12:00 P.M. EST
NEW YORK FOREIGN PRESS CENTER, 799 UNITED NATIONS PLAZA, 10TH FLOOR
MS. GRUNDER: Good afternoon. I’m Alyson Grunder, Director of the New York Foreign Press Center. We’re very happy to have with us today Jonathan Spector, who is the President and CEO of The Conference Board. As you know, the Foreign Press Center has worked closely for many years with The Conference Board. They are a nonprofit, nonpartisan think tank for businesses so we feel they are a very good source for foreign correspondents. But we’ve never had the CEO here before, so we really appreciate your making the time today to talk about two important reports.
You all have his bio, so I’m not going to go into great detail about that, but I do want to point out that Mr. Spector brings experience from both the academic world, from the Wharton School of Business, and from McKinsey & Co., the American consulting firm. So he has a very broad spectrum of experience to offer.
Before we begin, let me remind you that Mr. Spector’ views are his own, and do not represent those of the U.S. government. Thank you very much for coming.
MR. SPECTOR: Thanks.
MR. SPECTOR: Thank you, Alyson. It’s a pleasure to be here and to have the opportunity to talk to all of you. I’m going to talk for about 15 minutes, and feel free to interrupt me, but we’ll definitely have obviously a lot of time for Q&A after that. I’m going to use some PowerPoint slides, and you’re all welcome to have copies of those slides afterwards. I don’t have copies with me, but Alyson will distribute them to all of you afterwards. So you’ll be able to have that.
I’m here to talk about two important research programs that The Conference Board has recently published. The first that I’ll talk about is called A Tale of 2,000 U.S. Cities. It was actually published about four hours ago. A major report on the U.S. housing market, but really on U.S. communities. And in some ways, this is a new look at the United States and the communities that make up the United States. We’ve looked at 2,200 communities that make up half the population of the U.S. through the lens of housing. And we’ve looked at what’s happening to the housing values through the financial crisis, and more importantly, what people are expecting over the next four years. And it really shows, I think, both the economic opportunities in the United States, but also some very important struggles and challenges that people are feeling.
And the second topic I’m going to talk about is our recent survey of global CEOs. We talked to a thousand CEOs around the world, in the U.S., Latin America, Europe and Asia. And I want to talk to you about what’s keeping them awake at night and where they’re similar and where there are differences. It’s pretty interesting.
So with that I’ll just get going.
The first report, A Tale of 2,000 Cities, as we’re calling it, is put out by The Demand Institute. The Demand Institute is a unit of The Conference Board. We partner with Nielson, which is the world’s largest market research company. As Alyson said, we’re a not-for-profit, we’re nonpartisan, we don’t advocate for policies. The Demand Institute is focused on a very interesting statistic, and here’s a number that as journalists I don’t think you’ve ever written before. In the next 10 years, consumers around the world will spend $450 trillion. And I don’t think you’ve ever seen a PowerPoint slide before with the number $450 trillion on it, even in a government context. That’s a lot of money. The Demand Institute is focused on how consumers are going to spend that 450 trillion, and that’s why we focused on the U.S. housing market, which is a huge part of the U.S. economy.
We published a report in May 2012 called “The Shifting Nature of U.S. Housing Demand,” and now we’ve published a much more detailed report released this morning called A Tale of 2,000 Cities and we have copies of that report. It’s also, I think, available online at The Demand Institute website and The Conference Board’s website.
Here are the three key conclusions. And I’m going to take you through each of these three in more detail. At the national level, there is reasonably good news from an economic point of view. We are forecasting growth and what we’re calling a return to equilibrium. There will be some volatility, of course, but we see a reasonably attractive growth path for U.S. housing going forward. There are very significant variations across all 50 states and across the 50 largest cities in the United States. I’ll show you briefly what that variation is. And if you go into the report itself, you can see for every state and for every of the 50 largest cities, exactly what those growth rates will be, fast or slow.
And the report also highlights two fundamental challenges: one, a challenge for individual people, and one, a challenge for communities or cities. Individuals are going to struggle in the next five years to achieve their housing aspirations. A good number of Americans are not going to get what they want in terms of housing. And we, as Americans, have high aspirations, so it doesn’t mean that that people won’t have homes or places to live. But it does mean that a significant number will meet the aspirations they have to own their own home or to live in a single-family home or rent a single-family home. And secondly, and maybe more importantly, is that for the first time, we’ve taken a look at not individuals but communities. And what we’re seeing is that half of American communities – 50 percent – are really struggling to find their way after the Great Recession and the economic downturn that the U.S. has seen. They face very significant economic challenges, and that number of half of these communities – 1,100 communities out of the 2,200 that we looked at – we’ve characterized as not particularly healthy. And I’ll show you that breakdown.
These communities are fighting against a concentration of housing wealth that is very significant. The top 200 communities control more than half of the housing wealth in the United States. And they’re also facing what we’re calling limited upward mobility. There are many stories in U.S. history and every day about Americans who pull themselves up from their bootstraps and who basically make good, even though they start from a very poor beginning. Communities, it appears, have a harder time doing that. And there’s limited mobility and movement, it appears, between communities, which I think has some important implications for the country.
