Keith W. Maxwell of Spark Energy, joins McCombs Finance Professor Jay Hartzell, Craig Cordola, CEO of Memorial Hermann Hospital -Texas Medical Center in Houston, and Greg Peters, CEO of Zillant, to take a look ahead at not just the national economy as a whole, but also at the state of Texas. The U.S. is now the world's largest producer of hydrocarbons, because technology has enabled us to produce “tight” oil, or shale oil, Maxwell said.

1. October 17, 2013
Federal Reserve BankHouston Branch
2014 Economic Forecast
Keith Maxwell
CEO
Sparks Energy

3. Economic Outlook 2014
Jay C. Hartzell
Chair, Department of Finance, McCombs School of Business
The University of Texas at Austin

4. Economic Forecasts
 Research Department, Federal Reserve Bank of
Philadelphia
 “Survey of Professional Forecasters”
 First quarter (August 16, 2013)
 Doing this since 1968
 42 “Professional Forecasters”
 Provide advice used by large commercial institutions
 Members of National Association for Business
Economics (NABE)
 Use a variety of techniques and assumptions to arrive
at forecasts

5. Real Gross Domestic Product
 Definition
 Historic average annual rate of growth
 ~ 3.0%
 Median forecasts (annual rate of growth)
2013
2014
2015
2016
2.2%
2.3%
2.7%
2.9%
 Risk of negative quarter (probability)
2013: Q3
2013: Q4
2014: Q1
2014: Q2
2014: Q3
10.5%
11.2%
11.7%
11.5%
11.8%

6. Unemployment & Workforce Participation
 Unemployment (natural rate ~ 6.0%)
2013
2014
2015
2016
7.5% (~12.5 million)
7.1%
6.6%
6.1%
 Under-employed (BLS “Alternatives”)
~ 12%-18%
 Workforce Participation Rate
2000
2008
2013
67.3% (143 million)
66.3% (154 million)
63.2% (155 million)
 Okun’s Law
~ 3.0% Real GDP Growth to reduce unemployment

7. Foundations of Low Growth
 Consumer spending and households




Stagnant incomes
High or under employment
Deleveraging
Uncertainty
 Business investment
 In aggregate, slim profit prospects
 Contraction in household and government sectors
 Uncertainty, particularly in government policy
 Government spending
 AAAAGGGGHHH! (debt-to-GDP ratio)
 Net Export
 Slowing global growth

8. Inflation (Consumer Price Index)
 Definition
 Historical average (annual rate)
 ~ 4.0%
 Median forecasts (annual rate)
Headline CPI
Core CPI
2013
1.4%
1.8%
2014
2.0%
2.0%
2015
2.3%
2.1%
 Long-term forecasts (annual rate)
Headline CPI
2012-2016
2.0%
2012-2021
2.0%
 Comments of Fed on controlling inflation
 Managing liquidity (e.g., bank and non-bank reserves)
 Commitment to inflation

9. View from 30,000 Feet (2013-2016)
 Slow growth
 Improving private sector balance sheets
 Deteriorating (dramatically) public sector balance
sheets
 High unemployment
 High under-employment
 Lower workforce participation
 Low interest rates
 Low-ish inflation
 More wealth re-distribution than creation
 Energy
 Health care
 Education

10. Latest Fed Forecasts

11. US Economic Policy Uncertainty Index

12. US Economic Policy Uncertainty Index
Econom ic Policy Uncertainty Index
Monthly US Econom ic Policy Uncertainty Index
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75
Sep '12
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1990
Jan '13
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2000
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2010
Highcharts.com
9/ 20/ 13 11:09 AM

13. Fed Policy: Growth and Inflation Forecasts

14. Texas Job Growth

15. Texas Leading Index