November 6, 2019Analysis of the Forces Affecting Business
2020 – The Year of Living Dangerously (Economically
Speaking)
NREDA – Kansas CityChris Kuehl – Managing Director
Armada Corporate IntelligenceEconomic Analyst for FMA, IHEA, CCAI, FIA
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Setting an Appropriate Level of Expectation
• Economists have successfully predicted 17 of the past three recessions
• If one places six economists in a room, one will get six different opinions (seven if one is from Harvard)
• When an accountant is asked what one plus one equals they will confidently assert the answer is “Two”. An economist will lock the doors and ask “what do you want it to be”
• Finally – economists always express a level of thanks for the existence of meteorologists as they make us look good.
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Recession in the Offing?
• YES – Build a Bunker– PMI sinks for two
months in a row– Trade war impact –
lost jobs and higher costs
– Inverted yield curve– Capacity utilization
falling– Global growth sinking
and taking US exports down
– Political nonsense
• NO – Chill Out– CMI still strong– Industrial production
up– Little pressure from
commodity pricing– Markets still healthy– Consumers still pretty
confident– Employment numbers
still holding strong position
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Why Aren’t Forecasts Holding
• What happened to the Phillips Curve?– Hiring the less than qualified– Growth of low paid jobs
• Why no inflation from tariffs?– Most have only been threats– Many companies in China focused on market share
• Why is growth still good?– Confident consumers– Reduced worry about inflation from commoditiues
• Why No Fallout from US isolationist approach– Noting the contradictions– Trying to focus on friends and ignoring provocations
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Five Issues to Worry About
• Return of Recession or Inflation and Likely Fed Reaction– Commodities and Labor– Importance of FOMC personalities
• Trade War Impact– China – tariffs, structural reform and global growth– Drift away from Europe
• Labor Shortage– Hiring and productivity
• Political Stalemate– Shutdown impact– Neglecting big issues – coming off “sugar rush”
• Consumer Confidence and Retail Shifts– On-line vs. brick and mortar
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Overall CMI
Oct '18 Nov '18 Dec '18 Jan '19 Feb '19 Mar '19 Apr '19 May '19 Jun '19 Jul '19 Aug '19 Sep '19 Oct '19+/- -2.0 1.3 -1.6 -0.8 1.5 -1.3 0.5 1.6 -0.7 -1.6 1.8 -1.2 0.5
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Inde
x
Combined Index Monthly Change(seasonally adjusted)
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