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THE ECONOMY UNDER TRUMP: WHAT TO EXPECT
RICHARD P. VOITH, PH.DPRESIDENT AND PRINCIPAL ECONSULT SOLUTIONS INC
February 7, 2017
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1.1 Uncertainty at Record Highs
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1.2 Investors Remain Optimistic: S&P 500
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PRESENTATION OVERVIEW
1. Where We Are
2. Trump Policies
3. Macroeconomic Impacts
4. Impacts by Sector
5. Conclusion
1.3
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Where We Are: Conventional Facts vs. Alternative Facts
1. Global Population and Global Income 2. Employment Trends3. Unemployment Rate4. Inflation5. Federal Deficit 6. Federal Debt Payments7. State of Cities8. Labor and Capital 9. Immigration10.Relative Global Wages
2.0
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2.1 Global Population & Global Income
China 19%
India 18%
United States 4%
Indonesia 4%Brazil 3%Russian Federation 2%Mexico 2%
Other Countries 53%
US 24%
China 15%
India 3%
Russia 2%Mexico 2%Brazil 2%Indonesia 1%
Other Coun-tries 51%
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2.2 Employment Trends
Bill Clinton Barack ObamaGeorge W. Bush
69%Of Trump Supporters believe
the job situation has gotten worse
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2.3 Unemployment Rate
George W. Bush Barack Obama
“I’ve seen numbers of 24% -- I actually saw a number of 42% unemployment. Forty-two percent” - Donald Trump, September 28,2015
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2.4 Inflation
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2.5
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State of Cities: Philadelphia Population2.7
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State of Cities: Philadelphia Investment2.8
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State of Cities: Philadelphia Murders2.9
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
100
200
300
400
500
600
Hom
icid
es
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2.10 Labor and Capital
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2.12 Immigration: Mexico
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2.13 Global Relative Wages Adjusted for PPP
India
China
Mexico
Hunga
ryLa
tvia
Czech
Rep
ublic
Korea
Italy
Japa
nSpa
in
Sweden
France
United
King
dom
German
y
Canad
a
Netherl
ands
Norway
Switzerl
and
United
Stat
es
Luxe
mbourg
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
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3.0 Forecasts of the Trump Economy
Mark Zandi Moody’s Analytics Tax Policy Center OECD
Annual US GDP Growth Rate Forecasts:
0.6% 2.3% 2.3%-3%
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3.1 Trump’s Policies
Immigration
National Security
Tariffs vs. Weak Dollar
Deregulation
Infrastructure Investment
Federal Reserve
Repeal Affordable Care Act
Jawboning
Domestic International
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– Key Features• Travel Ban 7 Majority Muslim Countries
– Reduced Legal and Illegal Immigration• Border Wall with Mexico
– Shorten H1B Visa Periods
3.2 Immigration
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– Social Security and Demographics– National Competitiveness– Regulatory / Enforcement Costs
oWill Policies Improve Security?oWill Policies Improve the Competitiveness
of US Workers?
3.2 Macro Impacts: Immigration
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– Key Features• Increased Military Expenditures• America First Policy
3.3 National Security
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– Increased Economic Activity Near Term
– Rising Federal Debt or • Reduced Expenditures in Other Areas
– Greater Uncertainty for Global Business
3.3 Macro Impacts: National Security
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– Key Features
• “Border Adjustments”• Weak Dollar Policy• Renegotiating or Opting Out of Treaties
3.4 Tariffs & Dollar
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Macro Impacts: Tariffs and Dollar
– Higher Costs– Inflation– Reduced Imports– Higher Interest Rates
– Risks• Retaliation• Global Downturn• Where Will Global Companies Invest?
3.4
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– Key Features• Reduced Environmental Regulation• Reduced Financial Regulation
– Increased Travel / Immigration Regulation
3.5 Deregulation
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– Lower Costs for Businesses Near Term– Lower Costs for Infrastructure– Changing Health Costs– Increased Risks Associated with Bad
Financial Behavior
o Is Climate Change a Hoax?o Great Recession in Part Caused by Poorly
Regulated Shadow Banking
3.5 Macro Impacts: Deregulation
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– Key Features• Simplification in Theory• Increased Complexity with Increased Use
of Tax Credits• Lower Marginal rates for High Income• Reduce or Eliminate Corporate Income Tax• Eliminate Carried Interest• Reduced Total Taxes
3.6 Tax Reform
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– Corporate Income Tax Reduction/Reform will Improve Competitiveness
– Lower Marginal Rates on High Income • Higher Deficits• Higher Interest Rates• Greater Interest Paid on Debt
– Recession Risk in 3 years
3.6 Macro Impacts: Tax Reform
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– Key Features• Trillion Dollar Infrastructure Investment• Tax Credits a Key Funding Sources
3.7 Infrastructure
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– Increased Economic Activity– Potentially Higher Inflation/ Interest Rates
Improved Productivity
oWill Infrastructure Have Public Benefits ifo Guided Heavily by Private Profit?
3.7 Macro Impacts: Infrastructure
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– Uncertainty About President Trump’s Intentions with Respect to the FED
– Loss of Independence Would Be a Disaster
3.8 Federal Reserve
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– President Trump Views Himself as a Master Negotiator
– Most Believe that the Economy Is Too Complex to Effectively Deal on a One-off Basis
3.9 Jawboning
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– Healthcare Is a Major Cost Element for Employers
– Healthcare Is a Major Player in Most State’s Economies
3.10 Repeal ACA
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1. Education and Healthcare2. Manufacturing3. Finance4. Construction and Real Estate5. Retail 6. Energy7. Regions, Cities and Communities
4.0 Impacts By Sector/Area
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– Uncertainty -> Inhibits Hiring and Growth
– Immigration• Negative for High Skilled Labor • Many Rural Doctors are Immigrants• Lost of Full Freight Students
4.1 Eds and Meds
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– Tariffs • May Benefit if No Retaliation• Incentives to Move Plants Overseas if Retaliation• Disrupt Global Supply Chains
– Infrastructure• Enhances Productivity
– Higher Interest Rates Adversely Affect Cyclical Industries
– Mixed Bag for Auto Manufacturing
4.2 Manufacturing
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• Deregulation– Boon to Finance, Short Term
• Immigration—– Talent Constraint – Services Can Be Produced Elsewhere
4.3 Finance
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– Infrastructure Spending Improves Construction if Major Program Approved
– Real Estate at Risk From Higher Interest Rates
4.4 Construction and Real Estate
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– Immigration • Disrupts Supply Chains• Lowers Labor Supply
– Continued Challenge from Online
4.5 Retail
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– Deregulation• Boon to Fossil Fuel Suppliers, Pipelines • Negative for Some Rail Shippers• Negative for Renewable Energy
– Fossil fuel prices under continued pressure
4.6 Energy
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– Immigration• Immigrants have been lifeblood of cities, some
rural communities– Tariffs
• Adversely affect ports and border communities – Energy
• Communities differentially affected by Climate Change
– Regulation: little impact in states that impose regulations anyway
4.7 Communities
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– Huge Uncertainty
– Trade War or Capitulation?
– War or Capitulation?
– Is Trump Crazy or Crazy Like a Fox?
5.0 Conclusion