Published on November 2, 2007
Queen’s School of BusinessBusiness Forecast 2007: Queen’s School of Business Business Forecast 2007 25th Anniversary Macroeconomic Outlook : Macroeconomic Outlook John McHale What we said to watch for last year: What we said to watch for last year Volatility in energy markets A U.S. slowdown Falling potential output growth Disappointing growth in second and third quarters: Disappointing growth in second and third quarters 2.5 % Forecast 2.4% growth for coming year: Forecast 2.4% growth for coming year 2.4 % Inflation meter: Inflation meter 2% 3% 1% October CPI Inflation Rate = 0.9% Core Rate = 2.3% Forecasting a return to target: Forecasting a return to target 2% 3% 1% October CPI Inflation Rate = 0.9% Nationally, unemployment has been on a downward trend since 2003: Nationally, unemployment has been on a downward trend since 2003 National Unemployment Rate, Seasonally Adjusted The Kingston unemployment rate has converged to the national rate : The Kingston unemployment rate has converged to the national rate Kingston-Area Unemployment Rate, 3-Month Moving Average National Unemployment Rate, Seasonally Adjusted The Bank of Canada has been in a holding pattern since early summer: The Bank of Canada has been in a holding pattern since early summer The dollar moved in a relatively narrow band since our last forecasts: The dollar moved in a relatively narrow band since our last forecasts The good, the bad, and the ugly: The good, the bad, and the ugly Sound macroeconomic policy management Inflation expectations well-anchored at 2 percent Stable real GDP growth Enduring budget surpluses But Canada’s lagging productivity growth is a threat to future prosperity Canada’s productivity as a share of U.S. productivity, 1970 to 2005: Canada’s productivity as a share of U.S. productivity, 1970 to 2005 Relative GDP Per Worker, Total Economy Summing up this year’s forecasts: Summing up this year’s forecasts Financial Markets Outlook : Financial Markets Outlook Lew Johnson 2006 – A Good Year for the Stock Market: 2006 – A Good Year for the Stock Market TSX up by 14.4% Stronger than NASDAQ (+11.3%) and S&P 500 (+13%) Especially if you were in Metals & Mines: Especially if you were in Metals & Mines Up 66.5% Fuelled by basic demand and by takeovers Or Materials: Or Materials Up 40% Ditto Or Gold: Or Gold Up 36.9% Fuelled by demand and by international uncertainty Not Such a Great Year for Income Trusts: Not Such a Great Year for Income Trusts Down by 13.5% Betrayed by the Feds Trusts and the Index Part Ways: Trusts and the Index Part Ways The Halloween “nightmare on main street” What About Interest Rates?: What About Interest Rates? Interest rates will moderate through 2007 2007 – Things to Watch For: 2007 – Things to Watch For Stock market fully priced Few bargains out there Pre-election budgetary goodies Likely more tax relief Interest rates down slightly Good for Kingston development/construction/real estate Continuing geo-political uncertainty New hot spots in south east Asia More volatility in energy prices Especially with developments in the Middle East Weakness in the US economy Likelihood of a Democratic victory in 2008 Implications for Investors: Implications for Investors Maintain off-shore exposure Canadian dollar is not likely to appreciate much BRIC companies for more aggressive investors Consider mutual funds or ETFs Don’t expect much growth Technology and energy stocks underperformed in 2006 No reason for change in 2007 “Cash” is still king Buy dividend paying stocks (financials, utilities), balanced or income mutual funds, REITs Hold on to income trusts Buy investment grade corporate bonds rather than governments Industry & Technology Outlook : Industry & Technology Outlook Elspeth Murray 5 Things That Will Keep Executives Awake At Night in 2007: 5 Things That Will Keep Executives Awake At Night in 2007 Engaging Employees If you’re not happy…..we’re not happy….and we’re far less profitable Demographic and Social Shifts We’re still aging! June Cleaver co-existing with Eminem….or does she? Technology The Relentless March Towards Star Trek Compliance, Compliance, Compliance Privacy, Environment, Governance, etc. etc. etc. Outsourcing, Offshoring…….Insourcing, Nearshoring Not all bad news…. Slide28: Engaged Employees Pay Off Financial Success Greater financial returns – 65% greater share price increase Greater growth Greater customer satisfaction – up to 30% High Morale Higher employee morale and sense of accomplishment – 28% higher Greater alignment among leaders and between leaders and employees Greater employee alignment with values and workplace culture Attraction & Retention Lower turnover – 26% less More unsolicited applications for employment – 100% Productivity Less sick time – 5% less Fewer lost days due to accidents – 45% less lost time accidents High performance culture Employees more focused on future direction and strategies Demographic & Social Shifts : Demographic & Social Shifts Aging workforce…still!!! 