Let me go through these three conclusions. First, at the national level, in the last 23 months, from January of 2012 to the end – near the end of 2013, house prices in the U.S. rose 21 percent. That’s an extraordinary growth over a two-year period. That is a rebound from the downturn that we faced. And it’s not indicative of an equilibrium going forward. We’re not going to see 10 or 12 or 14 percent growth in housing prices for the next five years. We forecast over the next five years, through to 2018, that prices will go up about 8 or 9 percent, and that’s about 2 percent a year. Now, that is not the same growth rate as you saw 10 years ago in the U.S., and that’s a good thing. That high growth rate 10 years ago was what led to the housing bubble. But we do see this as a return to equilibrium, as we’ve said. In a huge market like housing, 2.1 percent growth per year is an acceptable growth rate and one that creates opportunities for retailers and for consumers to increase the value of their home if they own it and for a very important segment of the economy.
So by 2018, the median price of a house in the U.S. will be $217,600. Now, obviously this is a forecast; we don’t mean to be quite so precise. But that’s what our model shows. In 2006, the price of a home was almost exactly the same, and that was a peak. 2006 was the peak. So the price will recover in 2018 to just about the level it was at in 2006 before the downturn began. But remember that there’s been inflation – not huge inflation, but there has been inflation. So in real terms, in 2018 the price, compared to 221,000, the real price will be about 168,000. So in real terms, even by 2018, the prices on average will not have fully recovered from an economic point of view. And that just really shows the extent of the housing bubble that really took place. It was that significant.
What are some of the major forces and trends that are taking place over the next four, five years? Well, economic growth, which we’ve now starting to see on a regular basis in the U.S., and greater consumer confidence – the Conference Board’s consumer confidence index is – it was down yesterday. We released it yesterday morning. It was down a little bit yesterday, but over the last 18 months or so, it’s been quite consistently up, leading to new household formation and increased household mobility.
Household formation means, if you’re someone who’s my age, your kids move out of the house and go get an apartment on their own, whether they rent it or buy it. So many new households will rent rather than buy. More will rent than in the past. Intent to own remains the same. This is an interesting conclusion. Despite the dramatic changes in housing, about the same percentage of Americans still want to own a home as did 10 years ago and 20 years ago. It’s in the 70s – 75, 77 percent, something like that. That has not diminished despite the decline and volatility in the housing market. But the ownership levels won’t go back up to 69 percent, which is what they were at. They’ll be – they’ll peak out at about 65 percent because not everyone will be able to afford it. There’ll be more new home completions, existing home sales will rise, and they’ll be more concentrated in the five largest states – so more concentration, more geographic concentration over time.
I mentioned that there’d be significant variations by state and by major city. If we look across the 50 states, states like New Mexico, Mississippi – this is a funny collection of states – Maine, Illinois; New Hampshire will grow at 30 percent. Washington, D.C. will grow at 6 percent, as the lowest of the 50. And places like New York, which has seen a huge rise, we think that growth in New York will slow down significantly – this is New York State – will slow down significantly and it will be at sort of 13-to-15 percent range.
The same thing we see for the top 50 cities. Memphis, Tampa, Jacksonville will all grow 30 percent or in excess of that. Washington, Oklahoma City, Denver, Phoenix, places which in the past, like Phoenix, have seen very significant appreciation. And as a result of that, we think that there’s going to be a correction and they’ll grow much more slowly.
Just some observations about this growth: The markets are coming from very different starting points, places where there were bubbles and places where there haven’t been bubbles as extreme, but we’ll see a more stable market coming out through 2018.
And then the last point, I think is very important. There is little sign of overheating. The rise in prices is really a return to equilibrium. In other words, we’re not seeing the kinds of forces at work that created the problem in the first place. If that’s going to recur, and I think we all hope it won’t, it’s not starting to recur yet. We’re not seeing markets – and I’m sure there are a few places where this is not true, but by and large across the U.S. we’re not seeing significant overheating. And that’s a very good sign because it’s now been six or seven years, and it’s good that we haven’t, as a nation, forgotten the pain that you have when you have this sort of bubble.
Now there are two fundamental challenges I mentioned, one at the individual level and one at the community level. At the individual level, we see an increase in households facing a housing cost burden. That’s a technical definition. A housing cost burden means you need to spend more than 30 percent of your income on housing. And this is the percentage of people who are being forced to spend 30 percent or more of their income on housing and housing-related things. In 2011 that number was 37 percent. By 2013 it’s up to 41 percent. That’s a pretty big shift in just a very short period of time. These are – this is across the United States, so this is actually a pretty big change. If you are a renter, 56 percent of people who are renters are facing that housing cost burden. It means just slightly more than half of all Americans are in a very difficult place in terms of housing, and it’s difficult for them to afford it.
Almost half of people who want to purchase a home are unlikely to obtain the mortgages that they want. They don’t have enough income or they don’t have enough savings or equity. And so we think that there are about 4 million households in the U.S. who over the next four years will not be satisfied, will not reach their aspirations in terms of housing. Now you can say that that’s a small number. I mean, there’s 300 million people in the United States. But on the other hand, it’s a pretty significant dissatisfaction, if you will. And it’s really a hangover from the economic crisis that we saw.
