Dr. Chris Kuehl, NSCA’s famed chief economist, speaks frankly to Business & Leadership Conference (BLC) attendees every year, giving them a handle on how the economy will impact business. He kicks off the event by offering his analysis of long-term trends and current conditions, as well as the economic outlook from the view of an expert economist.
As we all know, a lot can change in just a few months. For this reason, every summer, Dr. Kuehl leads a mid-July follow-up webinar to give NSCA members another update on the economy — and its effect on their businesses.
A Trusted Information Source
When Dr. Kuehl speaks, everyone listens. Although he might not have a crystal ball (yet), he does a pretty great job of giving NSCA members accurate economic insight and analysis, thus empowering members to prepare for opportunities and challenges that lie ahead.
During this recent webinar, Dr. Kuehl said that, overall, the economy is faring well. Consumer spending, corporate investment, the jobs market and construction spending are all strong. In fact, inflation-adjusted retail sales have continued to outpace the 30-year trend through March.
Inflation is still hot, which isn’t hard to see; the drivers are wage increases as well as construction and material prices. The Federal Reserve is still fighting this ongoing inflation, and Dr. Kuehl predicts two more quarter-point rate hikes are possible by the end of the year. If inflation does, in fact, continue to occur, then the Fed will continue to tighten through tactics like interest-rate increases.
Looking across the horizon, there will be a few geographic recessions — for example, in Europe and Asia — as well as sector-specific recessions. However, economic data is — for now, at least — showing what Dr. Kuehl calls a “soft landing” for the U.S. economy, with no true recession in the forecast.
Soft-Landing Indicators
What follows are three indicators of the expected soft landing:
#1 Lots of Jobs and Low Unemployment
Unemployment levels continue to remain low. Although the country’s average unemployment rate is 6%, the U.S. is currently sitting at a 3.4% unemployment rate.
Job openings are still well above normal levels, as well. On average, there are six million openings at any given time across the country. That number is thought to testify to a “balanced market,” where supply meets demand.
Currently, however, there are more than 10 million U.S. jobs available — some four million more than the average. Why do these positions remain unfilled? In many cases, the people who are looking for work don’t have the right skills to fill those positions. It might also be due to a shrinking labor force, as some workers get closer to retirement and as others continue to choose not to return to the job market post-pandemic.
Looking specifically at construction, there are 123% more job openings today than there were even during pre-pandemic times. The 10-year average prior to 2020 was approximately 164,000 job openings; today, however, the industry is attempting to fill more than 366,000 jobs. Meanwhile, construction wages are up 4.7% year over year.
Although some integrators might be experiencing slower construction in their regions, this slowdown isn’t due to job abandonment so much as it’s due to projects being delayed due to cost volatility and labor issues.
#2 Growth in Certain Sectors
Earlier, I mentioned sector-specific recessions. Although some sectors, such as fabricated metals and communications equipment, seem to be experiencing their own endemic recessions, other sectors are experiencing significant growth.
Those growing sectors include the following:
- automotive
- computers
- defense
- electrical equipment and appliances
- manufacturing
The statistics that follow relating to current construction projects, which Dr. Kuehl shared, also shed some light on growth areas and weak areas:
- The non-residential construction sector is growing by 17%.
- Single-family housing construction is down 25%.
- Multifamily housing construction is up 20%.
- Manufacturing construction is up 76%.
#3 Supply-Chain Improvement
Worldwide, supply-chain pressures have eased considerably, but products are still in short supply in some regions.
In the U.S., it’s estimated that 23.7% of the market is effectively “balanced,” whereas 65% of the marketplace is currently overstocked relative to the 10-year average between 2009 and 2019.
Because lots of companies rushed to overstock to cover component shortages and supply issues, many are now sitting on too much inventory. This percentage must come down before ordering meaningfully picks up. That said, new orders for durable goods did begin to accelerate once again in April.
Most raw-material inventories are also beginning to improve slightly. Dr. Kuehl says that, at a time when global demand is weak, raw-material inventory levels should be climbing higher than they are. But problems stemming from geopolitics, the pandemic, worker absenteeism due to the pandemic, labor shortages and other factors are delaying the progress of inventory buildup.
Mike Abernathy is director of business resources for NSCA. To learn more about joining NSCA, visit NSCA.org.
