return of the economist by: anirban basu€¦ · 17/01/2020 · seven for the dwarf-lords in their...

Return of the Economist By: Anirban Basu

Sage Policy Group, Inc.

On Behalf of

The Future of Maryland Manufacturing 2020

January 17th, 2020

Ring Verse

Three Rings for the Elven-kings under the sky,

Seven for the Dwarf-lords in their halls of stone,

Nine for Mortal Men doomed to die,

One for the Dark Lord on his dark throne,

In the Land of Mordor where the Shadows lie,

One ring to rule them all, one ring to find them,

One ring to bring them all and in the darkness bind them

Nine Reasons for Hope in the Kingdom of Men (& Women)

Photo: Warner Bros

I. There is Plenty of Job Growth on Middle Earth (OK, America)Net Change in U.S. Jobs, December 2002 – December 2019

Source: U.S. Bureau of Labor Statistics

-1000

-800

-600

-400

-200

0

200

400

600

800D

ec-0

2

Jun

-03

Dec

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Dec

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Th

ou

san

ds

December 2019:+145K

-21

12

46

80

122

125

151

161

388

397

647

-100 0 100 200 300 400 500 600 700

Mining & Logging

Information

Manufacturing

Other Services

Financial Activities

Trade, Transportation, & Utilities

Construction

Government

Leisure & Hospitality

Professional & Business Services

Education & Health Services

Thousands, SA

National Nonfarm Employmentby Industry Sector, December 2018 v. December 2019


All told 2,108K jobs gained

Maryland Nonfarm Employmentby Industry Sector Groups (SA)November 2018 v. November 2019 Absolute Change


-800

-400

200

300

600

2,300

5,000

5,200

6,500

8,700

-5,000 -2,000 1,000 4,000 7,000 10,000

Information

Other Services

Manufacturing

Financial Activities

Trade, Transportation, & Utilities

Mining, Logging, & Construction

Leisure & Hospitality

Government

Education & Health Services

Professional & Business Services

MD Total:

+27.6K; +1.0%

US Total (SA):

+2,190K; +1.5%

*According to the Local Area Unemployment Statistics (LAUS) programMD added 86,408 jobs between November 2018 and November 2019.

Maryland Manufacturing EmploymentNet Growth, 2000 – 2019


-12,000

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Nov.2019

Nov. 2019 YOY:+200 jobs (+2.0%)

Maryland Gross Domestic Product: Manufacturing2005Q1 – 2019Q2

Source: U.S. Bureau of Economic Analysis *Chained 2012 Dollars

$15.0

$16.0

$17.0

$18.0

$19.0

$20.0

$21.0

$22.0

$23.0

200

5Q1

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200

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2019

Q1

Manufacturing Output ($B)

Employment Growth, 25 Largest Metros (NSA)November 2018 v. November 2019 Percent Change

Source: U.S. Bureau of Labor Statistics, Current Employment Statistics (CES) Survey