The second challenge is a community challenge, not an individual challenge. We looked at 2,200 cities across the U.S. They account for half the U.S. population. These are the 2,200 largest cities. They all have populations in excess of 15,000 people. And we divided them into nine segments. And two of them are doing quite well – affluent metroburbs, we called it, and cosmopolitan suburbs. So affluent metroburbs, about 10 percent, 220 cities and towns, established wealthy communities. They’re almost always actually near big cities. They offer an ideal mix of urban and suburban lifestyles.
And when you look in our report, I encourage you to look at the map of affluent metroburbs. There’s a map of the United States. In fact, you can go on the website and see this graphically. And there’s a map of the United States, and it shows where every one of these 200 communities are. And what you will be amazed by is they are only in five places in the United States, with very few exceptions: Boston, around that area; New York; Washington; Chicago – sorry, six places – and Northern and Southern California. That’s it. Now, obviously there are communities outside of Houston, Texas, and there’s a community outside of Atlanta, one or two. But there’s an incredible concentration of affluent metroburbs. It’s unequal, and the question is – we’re not policy expert – but there’s really a question as a nation, is that something that is going to create challenges and problems for us, the concentration of these affluent communities in a very few number of places around the world.
Half of the communities on the right-hand side are struggling, whether it’s transitional cities, older inland cities with a higher reliance on government jobs to sustain the local economy, almost 400 cities and towns; deflated bubble communities, these are communities that were hit very hard by the real estate bubble; and then what we call challenged and endangered communities, 170 we put into the category of endangered, truly distressed cities and towns, very weak housing markets, severe socioeconomic pressures, challenges with crime, challenges with public assistance, challenges with low income, challenges with population declines, challenges with low income growth; and another 300 or so communities that we call challenged, so 1,100 in all that are really struggling. And that’s half of the big communities in the U.S.
And lastly, these communities are struggling. These are the communities that are typically on the right-hand side of this chart. This chart shows where the housing wealth in the U.S. is located. And you can see there’s about 8 – $7- or $8 trillion worth of housing wealth here; 5.5 of it is in the top 20 percent of those communities. 245 billion of it – this is in 2018 – will be in the bottom 20 percent. And so these struggling communities who are typically on the right-hand side of this have a very small piece of the pie.
Okay. I’m sorry, I’ve probably taken a little bit too long. So that’s the first topic. And I think what I’ll do is if it’s okay is let me go on to the second one, and then feel free to ask about both. Will that be all right?
Our second major research report is focused on CEOs. We do this every year. We talked to 1,000 CEOs, chairmen, and presidents of companies, and we asked them – this covers around the globe. And we basically asked them two questions: “What keeps you awake at night, what are you worried about? And what are you going to do about it?” We call the first “challenges” and the second “strategies.” And there are two key conclusions in 2014. The first is that CEOs are now very clearly playing offense, not defense. And I’m sorry to use a sports analogy, but I think that’s the right one. And I’ll show you what I mean by that. And that’s a very, very good sign for the global economy, because the attitudes of CEOs are very good leading indicators of what’s to come in the economy.
And the second conclusion is – and this won’t surprise you, I don’t think, but it’s all about people, what they’re worried about and what they’re doing. It’s all about people. We talked about the war for talent and the importance of people as our most important assets and so forth. That’s what CEOs actually believe and it’s what they’re acting on. And I’ll show you that.
Here are the top – here are the list of the top challenges of CEOs, and we’re going to focus today on the top two or three of four. Number one is human capital. How do I make the most out of my people? Number two – this is globally – is customer relationships. Now this is not something was at the top of the list three or four years ago, and it’s a very good sign that it’s coming back. Customer relationship is playing offense, right? How do I serve my customers? How do I deliver greater value?
The third topic, tied for third, is innovation – also offense, playing offense – and operational excellence. So those are the top four. And let me talk a little bit more about these. First, let me show you where they rank around the world. So human capital is number one everywhere – oh, sorry, in half the places, excuse me. In the U.S., Latin America, and China it’s number two. In India, Europe, and Asia it’s number one. So everyone agrees it’s very, very high on the list. Customer relationships also high everywhere, innovation and operational excellence high everywhere.
Let me highlight – and by the way, as you look across these charts, what you see more so than in the past, and I think this is very interesting, is the results are pretty similar by region. It didn’t use to be the case. Five, ten years ago the results were very different by region. Maybe the economy is becoming more global.
Let me highlight a few places where they’re different that are interesting. In Asia, customer relationships aren’t one or two; they’re sort of number four. And in China they’re number five, you can see, as we break out China. I think everyone knows that in China, a critical aspect of the economic development is focusing more on customers and moving the economy from one of supplying to one of serving customers directly in China. And I actually would have expected to see customer relationships as number one in China. A little bit surprising, to me at least, that it’s not right at the top of the list.
Europe – global and international expansion is very low for most CEOs, but European CEOs putting it higher on the list. Well, why is that? For those of you I know that report from Europe – I know we have a journalist here from France – the growth opportunities in Europe are not looking particularly attractive these days, although they are more attractive than they were a year or two ago. So Europe is obviously moving in the right path, but is not looking at dramatic growth rates, whereas in the U.S., and certainly in Asia, satisfying domestic markets – domestic markets can provide a fairly significant amount of growth.
