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U.S. economy continues to expand, but at a slower pace, reaching about 2 percent growth in 2020
INDIANAPOLIS -- The U.S. economy will continue to expand for a 12th consecutive year in 2020, but by only about 2 percent and struggling to remain at that level by year's end. Indiana's economic output will be more anemic, growing at a rate of about 1.25 percent, according to a forecast released today by the Indiana University Kelley School of Business. Over the past year, political dysfunction and international trade friction have disrupted supply chains and eroded both consumer and business confidence. U.S. employment has grown during 2019 but will decelerate throughout 2020, well short of 150,000 jobs per month and possibly to about 100,000 by year's end. A tight labor market will continue to be an issue for many companies. "The total number of job openings in the economy peaked in late 2018," said Bill Witte, associate professor emeritus of economics at IU. "Average hours worked have been flat over the past year, and auto sales have been flat for nearly two years. Given the reliance of the U.S. economy on consumer spending, these are disturbing signs. But they are vague signs, and not enough to convince us that the end of the expansion is in sight. "We expect that growth will be weaker than in the past two years, and this outlook is likely a best-case outcome," he added. "There is massive uncertainty in the current situation." The Kelley School presented its forecast this morning to Indianapolis community and business leaders at IUPUI. The Business Outlook Tour panel also will present national, state and local economic forecasts in seven other cities across the state through Nov. 20. Indiana's more meager economic growth expected in 2020 can largely be attributed to the outsized presence of manufacturing and particularly tight labor markets, said Ryan Brewer, associate professor of finance at Indiana University-Purdue University Columbus and author of the panel's Indiana forecast. Manufacturing contracts more rapidly versus other areas of the economy, and tight labor markets limit employers' capacity to grow, he said. Expectations about business investment have fallen short, and corporations have been buying back stock instead of making capital investments. The trade war with China and slowing global expansion have also affected state manufacturers. The world is about to record its slowest economic growth since the financial crisis of 2009. Next year, global growth is projected at 3.4 percent, with downside risks continuing to build. China and the European Union each face structural issues amid tariffs imposed by the United States. Brexit remains unresolved. Recent data from the Institute for Supply Management showed that manufacturing activity has slowed to its lowest rate since the beginning of the Great Recession. Indiana has sought to diversify its economy in recent decades, but manufacturing output represents nearly 28 percent of gross state product. Indiana continues to lead the nation in manufacturing employment, with more than 17 percent of its jobs in that sector. "Constrained by a historically tight labor market, Indiana is expected to experience slow growth in jobs and gross output, along with the possibility for continued rising wages," Brewer said. "With fewer and fewer available people to hire, tightness of the Indiana labor markets will serve as a drag to output and employment growth." The outlook for the Indianapolis-Carmel-Anderson metropolitan statistical area is slightly better, with expected growth between 1.5 and 2 percent. "Indianapolis continues to draw in talent and investment that should help it exceed the overall state level of growth," said Kyle Anderson, clinical assistant professor of business economics. "However, there is risk that weakness in the broader economy, and especially weakness in manufacturing, could make this forecast too optimistic." Other highlights from the forecast: The national and state unemployment rates will hold steady. The nation's rate could be below 4 percent by year's end, and the state will stay at or below full employment through 2020. Inflation will rise and end 2020 close to the Federal Reserve's 2 percent target. The stock market will struggle to get average returns with headwinds from trade, supply chain disruption and policy uncertainty. Earnings continue to exceed expectations, yet lack of definitive trade consensus continues to drive headwinds. Interest rates will remain low. The 10-year Treasury rate should stay below 2 percent and mortgages below 4 percent. Speculative grade bond yields have been rising, indicating increased risk of insolvency for marginal firms. Entry-level wage growth could cause costs to rise, earnings to fall and growth to stagnate for firms heading into 2020. Energy prices will be relatively stable, with average prices similar to those in 2019. Business investment will remain weak, although a little improved from this year. Housing will achieve a meager increase, ending two years of negative growth. Government spending will grow, but much more slowly than the past year, as the impact of the 2018 budget deal ends. The starting point for the forecast is an econometric model of the United States, developed by IU's Center for Econometric Model Research, which analyzes numerous statistics to develop a national forecast for the coming year. A similar econometric model of Indiana provides a corresponding forecast for the state economy based on the national forecast plus data specific to Indiana. A select panel of Kelley faculty members, led by Indiana Business Research Center co-director Timothy Slaper, then adjusts the forecast to reflect additional insights it has on the economic situation. A detailed report on the outlook for 2020 will be published in the winter issue of the Indiana Business Review, available online in December. In addition to predictions about the nation, state and Indianapolis, it also will include forecasts for other Indiana cities and key economic sectors. Presenting the forecast at the Indianapolis Business Outlook Tour event were Phil T. Powell, associate dean of Kelley academic programs at Indianapolis and clinical associate professor of business economics and public policy; Cathy Bonser-Neal, associate professor of finance; and Anderson.