Rank MSA % Rank MSA %

1 Dallas-Fort Worth-Arlington, TX 3.214

Washington-Arlington-Alexandria, DC-VA-MD-WV

1.81 San Antonio-New Braunfels, TX 3.2

3 Seattle-Tacoma-Bellevue, WA 2.9 15 Portland-Vancouver-Hillsboro, OR-WA 1.7

4 Orlando-Kissimmee-Sanford, FL 2.8 16 Baltimore-Columbia-Towson, MD 1.6

5 Houston-The Woodlands-Sugar Land, TX 2.7 16 St. Louis, MO-IL 1.6

6 Phoenix-Mesa-Scottsdale, AZ 2.6 18 Los Angeles-Long Beach-Anaheim, CA 1.5

7 Charlotte-Concord-Gastonia, NC-SC 2.4 18 Miami-Fort Lauderdale-West Palm Beach, FL 1.5

7 Denver-Aurora-Lakewood, CO 2.4 20 Boston-Cambridge-Nashua, MA-NH 1.4

7 San Francisco-Oakland-Hayward, CA 2.4 21 New York-Newark-Jersey City, NY-NJ-PA 1.0

10 San Diego-Carlsbad, CA 2.3 21Philadelphia-Camden-Wilmington, PA-NJ-DE-MD

1.0

11 Atlanta-Sandy Springs-Roswell, GA 2.2 23 Chicago-Naperville-Elgin, IL-IN-WI 0.6

11 Tampa-St. Petersburg-Clearwater, FL 2.2 24 Detroit-Warren-Dearborn, MI -0.3

13 Riverside-San Bernardino-Ontario, CA 2.1 24 Minneapolis-St. Paul-Bloomington, MN-WI -0.3

II. Fewer Idle in the ShireU.S. Unemployment Rate, December 2000 – December 2019


3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

Dec

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Un

emp

loym

ent

Rat

e (%

)

Total Unemployment Men Women


Rank Jurisdiction % Rank Jurisdiction %

1 Howard County 2.4 13 Baltimore County 3.3

2 Carroll County 2.5 13 Charles County 3.3

3 Montgomery County 2.6 15 Cecil County 3.4

4 Anne Arundel County 2.7 15 Kent County 3.4

4 Calvert County 2.7 15 Prince George's County 3.4

4 Queen Anne's County 2.7 18 Dorchester County 4.2

7 Frederick County 2.8 18 Garrett County 4.2

8 Harford County 2.9 20 Wicomico County 4.4

8 St. Mary's County 2.9 21 Allegany County 4.6

8 Talbot County 2.9 21 Baltimore City 4.6

11 Caroline County 3.2 23 Somerset County 5.5

11 Washington County 3.2 24 Worcester County 8.5

Maryland Unemployment Rates by CountyNovember 2019

Maryland: 3.6%

National Association of Manufacturers (NAM) Outlook Survey: Primary Current Business Challenges

Source: National Association of Manufacturers (NAM) *Respondents were able to check more than one response; therefore, responses exceed 100 percent.

4.9%

20.9%

22.0%

23.7%

27.2%

31.7%

51.9%

52.3%

55.4%

63.8%

Challenges with access to capital

Transportation and logistics costs

Strengthened U.S. dollar relative to other currencies

Unfavorable business climate (e.g., taxes, regulations)

Increased raw material costs

Weaker global growth and slower export sales

Weaker domestic economy and sales for our products

Rising health care/insurance costs

Trade uncertainties

Attracting and retaining a quality workforce

% of Respondents Citing as a Primary Challenge

III. Gold AplentyGrowth in Wages & Salaries, U.S. Employment Cost Index (ECI), 2002Q3 – 2019Q3

Source: U.S. Bureau of Labor Statistics *All Civilian Workers

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

200

2Q3

200

3Q1

200

3Q3

200

4Q

1

200

4Q

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200

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200

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9Q

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Q1

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2018

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2019

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2019

Q3

ECI for Wages & Salaries12-Month % Change

2019Q3: +2.9% YOY

IV. In the Baggins!U.S. Consumer Spending (Personal Consumption Expenditures), 2000Q1 – 2019Q3

Source: Bureau of Economic Analysis *Seasonally Adjusted Annual Rate.

$3.5

$5.5

$7.5

$9.5

$11.5

$13.5

$15.520

00

Q1

200

0Q

4

200

1Q3

200

2Q2

200

3Q1

200

3Q4

200

4Q

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200

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2019

Q3

$ T

rill

ion

s

$14.7 Trillion

*2nd Estimate

U.S. Retail Sales, December 2000 – December 2019

Source: U.S. Census Bureau

$200

$250

$300

$350

$400

$450

$500

$550

Dec

-00

Jun

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Jun

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Dec

-19

Retail Sales ($Billions)