Sustainability in China is very high on the list. And for all of the talking that we do in the United States about the importance of sustainability, and for all of the talk and action that Europe does, because Europe is really in the lead on sustainability, European corporations set the global standard for sustainability, China’s CEOs are ranking sustainability as very high. I think that’s a very good sign. I think China obviously has a long way to go in terms of its environmental practices, but it’s a very good sign that CEOs are taking this issue seriously. And frankly, it’s a little bit of a worrying sign that it’s ranked much lower in the other regions of the world.
I mentioned that CEOs are moving from defense to offense. This shows you the list of the top issues, and what I’d just sort of like to focus on is – let’s just take 2012 versus 2014. In 2012 innovation and human capital were at the top of the list globally. They usually are. But look at the next two in 2012. Global political and economic risk and government regulation. By the way, this survey, 2012 comes out January of 2012, so it’s really 2011, right? So think back really 2 and a half years, and it’s amazing how far we’ve come. CEOs were mostly worried. They were playing defense. The world was a very risky place. I mean, it still is, but the world was a particularly risky place then. Think about where Europe was 2 or 2 and a half years ago. Think of where the U.S. was politically with its budget crisis and its pre-sequester issues and all of that. Not that the U.S. Government – am I allowed to criticize the U.S. Government? I think I am. Not that the U.S. – (laughter).
MS. GRUNDER: Only on your own behalf. (laughter)
MR. SPECTOR: Right. Speaking on my own behalf, right. I mean, I don’t think the U.S. Government is sort of a model of efficiency in terms of its political processes these days, but remember back 2 and a half years ago when it was really dramatically affecting the economy and it was affecting the mindset of CEOs. And government regulation, lots of new regulations, lots of uncertainty. Now CEOs have learned to adapt to that environment. Maybe the environment’s gotten a bit better. And so if you look at government regulation and risk, they’ve moved down in the order. And they’re replaced by things that create value and grow – building our people, innovating, serving our customers. And that’s a very, very good sign for the global economy.
The last thing I’ll say is it’s all about people. And when we look – so what this chart shows – it’s a little bit complicated – is for each of the five top challenges – human capital, customer relationships, innovation, operational excellence, what are CEOs thinking about doing about these challenges? How are they going to improve human capital? How are they going to improve innovation? And when you look through these strategies, you’ll find – obviously, in the first column it’s all about people, right? We want to employ – provide more employee training and development. We want to increase efforts to retain talent, et cetera. But if you look at the other four columns, it’s also all about people. We want to engage personally with key customers and clients under customer relationships. We want to create a culture of innovation. We want to find, engage, and incentivize key talent. We want to develop innovation skills for all employees. We want to improve our organizational flexibility. We want to raise employee engagement. We want to improve the performance and accountability of senior management. All of these strategies depend on people, making people in an organization work better. And so you could say that CEOs are becoming the chief people officers of companies. That’s how important winning the people battle is for CEOs around the world.
Very – last – a couple of hot-button issues. A last question that we asked people: What other issues are on your mind? Financial – in Asia, financial instability in China was the top issue. Understandably, China now has such an important role in the global economy, making sure that it’s stable. In Europe, not surprisingly, the economic growth and depression – depression, I think, is the wrong phrase, but the economic situation in Europe. In the United States, healthcare benefit for employees. I mean, you all – I don’t know if you’re affected by the Affordable Healthcare Act, but certainly you have read about it and understand the impact of it. And in Latin America, labor relations, there are some important aspects to improve their economy that have to be made more optimal.
One thing that’s common, whether it’s ranked exactly number one or not, but big data. This is an issue that’s coming, or it’s an issue that’s here. (Laughter.) And CEOs from all regions of the world thought that this was pretty important. And this is going to affect – whether it’s public policy, corporate competitiveness, as us as individual consumers – big data is going to be an issue that’s front and center for the next period of time.
And lastly, we asked what leadership attributes are critical, and there are some interesting differences. In Asia, not surprisingly to me, entrepreneurial mindset is the most important on CEOs mind. Articulating a vision is less important in Asia, and it’s much more important in the U.S. and Europe. I’m not sure if that represents a natural economic evolution or whether it’s just a more practical – whether CEOs in Asia and Latin America are just more practical and want to focus on things like entrepreneurism rather than intangible things like strategy and vision.
So those are the major conclusions about CEOs – what’s happening in 2,000 cities, what’s happening with 1,000 CEOs, and I’m happy to take questions or answer any thoughts that you have, take any comments.
QUESTION: In the hot-button issues, cyber security was like seven, I think.
MR. SPECTOR: Yeah.
QUESTION: Does that include government spying?
MR. SPECTOR: There’s – from a survey point of view, I can’t answer that question. I mean, I’m unable to answer it. But I would say that in our discussions with CEOs that the primary dimension of cyber security from a business perspective is not the societal issue of spying. I don’t really know what corporations’ views on that issue are. But when CEOs express concern about cyber security, I think they’re expressing concern primarily about the impact that it can have on their business and on business in general. And there are some very significant issues that affect all companies around cyber security. So that would be my interpretation of what they meant.
QUESTION: (Inaudible) about China are from Chinese CEOs now international companies’ CEOs working in China?
MR. SPECTOR: Both. And I don’t know that I can break it out graphically. We might – I can’t break it out right now, but it’s both. And I don’t know exactly the mix. But it’s all CEOs based in China, and some of both.
QUESTION: I wonder if they have, like, said anything about China’s recent reforms, economic reforms since the third plan of last year.