Full speed ahead or time to pump the breaks when it comes to investing in ride-share companies?
There’s been a lot of talk and even some screaming from early investors about the state of ride-share stocks like Uber and Lyft. Since its IPO, Uber has been a rollercoaster ride for those who got in early. “When Uber stock (UBER) went public on May 10, it looked like a disaster. At minimum, underwriters look for a stock to close slightly above its offering price. Uber’s shares dropped 7.6% to $41.60 in the first day of trading and closed well below the offering price of $45. But a funny thing has happened since. After closing down as much as 18% from its IPO price, Uber stock has rallied 21% to close at $44.92 per share on Thursday. The stock eclipsed the IPO price during intraday trading for the first time on Wednesday and closed at exactly $45 that day.” June 07 – Barron’s But let’s be honest, unless you’ve got a crystal ball or a time machine – any stock is a gamble. How the market reacts, how the company performs and even how CEOs behave can dictate big gains or drastic falls. Steve Jones is a Professor of Finance at Indiana University's Kelley School of Business – he lent his perspective to the topic. “As far as which stocks to buy, there are never right or wrong answers – It’s just a question of a person being able to assess risk or potential returns. The IPO prices indicate the market has discounted Uber and Lyft stocks and sees them as riskier than originally perceived to be. Now, they do offer potential for a good return… For example, Facebook stocks dropped then rebounded… Google dropped then rebounded. Lots of stocks that have not done well at first have come back. Will that be these two? "I think there’s potential for it. On the other hand, we have this situation where analysts are critical of the business models of both these companies. It’s not clear Uber drivers are going to sign up to do this in the long run at these kind of wages, and if they can’t underpay drivers, how do they make money? There is a criticism going on of the business model here, and if this model can become profitable, I think the stocks will take off. It’s questionable though, whether that’s possible or not. That’s what the market is going back and forth on right now.” Are you covering the track Uber investors are on, other IPO’s or companies that are disrupting not just the marketplace but also the stock market? Then let our experts help with your stories. Steve L. Jones is an expert in the areas of asset valuation, corporate finance, financial markets, and investment management. He’s available to speak with media regarding these topics – simply click on his icon to arrange an interview.
Forecasting sales using financial stock market data
Firms use many kinds of data for forecasting future sales—one of the key activities in the management of a business—and combine various methods in order to utilize different types of information. A recent study by Nikolay Osadchiy, assistant professor of information systems and operations management; Vishal Gaur (Cornell); and Sridhar Seshadri (UT Austin) focuses on financial stock market data in developing a new methodology for firm-level sales forecasting, testing it against standard benchmarks such as forecasts from equity analysts and time-series methods. Applying their method to the forecast of total annual sales for US public retail firms, the researchers find their market-based approach achieves an average 15 percent reduction in forecasting error compared with more typical forecasting methods. Their model, they write, can also be applied to hedging operational risk with financial instruments. Source:
Risk and returns for private equity and venture capital funds
The early success of some well-known private equity and venture capital funds has led to their rapid growth. According to research from Narasimhan Jegadeesh, the Dean’s Distinguished Chair in Finance, Roman Kraussl (U of Luxembourg), and Joshua M. Pollet (U of Illinois), investors should carefully evaluate the future risk and return potential of this asset class and avoid investing primarily because of past successes. Some private equity indices compiled by the industry suggest that these funds offer bigger returns than the public equity market, but prior academic studies offer mixed evidence on performance. Jegadeesh and his coauthors devised a new approach to determine the actual risk and returns by using market prices of funds that primarily invest in unlisted PE and VC funds listed on several European stock exchanges. This approach has a distinct advantage because it uses publicly available market prices rather than self-reported data, which were previously used in other academic studies. Their findings indicate that unlisted PE and VC funds as an asset class are unlikely to yield extraordinary returns as suggested by some self-reported data. They may even yield about the same return as the stock market but are illiquid. Source:
The Dow Jones is booming! But who is really cashing in?