V. Your Gold Coins Go FurtherConsumer Price Index: All Items Less Food & Energy, December 2000 – December 2019


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Dec

-00

Jun

-01

Dec

-01

Jun

-02

Dec

-02

Jun

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Dec

-03

Jun

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Dec

-18

Jun

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Dec

-19

Core CPI (All Items Less Food & Energy)12-Month % Change

Dec. 2019:+2.2% YOY

VI. Interest Rates are Hobbit-SizedU.S. 10-Year Treasury Constant Maturity Rate, 1962 – 2020

Source: Board of Governors of the Federal Reserve System

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%19

62

196

4

196

6

196

8

1970

1972

1974

1976

1978

198

0

198

2

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

2010

2012

2014

2016

2018

2020

*Week ending 1/10/2020

15-Year & 30-Year Fixed Mortgage RatesJanuary 1995 – January 2020*

Source: Freddie Mac


3.09%

3.65%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%19

95

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Rat

e

15-yr 30-yr

VII. Property Values Rise in Middle EarthS&P Case-Shiller U.S. National Home Price Index, October 1995 – October 2019

Source: Standard & Poor’s

80

100

120

140

160

180

200

220

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

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3

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200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Jan 2000=100

VIII. The Kingdom is Under Construction U.S. Building Permits, November 1995 – November 2019


0

500

1,000

1,500

2,000

2,500

199

5

199

6

199

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199

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2010

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2018

2019

Building Permits (000s of Units)

IX. But It Goes to ElvenU.S. Stock Markets, January 2006 – January 2020*

Source: Yahoo! Finance

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Jan

-06

May

-06

Sep

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Jan

-07

May

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Sep

-07

Jan

-08

May

-08

Sep

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Jan

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Jan

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May

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Sep

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Jan

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Sep

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Sep

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Jan

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May

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Sep

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Jan

-14

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-14

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-14

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-15

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Jan

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May

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Jan

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Sep

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Jan

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May

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Sep

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Jan

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May

-19

Sep

-19

Jan

-20

Dow JonesNASDAQ/S&P

S&P 500

NASDAQ Composite

Dow Jones Industrial Average


U.S. Corporate Profits After Tax*, 1990 – 2019

Source: U.S. Bureau of Economic Analysis

*With IVA and CCAdj

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

199

0Q

3

199

1Q3

199

2Q3

199

3Q3

199

4Q

3

199

5Q3

199

6Q

3

199

7Q3

199

8Q

3

199

9Q

3

200

0Q

3

200

1Q3

200

2Q3

200

3Q3

200

4Q

3

200

5Q3

200

6Q

3

200

7Q3

200

8Q

3

200

9Q

3

2010

Q3

2011

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2012

Q3

2013

Q3

2014

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2015

Q3

2016

Q3

2017

Q3

2018

Q3

2019

Q3

Corporate Profits After Tax* ($Billions)$1.87 Trillion

Seven

Factors

Dwarfing

Hope

Photo: Warner Bros

I. Manufacturing Doth DeclineInstitute of Supply Management: Purchasing Managers Index (PMI), 2000 – 2019

Source: Institute of Supply Management; Quandl.com

30

35

40

45

50

55

60

47.2

*A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Value of U.S. Manufacturers' Shipments12-Month % Change, 1993 – 2019


-30%

-20%

-10%

0%

10%

20%

199

3

199

4

199

5

199

6

199

7

199

8

199

8

199

9

200

0

200

1

200

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8

200

8

200

9

2010

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2013

2013

2014

2015

2016

2017

2018

2018

2019

U.S. Share of Global Manufacturing Value Added, 1970-2017

U.N. National Accounts Main Aggregates Database, value added by economic activity

10.0%

15.0%

20.0%

25.0%

US % of World (Calculated in constant 2010 USD)

Economic Opportunity & the Opioid Epidemic

Source: The Washington Post

• A newly published study by researchers at the University of Pennsylvania, Yale, Harvard, and Massachusetts General Hospital finds that counties where auto plants close see significant spikes in fatal opioid overdoses within five years;

• The study looked at the counties where manufacturing represented the greatest share of local employment between 1999 and 2016, largely in the Midwest and South;

• Compared to counties where auto plants had not closed, opioid overdose deaths were 85% higher among working-age adults in communities where an auto plant had closed within the past five years;

• In a news release, the study’s lead author stated: “Major economic events, such as plant closures, can affect a person’s view of how their life might be in the future. These changes can have a profound effect on a person’s mental well-being, and could consequently influence the risk of substance use…Our findings confirm the general intuition that declining economic opportunity may have played a significant role in driving the opioid crisis.”