MR. SPECTOR: In this survey, we didn’t ask about that. And the reason is that this is a global survey. And so it would be – I think for the biggest global companies, CEOs everywhere – for the biggest companies – were focused on the reforms. I mean, I know, for example, at the Conference Board we informed the CEOs of our member companies immediately about the changes in the plans and our interpretation of those changes, and we know for sure that our CEOs were reading that analysis and cared about it. But that’s true for the biggest companies. I think for most other companies, except if you’re a Chinese company, I think it would be less – is less top of mind. But we don’t – we didn’t give them that choice, so we could – they could have said on a hot-button issue – let me go back to the hot-button issues.
And so there was some indication. I mean, for example, the U.S. – if you see the – in Europe and the U.S., financial instability in China did make the list of the top issues. That isn’t quite reform in China, but obviously, they’re all focused on China.
I will say that CEOs outside of China, I mean, are still extremely focused on China, and that’s never going to change now. That’s a permanent aspect of international business. I think CEOs are much more comfortable about volatility, and they understand China better – not perfectly, but better – but they’re very focused on it in terms of growth, in terms of the slowing growth as well. I mean, it presents opportunities and challenges.
Other questions? Yeah.
QUESTION: On the first survey, you mentioned mobility in the U.S. has become very limited. Can you delve into this, why it’s happening?
MR. SPECTOR: Yeah. I need to be clear about using that term. Personal individual mobility is actually on the rise.
MR. SPECTOR: And so I’m using the term “mobility” in a nontraditional way. When I’m talking about mobility, I’m taking about the ability – I’m talking about community mobility. Now obviously a community is a geographic place, so we’re not talking about a community moving. (Laughter.) What I mean by that is: How often does a community move from endangered to highly successful?
QUESTION: So, resilience.
MR. SPECTOR: Yeah, you could call it resilience or community success or something of that sort. And so we need to analyze this further. And in fact, the next report that we publish will focus on this issue. But the early data that we have suggests that if you look at the top 10 percent of communities – so that’s about 220 communities that we looked at – over the last decade there’s only been about a dozen new entrants into that group. So out of the 2,000 communities that were not in that top segment, only about 12 or so became in the top segment and 12 fell out. And that suggests that it takes a century or more for that group to turn around, right? Actually, two centuries. So it’s a very stable – so communities aren’t upwardly mobile. That’s what we meant by that.
QUESTION: (Inaudible) like so-called inequality among the individuals, so does it have anything to do with that, and why is that?
MR. SPECTOR: Well --
QUESTION: Once you see sort of so-called inequality, I think Brookings recently --
MR. SPECTOR: Yeah.
QUESTION: --had interesting research on inequality among the cities, and has --
MR. SPECTOR: Well, and they – I think – and I thought Brookings’ report was more about inequality of – it was about individual inequality, and that’s typically the way inequality in the U.S. is considered. We need to analyze this further. We have a huge amount of data. But our hypothesis – and there is a little bit of data to suggest that whole communities have trouble moving up and down the spectrum. And it’s a very different notion of inequality or upward mobility. I think – this is now speaking personally as a citizen – I think part of the attractiveness of the American culture is a sense of individual opportunity, that you can move. I don’t think we’ve really thought much about community opportunity. I mean, it’s really, as an individual, if you feel like the community isn’t moving, then you move. You move from this community to that community. What does it mean if in fact communities aren’t upwardly mobile and it’s more difficult for them to change their circumstances, what does that mean?
MR. SPECTOR: Sorry?
MR. SPECTOR: Well, Detroit, I mean – you hate to pick on Detroit, but what does it mean if Detroit could not come out of its current circumstances? Now this report doesn’t say that it can’t, obviously. So we’re trying to explore the notion of community mobility, and that’ll be the subject of our next report.
QUESTION: So do you have historical data to compare the --
MR. SPECTOR: Yeah.
QUESTION: -- current situation to the past?
MR. SPECTOR: Yeah.
QUESTION: So it was much more faster than --
MR. SPECTOR: Oh, sorry. No, sorry. We can’t tell whether mobility is increasing or decreasing. We can simply tell whether it’s large or small. In other words, we know where these 2,200 communities were 13 years ago, and we know where they are today, and we’re forecasting where they’ll be five years from now. So we only have one measure, which is basically if you looked at the communities in 2000, how many of them became upwardly mobile? And is that number a lot or a little? And we’re starting to analyze that data, but the number is very small of the communities that broke into that top group. And so that leads us to believe that if we look at the other groups we’re going to find not a lot of movement between the groups. But we don’t know whether that not a lot of movement has always been the case or not. We only have data that goes for one period of time, so we can only compare now to 10 years ago or 12 years ago.
QUESTION: Why there is no job creation on the mind of the CEOs? Is because they don’t care about it or they are really down on the list?
MR. SPECTOR: I think they care about it. But I don’t think they call it job creation. I think CEOs think that job creation is a result rather than a purpose. And so if you have great people – e.g. human capital, the first issue – if you have strong customer relationships, if you innovate, and if you are operationally excellent, you’ll create jobs. And so I don’t think you’d find any CEO that thinks job creation is unimportant, and I’m sure most CEOs can point to – I can at the Conference Board – to how many jobs have we created in the last five years. I know exactly at the Conference Board how many that is. And I think most CEOs of most big companies know that as well. But I don’t view my job as the CEO of the Conference Board to create jobs. I view my job as to deliver value to customers, to make sure we have the best people and to innovate and so forth. And that’s what will create jobs. So I think – I don’t think you should conclude the CEOs don’t care about job creation. It’s just not the language they use.
