Presented at the Bankers Association for Finance and Trades 82nd Annual Meeting A Global Focus

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John W. Mitchell Economist Western Region U.S.
Bank Questioning the Basics
Presented at the Bankers Association for
Finance and Trades82nd Annual Meeting A Global
Focus
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The Bankers Association for Finance and Trade

• Dedicated to fostering and promoting
  international trade, finance and investment
  between the United States and its trading
  partners.
• WSJ March 10, 2004 Port expansions make it
  easier and cheaper for imports and kills American
  manufacturing jobs.
• Off-shoring, outsourcing are at or near the top
  of public concerns.
• Globalization for some is a bad word.

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Core Beliefs

• Trade is good. Specialization and trade raise
  living standards.
• Competition helps lower prices and improve
  quality.
• Nations with open economies have succeeded.
• Cleanliness is next to affluence.

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BUT!

• There are people and regions who lose in the
  process.
• The environment for making transitions has been
  unfavorable and some of the major institutions
  that help have been weakened.
• By virtue of historical accident employment
  equals medical insurance.
• Diffused Gains and Concentrated Losses
  understandably mean resistance.

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The Macro View

• 11th Quarter of Growth
• Low Inflation
• Tepid Employment Growth until March 2004
• Restored Net Worth
• The Long Run is November 2nd
• Economic Candor Not Welcome
• Geopolitical Worries Resurgent
• Energy Shocks-Again

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Residential Permits 2001-2004 (000, SAAR)
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Changes in Net Worth-Households and Nonprofits
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Real GDP Growth-Revised
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The Last Five Quarters
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Payroll Job Change 2003-4
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February State Performance- Job Growth Update-38
States Up

• Nevada 1
• Arizona 2
• Virginia 3
• Wyoming 4
• Florida 5
• Rhode Island 6
• Idaho 8

• Washington 21
• Oregon 35
• New York 36
• Colorado 47
• Massachusetts 48
• Michigan 49
• Oklahoma 50

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U.S. Employment Year to March, 2004
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Business Sector Productivity Growth 1994-2003
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Gross Job Gains and Losses(,000)
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Labor Market Performance

• Productivity-massive gains-more output fewer
  people-think agriculture. Manufacturing 5.1 in
  03 and 7.2 in 02
• Creative Destruction-Schumpeter
• Structural Change-Travel Agents, French Fry
  Makers, Call Center Workers
• Outsourcing? Insourcing?
• Long Periods of Unemployment, Labor Force
  Participation Falling
• Relative Costs-healthcare, pensions, bonus
  depreciation, low interest rates

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Inflation 2003-2004 Year over Year
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INTEREST RATES 2001-2004 How long will they wait?
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Onward and Upward!

• Fiscal and Monetary Policies
• Low Inventories
• Replacement Cycle
• Stronger World Economy-Dollar Weakness
• Profit Rebound
• Indicators-Leading, ISM

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2004 Prospects

• GDP growth moving up to near 4.5 in 2004
• Inflation near 2 Excess Capacity, Minimal
  Pricing Power, Dollar Decline? Non-core shocks?
• Fed will move when the labor market shows more
  signs of strength, and margins of excess capacity
  diminish. Second half of 2004?

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Things to Ponder

• Additional Attacks-Madrid?
• Job Growth-Sustained?
• Long Term Fiscal Policy-1,353 Days
• Political Response to Outsourcing and Import
  Competition

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Enlarging the Context Beyond Outsourcing

• International capital flows have helped hold down
  rates.
• Making the case for trade, putting change into
  perspective.
• Foreign owned firms generate employment.
• U.S. exports are rising and are ultimately the
  cost of imports.
• It is vital that we support policies and
  institutions that help those hurt by the process
  of change so that the gains from trade can be
  realized. Tighter labor markets are crucial.

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Thanks for Your Attention!
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