Predicting where the economy will go isn’t that much different than predicting the weather, and in many ways, the success rate of those who do it for a living isn’t all that different either.
As Dr. Lee McPheters, a professor of economics at Arizona State University, told about 300 attendees to the 2015 NSCA Business and Leadership Conference, “We know about half of these predictions will be wrong, but we don’t know which half until after the fact,” drawing one of many laughs he produced from the crowd.
So, as with many predictions of this sort, take these prognostications from McPheters at the BLC in Tampa, Fla., in late February and Brian Beaulieu, CEO of ITR Economics, who spoke to PSNI members at their annual Supersummit in Phoenix in mid-February, with at least a grain of salt, if not a shaker’s worth.
Trending the Right Way
McPheters sees our economy “stuck in 2 percent GDP band,” adding, “We’ll know our economy is on the rise when we get to 3 percent. Consumers are still cautious. The quality of jobs is better but wage growth is still weak.” McPheters is skeptical GDP growth will reach 3 percent in 2015, noting it hasn’t happened in 10 years and adding consumer spending is “only about two-thirds of what it should be.”
What’s especially troubling, says McPheters, is the previous 10 recessions have seen 4.2 percent GDP growth in the 22 quarters since their end, as compared to the 2.2 percent GDP growth from the third quarter of 2009 to the fourth quarter of 2014.
On the other hand, the job market matched January 2008 levels in May 2014, says McPheters, a recovery period that far exceeded that of previous recessions, where they ranged from two to four years. About 86 percent of the new jobs (2.5 million in 2014) have been in services, he says.
“We’ve gotten used to this 2 percent thing, and just come to accept it as the new normal,” he says. “This has been a completely different recovery experience.”
Construction has regained about 45 percent of its previous workforce on the residential side and about 33 percent on the non-residential side since the start of the 2008 recession, explains McPheters.
“Unemployment is still with us,” he says, noting the 5.6 percent figure as of January 2015. That doesn’t include those who have stopped looking for work (would be 6.1 percent), those who left the workforce (would be 7 percent) or those who are working part-time but want full-time work (would be 11.3 percent, down from 15 percent at its peak).
Beaulieu says consumers are the wealthiest they’ve been in almost 30 years, adding, “The basic news is good and there are plenty of opportunities out there. The fundamentals are there to make good revenue growth, as long as you’re aligned toward the right markets and bold enough to make these moves. What are you doing to get ready for the changing market of the future?”
McPheters notes “the trend is going in the right direction,” but people are still paying off debt rather than borrowing money, a high number of homes remain “under water,” wages are stagnant, the job market is “much better,” and low gas prices are helping things continue to turn around. “Debt is what drives growth,” says McPheters, adding wages as a percentage of GDP are in a 40-year decline.
About 16 million of 140 million jobs in the U.S. are minimum-wage positions, with half of those 16 million people at least 24 years old. Their income total would rise about $2 million if the minimum wage was raised to $10.10, an ongoing discussion with no resolution in sight. Politicians are “very reactive” toward the country’s economic situation in general, rather than being at the forefront of charting the path, says Beaulieu.
“There’s an 18-to-24-month lag time between political action and when it shows up in the economy,” he says.
A $10.10 minimum wage would drop the number of Americans in poverty to about 1 million people, reduce labor turnover and taxpayer costs, but increase technology and worker productivity, McPheters says. On the flip side, with a $10.10 minimum wage, the American economy would lose up to 1 million jobs, prices on all sorts of items would go up, business profits would go down, and those with the least skills would be most vulnerable to being let go.
“If the cost of hiring people goes up, you hire fewer people and focus on technology and equipment,” says McPheters.
Up and Down Markets to Watch
McPheters sees real gross domestic product continuing to go up through 2018, but warns “2019 looks to be a recession year.” He urged those in the audience to “make it a management objective” to prepare for the inevitable downturn, whether it’s in 2019 or at another point. Non-residential construction, he says, is a lagging economic indicator.
“You can see these things coming before they’re right in front of your face,” says Beaulieu. “Start thinking today about what you’re going to do to maximize this revenue ascension. Most companies go bankrupt when they don’t have working capital to maximize the ascent after a downturn.”