On Wall Street, it has already been a great start to the year for the Dow Jones. Just yesterday, the Dow Jones industrial average had a closing record of over 26,000. It seems like reason to celebrate, but who’s really winning at the end of the day? Is this a matter of brokers, firms and big banks reaping the benefits? Or are those more familiar with Main Street able to cash in and win as easily as those on Wall Street? Also, what does the upward trend mean for everyday investors? And is this trend one that should have people getting on board or exercising some serious caution? Reading the economic and financial tea leaves is never easy, but that’s where Missouri State University (MSU) experts can help. Dr. James Philpot is a CFP and an associate professor of finance and general business at MSU. He's an expert in this area and is available to speak to media. Click on his icon to connect with him. Source:
Another Big Short or Better Off? 10 Years Later – Is there Another Financial Crisis Looming?
It was 10 years ago Wednesday that the world changed for just about everyone. It was on that afternoon when BNP Paribas announced it was ceasing activity in three hedge funds that specialized in U.S. mortgage debt. BNP Paribas was the first major bank to acknowledge the risk of exposure to the sub-prime mortgage market, and many look back at those days as the start of the worst financial crisis in American history since the stock market crashed in 1929. For a decade, America has been in a state of recovery. It took trillions of dollars in stimulus and bail outs. The real estate market almost collapsed on itself and millions were left unemployed. Some are still incapable of finding work and income that matched what they made back then. On the outside, America seems to be in complete recovery. Housing prices have bounced back, the DOW is soaring and unemployment rests at just 5.1 percent. However, some are skeptical. Americans are borrowing again at record rates. Credit is once again being offered abundantly and as people spend again – risk is climbing. Add in China’s shaky economy and there’s also talk of a double-bubble bursting. Understanding finance and economics is no easy task. It takes global understanding, a keen eye on micro and macroeconomics and sometimes a crystal ball. But on Wednesday, many people will remember exactly what they were doing when America’s economy tanked. So where are we now? Have we learned our lesson or are we doomed to repeat ourselves? Have the reforms on Wall Street worked or can the actions of a few big banks still derail one of the strongest financial engines in the world? None of these are easy questions to answer or explain. But experts from Missouri State University can help. Dr. David Mitchell is a Professor of Economics and Director of the Bureau of Economic Research at Missouri State. He is also an expert at economic forecasting and understanding market trends and direction. Dr. Mitchell can speak to the anniversary of the financial crisis and what may lie ahead for America’s economy. Click on his icon to arrange an interview. Source:
Somewhere in California Mark Zuckerberg is smiling. That’s because earlier this week his company saw a $934 million reduction in its income-tax provision all coming from a new rule affecting the accounting for stock payments to employees. And Facebook isn’t alone. The new rules affect all companies like Microsoft and other corporations that rely on employee stock compensation as incentive. And with this week’s announcement of close to a billion dollars – expect more to get on board. But with accounting rules like this – who wins, who pays and obviously, someone out there must be making up the difference? Is this good for the economy or just another example of how enormous companies are finding ways of paying fewer and fewer taxes? Clever accounting is never simple to explain – that’s where the Kelly School of Business can help. Laureen Maynes is the Executive Associate Dean of Faculty and Research at The Indiana University’s Kelly School of Business. Laureen is an expert in the fields accounting and financial services and is a leading opinion on this topic. She can help explain how companies are reaping hundreds of millions of dollars in benefits and why it is allowed. Simply click on her icon to arrange an interview. Source:
As Braves’ stock dip well below the Mendoza Line, does this signal the team is soon to be put on the market? Goizueta Business School’s experts can help explain how stock market behaviours can decide the fate of Atlanta’s MLB future. Source:
