2011 Economic Forecast January 12, John K. Paglia, Senior Researcher, Denney Academic Chair, and Associate Professor of Finance

Transcription

1 2011 Economic Forecast January 12, 2011 John K. Paglia, Senior Researcher, Denney Academic Chair, and Associate Professor of Finance

2 Outline About the respondents 2011 economic forecast Creating jobs in 2011 Impediments to US GDP Growth in 2011 Impact of US and foreign monetary policy on GDP Growth confidence in US GDP and business growth Incentives to innovate Allocation of economic stimulus Value of US dollar and business financial health Investing in US and abroad Extending the US debt limit

3 About the Respondents 1,224 participants from privately-held businesses, private capital providers, investment bankers, business appraisers, and business service providers affiliated with privately-held companies Responses collected from January 1 January 11, % from U.S. (West 32%, Midwest 13%, South 18%, Northeast 21%); 16% International 35% capital providers, 17% business owners; 18% intermediaries, 11% business appraisers, 19% business service providers (accountants, consultants, attorneys, etc.) 64% are managing director or C-level employees; 19% VPs; 12% manager or analyst; 5% other 45% have revenues or AUM under $5 million; 30% from $5 million to $100 million; 15% from $100 million to $1 billion; 10% greater than $1 billion

4 Economic Forecast by Location of Respondent For Year 2011 or at December 31, 2011 where indicated Sample Segments Whole Sample Non US based U.S. based West Midwest South Northeast 2011 US GDP 1.98% 1.69% 2.06% 1.68% 2.21% 2.19% 2.31% 2012 US GDP 2.45% 2.16% 2.53% 2.23% 2.76% 2.57% 2.67% Probability of US recession (2011) 28.43% 31.24% 28.03% 30.46% 25.63% 26.59% 27.50% Inflation (CPI, 2011) 2.12% 1.92% 2.17% 2.28% 2.32% 2.02% 2.01% 10 year Treasury Note (12/31/2011) 3.75% 3.55% 3.80% 3.67% 3.98% 3.76% 3.86% Prime Rate (12/31/2011) 3.75% 3.65% 3.79% 3.77% 3.83% 3.82% 3.81% US Unemployment Rate (12/31/2011) 9.11% 9.14% 9.13% 9.20% 9.04% 9.12% 9.06% US Housing (2011) 1.76% 0.23% 1.96% 2.67% 1.55% 2.31% 0.89% S&P 500 (2011) 6.46% 7.33% 6.25% 5.08% 7.14% 6.39% 7.35%

5 Economic Forecast by Type and Size of Respondent For Year 2011 or at December 31, 2011 where indicated Whole Sample Business Owners Sample Segments Private Equity Angel/VC Lenders Intermediaries <$5 million $5 $100M >100 million 2011 US GDP 1.98% 1.81% 2.26% 2.09% 1.97% 2.18% 1.87% 2.07% 2.14% 2012 US GDP 2.45% 2.38% 2.63% 2.51% 2.34% 2.61% 2.39% 2.56% 2.45% Probability of US recession (2011) 28.43% 30.61% 26.15% 26.05% 28.58% 28.83% 30.40% 27.55% 27.30% Inflation (CPI, 2011) 2.12% 2.30% 2.00% 1.83% 2.13% 2.23% 2.19% 2.10% 2.05% 10 year Treasury Note (12/31/2011) 3.75% 3.67% 3.79% 3.77% 3.85% 3.80% 3.73% 3.78% 3.79% Prime Rate (12/31/2011) 3.75% 3.77% 3.75% 3.82% 3.64% 3.76% 3.79% 3.74% 3.77% US Unemployment Rate (12/31/2011) 9.11% 9.21% 9.06% 8.86% 9.17% 9.12% 9.13% 9.11% 9.17% US Housing (2011) 1.76% 2.43% 1.76% 1.73% 1.00% 1.44% 2.27% 1.54% 1.12% S&P 500 (2011) 6.46% 5.53% 7.02% 6.83% 5.85% 7.18% 6.13% 6.73% 6.67%

6 Please complete the following sentence. At the end of this year (December 31, 2011), I believe the U.S. Prime Rate (currently at 3.25%) will be approximately: 25.0% 20.0% 18.4% 21.1% 19.2% Average is 3.75% 15.0% 12.7% 10.0% 7.8% 5.0% 0.0% 0.4% 0.3% 1.0% 1.5% 4.3% 5.1% 2.2% 2.5% 1.3% 0.7% 0.3% 1.0% 0.5%

7 Which of the following policies would help spur U.S. job creation the most in 2011? (Entire Sample) Regulatory reform 19.7% 16.3% 1.9% Tax incentives 31.7% 22.9% Increased access to capital Education reform Increased competitiveness with foreign trade partners

8 Which of the following policies would help spur U.S. job creation the most in 2011? (Segmented) Whole sample Size of Revenues or AUM Business Owners < $5 Million $5 $100 million $100 million $1 billion > $1 billion Regulatory reform 16.9% 13.7% 16.9% 14.5% 16.9% 19.8% Tax incentives 19.6% 19.0% 19.6% 24.1% 24.3% 29.8% Increased access to capital 34.9% 44.4% 34.9% 30.9% 30.4% 17.4% Education reform 2.1% 0.0% 2.1% 1.3% 2.7% 4.1% Increased competitiveness with foreign trade partners 16.9% 14.4% 16.9% 21.5% 20.9% 24.0% Other 9.6% 8.5% 9.6% 7.7% 4.7% 5.0%

9 In your opinion, will U.S. publicly traded or U.S. privately held companies create more jobs in 2011? 12.8% 17.5% Publicly traded companies Privately held companies 69.7% Both will create approximately the same number of jobs

10 Which year do you believe will be the one when the U.S. unemployment rate first reaches 6% or below? 25.0% 20.0% 23.3% 25.0% 20.4% 15.0% 10.0% 5.0% 0.0% 0.6% 4.9% 11.0% 3.8% 3.8% 0.7% 0.9% 5.6% After 2020

11 Please rank the following four impediments to U.S. GDP growth in the next 12 months where "1" is the most influential impediment and "4" is the least Most influential Least influential Limited access to capital 22.7% 19.2% 23.6% 32.4% Government regulations (tax, healthcare) 25.9% 23.6% 26.1% 25.0% Uncertain economic environment / low demand 34.9% 31.2% 21.6% 10.8% Global political and economic environment 16.5% 26.0% 28.7% 31.7%

12 What is the number 1 impediment to U.S. GDP growth in the next 12 months? (Segmented) Whole Sample Size of Revenues or Assets Under Management Business Owners <$5 Million $5 $100 Million $100 million $1 billion > $1 billion Limited access to capital 22.7% 31.5% 27.5% 22.3% 17.1% 13.3% Government regulations (tax, healthcare) 25.9% 25.5% 25.6% 26.2% 26.7% 25.8% Uncertain economic environment / low demand 35.0% 25.5% 32.7% 33.4% 39.7% 41.7% Global political and economic environment 16.4% 17.4% 14.2% 18.0% 16.4% 19.2%

13 What impact will U.S. monetary policy have on U.S. GDP in the next 12 months? 6.6% 9.0% 18.2% 24.6% 41.6% Positive Somewhat positive Neutral Somewhat negative Negative

14 What impact will foreign monetary policy have on U.S. GDP in the next 12 months? 6.8% 2.9% 21.8% 37.5% 31.0% Positive Somewhat positive Neutral Somewhat negative Negative

15 Compared to one year ago in 2010, how would you rate your confidence in U.S. economic growth for 2011? 9.3% 4.5% 16.4% 18.3% 51.6% More confident Somewhat more confident Neutral Somewhat less confident Less confident

16 Compared to one year ago in 2010, how would you rate your confidence in growth prospects for U.S. privatelyheld businesses that are recipients of your investment or your firm's (or fund's) capital? 3.5% 2.5% 18.0% 56.0% 20.0% More confident Somewhat more confident Neutral Somewhat less confident Less confident

17 How would you rate the incentive for U.S. privatelyheld businesses to innovate today compared to one year ago? 13.5% 38.8% 8.4% 10.9% 28.4% More incentivized Somewhat more incentivized Neutral Somewhat less incentivized Less incentivized

18 Which have benefited more from the economic stimulus measures put forth over the past year in the U.S.: publicly traded companies or privately held companies? 13.7% 14.6% 7.6% 64.0% Publicly traded companies Privately held companies Both have benefited equally Neither have benefitted

19 Do you feel the economic stimulus measures put forth to benefit businesses in the U.S. over the past year have been fairly distributed between publicly traded and privately held companies? (Whole sample and business owners) A. Entire Sample 19.4% 9.1% B. Business Owners 10.6% 9.1% 71.5% 80.3% Yes No. Publicly traded companies have received less than a fair allocation No. Privately held companies have received less than a fair allocation Yes No. Publicly traded companies have received less than a fair allocation No. Privately held companies have received less than a fair allocation

20 Do you feel the economic stimulus measures put forth to benefit businesses in the U.S. over the past year have been fairly distributed between publicly traded and privately held companies? (Segmented by size) C. Entire Sample 19.4% 15.5% D. Size < $5 million 9.1% 8.4% 71.5% Yes No. Publicly traded companies have received less than a fair allocation No. Privately held companies have received less than a fair allocation 76.1% Yes No. Publicly traded companies have received less than a fair allocation No. Privately held companies have received less than a fair allocation E. $5 million $100 million 20.2% 8.8% F. More than $100 million 26.1% 62.5% 11.5% 71.0% Yes No. Publicly traded companies have received less than a fair allocation No. Privately held companies have received less than a fair allocation Yes No. Publicly traded companies have received less than a fair allocation No. Privately held companies have received less than a fair allocation

21 With regard to the value of the U.S. dollar (relative to other currencies), which do you believe would be more beneficial to the financial health of U.S. privately held businesses in 2011? (Whole sample and business owners) A. Whole Sample B. Business Owners 25.6% 35.3% 28.2% 40.5% 39.1% 31.3% Stronger U.S. dollar Weaker U.S. dollar Indifferent. I don't believe either would make a significant difference Stronger U.S. dollar Weaker U.S. dollar Indifferent. I don't believe either would make a significant difference

22 With regard to the value of the U.S. dollar (relative to other currencies), which do you believe would be more beneficial to the financial health of U.S. privately held businesses in 2011? (Segmented by size) C. Whole Sample 25.6% 35.3% D. < $5Million 27.8% 36.7% 39.1% Stronger U.S. dollar Weaker U.S. dollar Indifferent. I don't believe either would make a significant difference 35.5% Stronger U.S. dollar Weaker U.S. dollar Indifferent. I don't believe either would make a significant difference 24.7% E. $5 $100 Million 35.4% 24.7% F. $100 million plus 31.8% 39.9% 43.4% Stronger U.S. dollar Weaker U.S. dollar Indifferent. I don't believe either would make a significant difference Stronger U.S. dollar Weaker U.S. dollar Indifferent. I don't believe either would make a significant difference

23 Are you more or less likely to expand or invest in the following geographic areas today as compared to one year ago? (All respondents) Less likely Somewhat less likely Neutral Somewhat more likely More likely Mean (3= neutral) Mean Rank (Whole Sample) United States 5.3% 7.0% 29.9% 37.4% 20.3% China 11.3% 13.6% 37.6% 25.5% 12.0% Japan 15.2% 16.8% 55.7% 10.2% 2.1% Canada 5.7% 6.5% 47.4% 31.4% 8.9% Mexico 21.7% 18.1% 43.5% 14.2% 2.5% Brazil 9.2% 6.5% 38.0% 32.9% 13.5% India 9.0% 6.0% 40.6% 32.8% 11.6% Russia 20.5% 20.4% 46.0% 9.4% 3.6% European Union 16.6% 21.9% 44.1% 14.1% 3.2% Australia 7.6% 6.5% 53.5% 25.2% 7.2%

24 Are you more or less likely to expand or invest in the following geographic areas today as compared to one year ago? (Non US Based Only) Less likely Somewhat less likely Neutral Somewhat more likely More likely Mean (3 = neutral) Mean Rank (Non US only) United States 13.1% 16.3% 37.9% 23.5% 9.2% China 7.8% 11.1% 30.1% 32.7% 18.3% Japan 15.6% 23.8% 48.3% 10.2% 2.0% Canada 6.6% 6.0% 48.3% 31.1% 7.9% Mexico 11.5% 17.6% 39.9% 25.0% 6.1% Brazil 5.3% 4.7% 31.3% 38.0% 20.7% India 5.3% 6.6% 24.5% 38.4% 25.2% Russia 12.1% 21.5% 36.2% 20.8% 9.4% European Union 12.8% 22.8% 33.6% 23.5% 7.4% Australia 8.1% 9.5% 43.9% 25.0% 13.5%

25 Are you more or less likely to expand or invest in the following geographic areas today as compared to one year ago? (US based only) Less likely Somewhat less likely Neutral Somewhat more likely More likely Mean (3= neutral) Mean Rank (US Only) United States 3.8% 5.2% 28.2% 40.5% 22.3% China 11.8% 14.0% 39.0% 24.1% 11.0% Japan 14.8% 15.6% 57.3% 10.2% 2.1% Canada 5.5% 6.7% 47.5% 31.4% 8.9% Mexico 23.6% 18.1% 44.7% 11.9% 1.8% Brazil 10.0% 7.0% 38.9% 32.4% 11.7% India 9.6% 5.9% 43.3% 32.1% 9.2% Russia 21.8% 19.6% 48.8% 7.3% 2.6% European Union 17.4% 21.4% 46.5% 12.4% 2.3% Australia 7.4% 6.0% 55.4% 25.3% 5.9%

26 Would an increase in the $14.3 trillion U.S. debt limit be beneficial or detrimental to U.S. businesses in 2011? 6.4% 30.4% 15.0% 29.3% 18.8% Beneficial Somewhat beneficial Neutral Somewhat detrimental Detrimental

27 Contact John K. Paglia Associate Professor of Finance Senior Researcher, Pepperdine Private Capital Markets Project bschool.pepperdine.edu/privatecapital