QUESTION: In regards to the first survey, we could say that we have ahead a future full of disappointments? Because you have said that people are not going to have --
MR. SPECTOR: Yeah.
QUESTION: -- the house they want, people are not going to have the --
MR. SPECTOR: Well, I – the difficulty of – I’m probably not choosing my words carefully enough in a room full of journalists. I say we have a future full of disappointment. Actually what I would say is we have a future of a return to stability and a return to growth, which I think is very positive. But within that context, there will be disappointments. There are people – many – there are a good number of people who will not be able to achieve their housing aspirations because they haven’t been able to accumulate the savings. And there are a good number of communities who are going to continue to struggle as they’ve come out of it. So I would say it’s a – maybe you’d call it a mixed picture.
It’s a lot better picture than it could’ve been. And overall, it’s growing. So I mean let’s not forget that. I think if you had to – overall, we’re going to see about 2 percent growth per year in housing, and that’s a big number. But there are going to be disappointments within that.
QUESTION: Are you ascribing the relative success in the first survey or lack of success of a particular city or metropolitan area to any particular factors? I mean, does engagement with the global economy or whatever – I mean --
MR. SPECTOR: Yeah.
QUESTION: -- what factors are you attributing it to?
MR. SPECTOR: We’re not attributing it to it yet. That’s a next step, yeah. We have 600 variables on each of those 2,200 cities, and we’re hard at work trying to figure out the answer to that question. But I think it would be premature for me to say. We don’t even have hypotheses yet.
QUESTION: In the second part, you were talking about the importance of big data.
MR. SPECTOR: Yeah.
QUESTION: Maybe some can you explain it a little bit (inaudible)? What do you mean by that?
MR. SPECTOR: Oh. So the importance of – big data – I’m trying to think of the best way to explain it. Big data is the situation that arises when huge amounts of data are being collected. If you – and because of the technologies that we all use – I’m looking around at the table, you all have them out – there’s a huge amount of data that’s being created and collected. And that’s because technology has allowed us to create the data for essentially no cost. And now it’s allowed us to collect the data and store it at essentially no cost. I mean, very, very inexpensively.
So now, we find ourselves in an environment where all of this data exists and then it creates a whole set of opportunities and problems for – in this case, for CEOs. So for example, I mean, from a CEO’s perspective, big data creates opportunities and challenges. What opportunities does it create? Well, the opportunity to serve your customers and deliver value in a much better way. I’ll tell you at the Conference Board, we are now starting to learn about which customers are spending which amount of time on which parts of our website. And we can use that to say, “Oh, you might be interested in the housing report because you’ve spent a lot of time on issues that relate to housing. Would you be interested in that?”
There’s also the challenge of all of that data being collected. For example, should be we monitoring our employees’ email use or not? Should we be worried that that data can get into the wrong hands? I mean, it’s our data and our customers don’t want us to share it. What happens if someone takes it? So that’s what we mean by big data.
And then of course, that issue isn’t just a corporate issue. It’s also a government issue and a societal issue, and you can see that in the United States. It’s playing out in very, very significant ways, so – yeah.
QUESTION: On the first survey, you mentioned that you see little signs of overheating in the housing markets.
MR. SPECTOR: Yeah.
QUESTION: But I also believe that Fannie Mae is providing something like 80 percent of all new loans.
MR. SPECTOR: Yeah.
QUESTION: So if you adjust for that, how is the market looking? And how would that impact the prices?
MR. SPECTOR: Well, the – I think you’re asking a policy question, really, about the availability of lending. And I think our study – again, because we don’t come at this from a policy angle; we come at it from a consumer angle. In other words, this is sort of through the lens of people and as consumers. What we see as the challenge is not so much the availability of capital, but the availability or unavailability of savings and income to be able to afford the kind of housing that people aspire to.
Obviously, in the United States, there’s been a period of sort of volatility and change in the lending environment, in the credit requirements. There’s been a tightening of those for sure. Some of that was obviously needed. I mean, that’s what created the housing bubble in the first place. But I don’t think our report has a point of view about whether or not the lending environment has reached the proper levels and whether or not credit is too available or insufficiently available. I don’t think we have a point – I don’t think our data has – lets us have a point of view about that. So I’m sorry I’m not really answering your question, but I’m not really able to based on our work.
MR. SPECTOR: Yeah.
QUESTION: Regarding the housing report, do you guys take a consideration of foreign investors into that?
MR. SPECTOR: Of which?
QUESTION: Foreign investors or non-Americans? Or it’s just based on the income level?
MR. SPECTOR: Oh, no, no, no. We take into account domestic and foreign investors. Basically, homeowners – I don’t want to call them speculators, but people who are buying houses for investment purposes, absolutely. We take into account the entire supply and the entire demand side. And in fact, that’s had, I think, a significant effect. I think it’s had an effect on the return and perhaps some of the growth that we’ve seen over the last couple of years. Absolutely we take into account both – we factored into our forecasts the continued interest of investors domestic and foreign in housing.