25% of small business owners retiring in next 4 years Work place tensions between Boomers and Gen-Y If I Could Only Pick 2 Technologies….: If I Could Only Pick 2 Technologies…. RF id Nanotechnology Figure 1: Worldwide Spending on Nanotechnology If I Could Pick 3…..Social Networks: If I Could Pick 3…..Social Networks Compliance, Compliance, Compliance : Compliance, Compliance, Compliance Corporate governance – tough to find directors, more ‘fingers in’ the business SOX (Sarbannes-Oxley) compliance – bureaucracy & controls abound taking ‘eyes’ off the business, killing risk taking, encouraging companies to go private Environmental liability Privacy legislation North American security Outsourcing and Offshoring : Outsourcing and Offshoring Outsourcing & offshoring – not just goods but services also Key trends driving these views: Declining shipping costs & abundant and cheap bandwidth China and India emerging as economic forces Local Economy Outlook: Local Economy Outlook Ken Wong Slide35: I DUNNO The Bad News According to Canadian Business : The Bad News According to Canadian Business Kingston ranked #39 (of 40) as a place to do business Measures Kingston Cdn 40 Ont 16 Cost of Operating (3/16) 31,846 31,599 32,137 Cost of Living Index (9/16) 76.4 77.8 79.3 Bus Building Permits (last) -28% n/c -.7% Unemp. Rate Change (last) 11.9% -10.9% -9.1% Crime Rate/1000 (13/16)) 8,011 9,084 6,214 A Similar View from CIBC World Markets: A Similar View from CIBC World Markets Employment doesn’t look too bad…: Employment doesn’t look too bad… Until compared to other CMAs: Until compared to other CMAs Bankruptcy Rates Seem to be “improving”…: Bankruptcy Rates Seem to be “improving”… …but we are in the lower half of the distribution: …but we are in the lower half of the distribution Home Sales have been off…: Home Sales have been off… …and prices are not growing as fast as elsewhere: …and prices are not growing as fast as elsewhere Yet we are building in droves…homes at least…: Yet we are building in droves…homes at least… …which makes one wonder how we’ll pay for them: …which makes one wonder how we’ll pay for them The Forecast for 2007 (Conf Board & RBC): The Forecast for 2007 (Conf Board & RBC) Category Kingston Ontario Canada GDP (% change) 2005 2.3 3.0 2.9 2006 2.1 2.5 3.1 WIDENING GAP 2007f 2.4 4.2 4.1 Income (% change) 2006 6.5 4.8 5.4 LOSS OF POSITION 2007f 4.5 4.7 4.5 Retail Sales (% change) 2006 6.5% 4.9% 6.3% LOSS OF POSITION 2007f 4.8% 4.3% 5.1% Housing Starts (% chg) 2005 - 20% - 5% - 10% 2006 +106% +5% - 4% COMPLETE REVERSAL 2007f - 53% - 5% - 4% Employment (% change) 2006 4.0 1.5 1.7 LOSS OF POSITION 2007F 1.4% 1.5% 3.1% Thank Goodness for the Public Sector: Thank Goodness for the Public Sector Major Public Projects About to Kick In Ravensview Grand Theater (Phase 2 $10.3mm) Queen’s Queen’s Center ($100mm Phase 1 to begin winter 2007) Richardson Hall ($8.0mm) Main campus artificial field/parking garage ($25mm) Arts Campus/Recital hall ($14mm) University Avenue Redevelopment ($5mm) Botterell Hall Expansion (12mm) Regional Sports and Entertainment Complex ($30mm) Multiplex ($26mm) Utilities Kingston – 2007 Capital Budget Sewer Projects ($9mm) Water Projects ($7mm) Gas Projects ($2.3mm) Electrical Projects ($2.3mm) Persistent Problems: Persistent Problems Employment market variability remains at 5 TIMES the national average Weak population growth Forecasted population growth (.8%) is just over half the national average From 1996-2001, Kingston’s population aged 2.4% DECLINE in the population aged 0-19 years (+3.1% Ontario) 1.2% GROWTH in the population aged 20-64 years (+6.6% Ontario) 9.3% GROWTH in the population aged 65 years plus (+10.3% Ontario) Small non-residential tax base Poverty and social assistance Crime The Problem Restated: The Problem Restated LOSING GROUND: We are losing ground to other cities NO QUICK FIX The “sales cycle” for economic development is LONG STAY THE COURSE… Continued investment in economic development and tourism is needed …BUT IT CANNOT MONOPOLIZE THE CITY’S ATTENTION Across Ontario, mayors and councils promoting economic development typically felt the ire of voters THE GREAT UNKNOWN the new City Council Issues on the Horizon – The Municipal Budget: Issues on the Horizon – The Municipal Budget AREA % of City Budget Social Assistance & Affordable Housing 20.6% Policing 16.9 Fire and Rescue 11.8 Roads & Sidewalks 8.8 Capital Infrastructure Contribution 8.3 Recreational and Cultural Programs 5.1 Transit 4.7 Long-term Care (e.g. Rideaucrest) 3.8 Land Ambulance 3.3 Library 3.1 Garbage Collection 2.3 General Government 2.3 Recycling 2.0 Public Health 2.1 Planning & Development 1.8 Kedco 1.6 CRCA 0.5% Does “compromise” and “collaboration” have to mean inactivity?Does economic development have to meana less human Kingston? : Does “compromise” and “collaboration” have to mean inactivity? Does economic development have to mean a less human Kingston?