National Association of Manufacturers (NAM) Outlook Survey:Current Business Outlook

Source: National Association of Manufacturers (NAM)

93.3%89.5% 89.8%

94.6% 93.5% 95.1%92.5%

88.7% 89.5%

79.8%

67.9% 67.6%

2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4

% of Respondents Characterizing Outlook as Somewhat or Very Positive

II. A Tower of National DebtU.S. Federal Debt Held by the Public, % of GDP

Source: Congressional Budget Office (CBO), “An Update to the Budget and Economic Outlook: 2019 to 2029”, 8/21/2019.

0

20

40

60

80

100

120

1940 1950 1960 1970 1980 1990 2000 2010 2020

Debt Held by the Public (% of GDP)

Actual Projected• Relative to the size of

the economy, federal debt in 2019 is projected to be nearly twice its average over the past 50 years.

• At the end of 2029, debt is projected to reach a higher level than it has at any point since just after World War II.

U.S. Federal Deficit, % of GDP

Source: Congressional Budget Office (CBO), “An Update to the Budget and Economic Outlook: 2019 to 2029”, 8/21/2019.

-10

-8

-6

-4

-2

0

2

4

196

9

1972

1975

1978

198

1

198

4

198

7

199

0

199

3

199

6

199

9

200

2

200

5

200

8

2011

2014

2017

2020

2023

2026

2029

Surpluses

Deficits

1969-2018 Avg.: 2.9%

2020-2029 Avg.: 4.7%

• Over the 2020–2029 period, deficits are projected to average 4.7% of GDP, totaling $12.2 trillion.

• Over the past 50 years, deficits averaged just 2.9% of GDP.

III. A Mountain of Consumer Debt, TooTotal U.S. Household Debt, 2003 – 2019

Source: New York Fed Consumer Credit Panel/Equifax

$0

$3

$6

$9

$12

$15

200

3Q1

200

3Q4

200

4Q

3

200

5Q2

200

6Q

1

200

6Q

4

200

7Q3

200

8Q

2

200

9Q

1

200

9Q

4

2010

Q3

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Q2

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Q1

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Q2

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Q2

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Q1

2018

Q4

2019

Q3

$ T

rill

ion

s

Mortgage HE Revolving Auto Loan Credit Card Student Loan Other

Debt balances have been rising steadily for 5 years and are now $1.3 trillion higher than the previous peak in 2008Q3 of $12.7 trillion. Overall household debt is 25.1% above the 2013Q2 trough.

IV. How Did It Come to This?U.S. Corporate Bond Debt Outstanding, 1980 – 2018

Source: Securities Industry and Financial Markets Association (SIFMA); Federal Reserve

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

$ T

rill

ion

s

2018: $9.2 Trillion

Global Debt Reaches All Time Highs (IIF)

Sources: 1. Institute of International Finance (IFF), Global Debt Monitor. 2. Business Insider. 3. The Telegraph. 4. Reuters.

• According to the International Institute of Finance (IIF), global debt reached a record high of over $250 trillion in the first half of 2019;

• Global debt—including household, government, and corporate—is now forecast to surpass $255 trillion by the end of 2019, representing 320% of global GDP;

• In 2016 the IMF warned of risks to the global economy:

• “sheer size of debt could set the stage for an unprecedented private deleveraging process that could thwart the fragile economic recovery”

V. Entish: U.S. Nonfarm Business Sector: Labor Productivity Growth, 2000-2019

Source: U.S. Bureau of Labor Statistics *Labor Productivity: output per hour

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Nonfarm Business Sector Labor productivity % Change From Previous Quarter at Annual Rate

• In 2019Q3 nonfarm business sector labor productivity fell by 0.2%—the first decline since 2015.