QUESTION: Is there any specific observation or any trainings or --
MR. SPECTOR: There may be, but I’m – I was supposed to be accompanied by one of the co-authors of the report, but in the last minute, she had to go to the doctor. I think she’s okay, but she would know that. That is something – by the way, I should say that we’d be happy if you – we’d be happy to get back to you. I mean, I’m not one of the authors of the report. So if we have data on that and if the study looked at it – and I think it probably did – we’d be happy to talk to you about it. It’s just that we’d have to talk to Kathy or Louise, who are the authors.
So, just speak to Ralph or give us your email and we’ll get back to you on that.
QUESTION: Where is the next bubble?
MR. SPECTOR: Where is the next bubble? You mean geographically or in what industry?
QUESTION: Yeah. I mean, you seem to be pretty sure that it won’t be housing.
MR. SPECTOR: In housing, yeah.
QUESTION: So --
MR. SPECTOR: Where is the next bubble?
QUESTION: Where do you look?
QUESTION: Yes, when, the characteristics – (laughter). Anything you can tell us --
MR. SPECTOR: The date? Thursday. Well, I mean, obviously, I’m answering that question not on the basis of the research that we’ve done. I guess personally, I would say one of the things that surprises me as a businessman is the economic value that’s being associated with social media businesses. There’s been recent transactions at extraordinary prices.
And I think that there are a set of business assumptions and consumer assumptions about how we’re all going to spend our time and how we’re going to behave and how we’re going to spend our money. I personally think it’s challenging to imagine an equation which creates that much value. Having said that, there is a section of the U.S. economy with some very, very smart people and some very innovative people who are very confident that that value is there, so I think it certainly bears watching.
I think the good news is unlike housing, that a bubble in, say, the social media sector will not have broad societal consequences. I mean, I have kids who are all of the age who are into this. And I’m not suggesting that they won’t be disappointed or upset – whatever. But I don’t think we’re going to see communities endangered or individuals’ mobility changed and so forth if the social media sector of the economy slows down or has a dramatic price adjustment. It’s a very different kind of bubble and a much safer one if it is, in fact, a bubble.
I think the U.S. economy – it’s very difficult to – obviously, to predict unexpected events. But I think our view – and Kathy Bostjancic, who’s come in – Kathy, you tell me if I’m misstating something. The question was sort of where is the next bubble going to occur – and I gave my personal opinion – if not in housing, then where? But I think that our view of the U.S. economy is that at a very, very macro level, the U.S. economy is in decent shape. The U.S. is a very productive economy. Productivity is high. It’s growing. Technology is well used. The labor markets are relatively mobile and efficient. The regulatory environment is, let me say, stabilizing. It may not be stable and it may not be perfect from a businessperson’s point of view.
There are major issues that have to be resolved, but confidence is up. Consumers are slowly becoming more and more optimistic. The corporate sector is very strong. There’s a reason to be hopeful about the U.S. economy, and it’s not just hope. The economy has demonstrated over the last 18 months or so a decent growth. So that doesn’t mean there won’t be a bubble, but again, I encourage you to think where we’ve been. If we were talking about the U.S. economy 24 months ago or 36 months ago, for sure we’d have a very, very different discussion. And I think that’s really important.
QUESTION: So you think we are at the beginning of something new?
MR. SPECTOR: No, I wouldn’t – I would say that we are – well, I would use the phrase that we used for the housing report, “A return to equilibrium,” I think actually applies to the economy somewhat as well. I think it’s really important to remember what equilibrium is. Equilibrium is not what happened in the U.S. from 2007 to 2012. But it’s also not what happened in the U.S. from 1995 to 2007. I mean, some of you are young enough to maybe not have been journalists before then. What happened from 1995 all the way through to 2011 or ’12 is very unusual on the positive and then on the negative.
Economic growth of 3 or 3.2 or 3.4 percent or 2.9 percent is the equilibrium. And I think for the U.S. – and maybe this really relates back to your question about bubbles – I mean, I think our forecast, Kathy, for economic growth in the U.S. over the next couple of years is about 3 percent?
MS. BOSTJANCIC: Yes. It’s a touch below, but yeah. The --
MR. SPECTOR: Okay, – between 2.5 and 3 percent.
MS. BOSTJANCIC: Exactly, yeah.
MR. SPECTOR: Yeah. That’s a good, stable growth rate. That’s a growth rate that doesn’t in and of itself cause bubbles. Will there be bubbles? Maybe. But if you’ve got an economy for 10 or 12 years that’s growing at 5.5 percent, which is what the U.S. economy grew between that period of time, that’s not sustainable. I mean, we’re a 200-year-old economy. China can grow that fast, but the U.S. can’t. And by the way, China growth is coming down, so --
QUESTION: So you think the U.S. economy can keep this going even when you consider about the outside – I mean, outside, like Europe and China?
MR. SPECTOR: Well, yes, I think is the short answer. I don’t think we’re going to grow at 4 or 5 percent. I think we’re going to grow at 2.5 to 3.5 percent over the next five years. But we think we can do that. We think the U.S. economy has that growth potential in it. Europe is slowly recovering. China is slowing but is big. So what is China’s growth rate this year? About 7 percent, Kathy, roughly?
MS. BOSTJANCIC: Yeah, 7 percent.
