'03

'00

97

94

91

88

82

79

85

SEASONALLY ADJUSTED

-50

76

Percent of Firms

70

OUTLOOK FOR BUSINESS EXPANSION (PCT “NOW IS A GOOD TIME”)

MANUFACTURING

30 25 20 15 10 5

(SEASONALLY ADJUSTED)

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

0

76

Percent of Firms

35

REPORTED CHANGE IN PAST SALES (last 3 months vs prior 3)

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

50 40 30 20 10 0 -10 -20 -30 -40 -50 [% "HIGHER" - % "LOWER", SEAS. ADJ.]

76

Percent of Firms

MANUFACTURING

EARNINGS TRENDS: %”HIGHER” - %”LOWER” PAST QUARTER VS PRIOR QUARTER MANUFACTURING 15

-5 -15 -25 -35 -45

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

-55 76

Percent of Firms

5

EXPECTED REAL SALES MANUFACTURING

70 60 40 30 20 10 0 -10 -20 -30

[% "HIGHER" - % "LOWER", SEAS. ADJ.]

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

-40

76

Percent of Firms

50

CREDIT MARKETS CREDIT AVAILABILITY AND CREDIT COSTS

SMALL BUSINESS CREDIT PROBLEMS (% HARDER TO GET - % EASIER) MANUFACTURING 25 20 15 10 5 0 -5

'0 0 '0 3 '0 6 '0 9

97

94

91

88

85

82

79

-10

76

Percent of Firms

30

REGULAR BORROWING ACTIVITY (AT LEAST ONCE A QUARTER)

MANUFACTURING 55 50 45 40 35 30

'0 6 '0 9

'0 0 '0 3

94 97

88 91

82 85

25

76 79

Percent of Firms

60

LOAN DEMANDS WEAKEN THROUGH THE RECESSION PERCENT OF ALL FIRMS NOT WANTING A LOAN

55 50 45

MANUFACTURING

40 35

'1 1

'0 8

'0 5

'0 2

99

96

30

93

Percent of Firms

RECESSION STARTS

SINGLE MOST IMPORTANT PROBLEM FACING OWNERS INFLATION

45

CREDIT

35

MANUFACTURING

30 25 20 15 10 5

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

0

76

Percent of Firms

40

PRICES AND WAGES

PAST & PLANNED PRICE CHANGES LOWER

80

higher

60

PLAN HIGHER

MANUFACTURING

50 40 30 plans

20 10

'0

6 '0

3 '0

0 '0

97

94

91

88

85

82

79

9

lower

0 76

Percent of Firms

70

HIGHER

ACTUAL PRICE INCREASES SEASONALLY ADJUSTED MANUFACTURING

80

40 20

-40

'0 0 '0 3 '0 6 '0 9

97

94

91

88

85

82

-20

79

0

76

Percent of Firms

60

CHANGES IN PRICES AND LABOR COMPENSATION RAISED COMPENSATION

RAISED PRICES

50

30 20 10

-20 -30 -40

'1 1

'0 8

'0 5

'0 2

99

96

93

90

-10

87

0 84

Percent of Firms

40

MANUFACTURING SEASONALLY ADJUSTED NET % OF FIRMS

EMPLOYMENT AND JOB CREATION

UNFILLED JOB OPENINGS % WITH AT LEAST ONE UNFILLED OPENING MANUFACTURING

55

Percent of Firms

50 45 40 35 30 25 20 15

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

76

10 5

JOB CREATION PLANS % PLAN INCREASE - % PLAN DECREASE MANUFACTURING 40

20 10 0 -10

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

-20 76

Percent of Firms

30

MOST IMPORTANT PROBLEMS LABOR COST

35

MANUFACTURING

25 20 15 10 5

'09

'06

'03

'00

97

94

91

88

85

82

79

0 76

Percent of Firms

30

LABOR QUALITY

'0 9

'0 6

'0 3

'0 0

97

94

88

85

82

91

MANUFACTURING

2 1.5 1 0.5 0 -0.5 -1 -1.5 -2 -2.5 -3 -3.5 -4

79

NUMBER OF WORKERS

AVERAGE CHANGE IN EMPLOYMENT PER FIRM

PLANNED & ACTUAL LABOR COMPENSATION CHANGES ( NET PERCENT OF FIRMS) INCREASED

PLAN TO INCREASE

50

30 20 10

'1 0

'0 7

'0 4

99

96

93

90

'0 2

-10

MANUFACTURING 87

0 84

Percent of Firms

40

CAPITAL EXPENDITURES AND INVENTORY INVESTMENT

ACTUAL CAPITAL OUTLAYS % SPENDING

85

%SPEND + LEASE

Percent of Firms

80 75 70 65 60 55 50 45

LEASING ADDED MANUFACTURING

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

'7 9

40

PLANNED CAPITAL OUTLAYS (NEXT SIX MONTHS) MANUFACTURING 60 50 45 40 35 30 25 20

'1 0

'0 7

'0 4

'0 1

98

95

92

89

86

83

80

15

77

Percent of Firms

55

ACTUAL CHANGE IN INVENTORY (% INCREASING - % REDUCING)

MANUFACTURING 20 10 0 -10 ??

-20 -30

'09

'03 '06

'00

97

94

91

SEASONALLY ADJUSTED

88

85

-40

INVENTORY SATISFACTION (% “TOO LOW” - % “TOO HIGH”) MANUFACTURING 10

0 -5 -10 -15

SEASONALLY ADJUSTED

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

-20

76

Percent of Firms

5

INVENTORY INVESTMENT PLANS [% PLAN INCREASE – % PLAN DECREASE]

MANUFACTURING 25 15 10 5 0 -5 -10

'0 0 '0 3 '0 6 '0 9

97

94

88

85

82

79

91

SEASONALLY ADJUSTED

-15

76

Percent of Firms

20

MOST IMPORTANT PROBLEMS 50

REGULATIONS

WEAK SALES

INSURANCE

MANUFACTURING

35 30 25 20 15 10 5

'0 0 '0 3 '0 6 '0 9

94 97

88 91

82 85

0

76 79

Percent of Firms

45 40

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