• U.S. productivity has risen at an average rate of 1.3% since 2007, compared with a 2.1% average since the end of WWII.

VI. Uncertainty Across the Realm:Global Economic Policy Index, 1997 – 2019

Source: 'Measuring Economic Policy Uncertainty' by Scott Baker, Nicholas Bloom and Steven J. Davis at www.PolicyUncertainty.com

0

50

100

150

200

250

300

350

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Global Economic Policy Uncertainty Index

VII. The Eye is on Asset Prices:Shiller Price-Earnings Ratio, 1980 – 2019

Source: Robert J. Shiller Data used in his book, "Irrational Exuberance" Princeton University Press.

0

10

20

30

40

50

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Dec. 2019:30.91

Three Things that

Defied Prediction

Photo: Warner Bros; getwallpapers.com

1. Impossibly low inflation – How could one have seen this coming in the context of the lowest unemployment rate in 50 years, lackluster productivity growth, a robust consumer spending sector and the lengthiest expansion in American history?

2. Incredibly low interest rates – How can global indebtedness be so high, and global interest rates so low?

3. The Strength of the U.S. Economy Itself- How can the U.S. economy have been performing so well, and financial markets booming so splendidly in the context of fragmenting global trade, slower immigration, Brexit, impeachment, global warming, and other phenomena that one would think would be bad for domestic economic outcomes?

Maybe, we’re not wrong?

Emerging Technologies in Manufacturing:Are Humans & Machines Better Together?

Source: Interestingengineering.com

• The fourth industrial revolution, or “Industry 4.0” is the current shift taking place in manufacturing.

• At the heart of the latest industrial revolution is what GlobalData describes as “enhanced human-machine interaction to drive interconnectivity, information transparency and autonomous decision making.”

• Technological innovations are contributing to the new data-driven, agile, and automated environment in manufacturing.

• GlobalData’s Disruptor Tech Database identifies five key technologies that define the paradigm shift in Industry 4.0. They are:

• Big data and analytics (BDA),

• Industrial internet of things (IIoT)

• Cloud computing

• Additive manufacturing (3D printing)

• Augmented reality (AR)

• Other emerging technologies impacting manufacturing include advanced robotics, digital twinning, simulation, cybersecurity, artificial intelligence (AI) and blockchain.

Emerging Technologies in Manufacturing:Are Humans & Machines Better Together?

Source: Interestingengineering.com; CBInsights.com; “What emerging technologies may mean for the manufacturing workforce”, by Steve Menaker (Industrial Products Leader, RSM)

• These new technologies are being applied throughout multiple steps of the manufacturing process, including: R&D, resources planning & sources, operations technology monitoring & machine data, labor augmentation & management, machining/production & assembly, quality assurance, warehousing, and transport & supply chain management.

• The rise of new technologies will likely drive the creation of more hybrid jobs, where manufacturing employees will need a combination of advanced production, IT and problem-solving skills in order to succeed.

• This could open up new avenues for manufacturers to recruit and retain tech-savvy millennials, who may have an easier time embracing a more technology-driven workplace.

The One

• Risk of recession over the next 18 months is arguably more elevated than at any period since 2007 – second half of the year appears tenuous as elections approach;

• U.S. manufacturing and agricultural activity still sluggish, though first stage trade agreement with China could set the stage for resurgence, especially in US farm sector;

• Ultimately, this may turn out to be merely a soft landing (like 2016), but businesses should be raising cash, determining if line of credit is large enough, considering staffing models, and ensuring the good graces of bankers and insurers. Households should consult trusted financial advisors.

Forecast

return of the economist by: anirban basu€¦ · 17/01/2020 · seven for the dwarf-lords in their...

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