MR. SPECTOR: Now, 7 percent of China this year is a whole lot more than what 7 percent growth would have been 10 years ago in absolute terms. There’s a lot of growth in China. And even as China slows down to 6 and 5 percent, I think our forecast by 2025 is that China will be growing at 4.5 percent. But that will be on the base of a very big economy.
So we don’t see a shortage of growth opportunities. We don’t think the world is going to look like it looked 15 years ago. We think it’s somewhat slower than it was but faster than it’s been in the last 4 or 5 years.
QUESTION: How much do you and the CEOs worry about the emerging economies in --
MR. SPECTOR: Worry about --
QUESTION: -- emerging countries?
MR. SPECTOR: Emerging countries?
QUESTION: Yeah. Because there was a crisis only to – this year about the threat of fire, like Chile, Argentina --
MR. SPECTOR: Oh. Well, I think – I guess --
QUESTION: Not Chile, but --
MR. SPECTOR: No, no. I think that I would say that in the mind of CEOs, I would say of course – and it depends for different companies – CEOs are aware of and concerned about volatility in different emerging markets. One of our – I mean, for some companies, Indonesia is a huge market; for others, it’s not that important. If you – if you’re a CEO of a company which is really big in Indonesia, you’re very aware of what’s going on in Indonesia.
But I think unlike 20 years ago, today, most of our – most big company CEOs are much more comfortable operating in volatile multi-country environments. And there’s always going to be a developing country that is doing poorly. Brazil goes from 4.5 percent growth to 0 percent growth, and then hopefully back up to 4.5 percent. Mexico slows down, and then it’s been doing extremely well. That’s the nature of emerging markets.
China is really the exception. China is moving on a very regular path of slightly declining growth over time. It’s – by the way, as an economist, you have to say is very impressive. But most emerging markets are volatile. But I think to your point about what’s in the mind of CEOs, I don’t think CEOs – I mean, I think they’re aware of it. I think they’re obviously concerned on a country-by-country basis. But I don’t think – CEOs for sure are not saying it’s too volatile in these – in Chile, in Colombia, in Mexico, in the Philippines, and in Indonesia and China, we need to pull back. That’s not what’s happening at all. I think they are developing techniques to deal with the volatility and they see the emerging markets – they see the global economy increasingly globalized and they see opportunities, so – yeah.
QUESTION: I’m intrigued by this number 10 column, active shareholders.
MR. SPECTOR: Yeah.
QUESTION: Is there new interest you have seen for it? Have you ever seen this kind of thing before?
MR. SPECTOR: We have not asked this question before, so we have nothing to compare it to. This is the first year we asked this question.
QUESTION: Are you surprised that it’s --
MR. SPECTOR: Now, I’m not surprised. It – I’m actually surprised it’s not highest in the U.S.
QUESTION: Oh, not surprised?
MR. SPECTOR: That surprises me. I think the system of corporate governance and the kind of direct – the board – the role of the board of directors versus the role of shareholders, and within that, the role of activist shareholders is a pretty significant concern of many CEOs, certainly for a big company, but big public companies. I actually would have expected that number to be higher, but I suspect that CEOs are not really sure what to do about it. This is one – if you have a problem with employee engagement or hiring or retention or innovation, you can work on that in your company. If you’re concerned about the role of activist investors in the public markets, there’s not really much you can do about that concern as a CEO of one company. And so change – if you believe change is necessary, it’s not exactly easy.
For example, there’s another version of that. Let me give you another example. I want to show you something on the – yeah. So look at the last issue. Look at the 10th issue. This is the – we give people the choice of 10 and look at what the last issue is – trust in business. Now, I know for a fact that CEOs think that that issue is extremely important, because we do research in this issue at the Conference Board and we do research with CEOs. We talk to them. We’re concerned that trust in business is too low. By the way, we’re not just concerned in the U.S. We think it’s a global issue. And we think that the role of business in society is being hampered by the lack of trust.
Yet CEOs are saying this is the least important issue. I don’t think it’s because they don’t care about it. I think it’s because they just don’t know what to do about it. And by the way, we don’t know what they should do about it either. I’m not suggesting that they lack any sort of intelligence. It’s very difficult. It’s one of those issues where, as a CEO, you’re mostly focused on what you can do for your company because that’s really the realm of influence that you have.
So I would suspect that activist investors is in the same boat – something that they think is very important, but they’re not really sure as an individual CEO what they can do.
QUESTION: If I can go a little bit locally. I mean, I don’t know if you remember if there were any thoughts on Spain, and on the southern countries in Europe given the situation is --
MR. SPECTOR: In the CEO challenge?
MR. SPECTOR: I don’t know think we broke it out. We only have 100 responses in Europe, so – and we need about 50 or 60 for an individual country, so I’m pretty sure we didn’t – we did not break it out.
MS. GRUNDER: Thank you so much. That was terrific. You might be here for a few more minutes --
MR. SPECTOR: Sure, I’m --
MS. GRUNDER: -- if people want to ask questions individually?
MR. SPECTOR: -- happy to do that. It looks like we have food. You’ve all been very patient, so I’m sure you would like to have lunch. If you have questions of me or Ralph, please feel free to ask. And Kathy is actually the author of the housing – one of the coauthors of the housing report and one of our senior economists as well, so she can talk with more authority than I can.