If you’re wondering about the economy…
Just got back from the CCA Global convention in Nashville. Everyone was excited to see each other again after a whole year. (The January event was canceled.) One of the highlights was the presentation by Connor Lokar, the baby-faced senior forecaster for ITR Economics, the company we refer to often in this space.
We think these presentations are something that everyone can benefit from. Why? You turn on the TV and find the economist du jour. The problem is, they all have an agenda, depending on the channel you’re watching. ITR is different: they speak to you. They are not government economists. They are not academic economists. They live in the private sector world. They are not political. They are unbiased. All they do is look at numbers. They watch what is happening. They tell you what will happen. More importantly, they tell you what to do about it.
Here are 17 takeaways from Lokar’s presentation.
1. Are we really in a recession? Technically yes, despite what the White House wants to portray, because the definition of recession is two consecutive negative quarters of GDP.
2. This is a very strange recession. “We don’t have the things we normally look for in a recession. We do not have a deteriorating labor market. You still can’t hire even if you wanted to. We have no declining income. Income is growing, albeit much slower than a year ago. That’s what ITR Economics considers a recession.”
3. GDP gets worse before it gets better. “But does it really matter to your company whether GDP is a tenth of a point higher or lower? It is not relevant to your business.”
4. What we have is a stabilizing environment. “Retailers are likely to see some negative compositions month after month. How could we not? The numbers you posted last year were downright obscene. 30% places growth rates like you did in the fourth quarter of 2020, 2021 and the first quarter of this year were not going to happen.”
5. Data tells ITR Economics that customer traffic will slow down. “But that’s not necessarily a bad thing. Retailers should take advantage of this in a slowing growth cycle. Work on your business. Prepare for a wave of growth coming next year.”
6. The supply chain is already improving and will continue. Inflation is about to get better. The labor market will be less challenging. Sales won’t be that bad.
7. Despite what the White House may have you believe, there is no inflation because Russia has invaded Ukraine. It exacerbated some of the slowing growth we’re seeing now. It only contributed to inflation. Inflation was already 7% before Russia invaded Ukraine.
8. Russia is overrated. “They are like Notre Dame of geopolitics. Russia is the 11e largest economy in the world. Not even in the top 10. Texas’s economy is bigger. California’s economy is bigger.”
9. ITR is more concerned about what the Fed is doing than what Russia is doing. If the Fed continues to tighten rates in September and next year, it could provide some empirical signals that would make ITR Economics very concerned about what it believes will be an improving macroeconomic trend around this time next year.
10. As we get into the second half of the year next year, we should see a stabilizing US housing market, a stabilizing, recovering US consumer. So as things stand now, we only have to endure three or four quarters of the headwinds.
11. ITR believes inflation will fall by the September meeting. “The Fed is desperate to get out of tightening and will turn a corner. We think they will cut interest rates and ease back next year.”
12. Consumer spending is declining. “How can it not be? You don’t have a bull stock market like we had around this time last year. We don’t have record savings like last year around this time. Confidence doesn’t look as good as last year around this time.”
13. Strong growth in 2021 was supported by incentives, changing decision-making, people leaving their rented housing, people moving from cities to suburban and rural areas. That wouldn’t happen forever, especially with what mortgage rates and house prices have done over the past year.
14. ITR Economics predicts a generally flat to slowing growth trajectory in the next two to three quarters, nothing that will last four or six quarters. “What we’re seeing is that the more you take advantage of COVID-19, be it from incentives or consumer decisions, the more mature you are for more normalization in 2022.”
15. We are entering a period of disinflation where things are getting more expensive at a slower pace. Things don’t get cheaper. “We are here because we have spent too much money. And the government is trying to solve it by spending more money. That’s not how it works.”
16. ITR Economics predicts inflation will fall to 3.5% by the end of next year. “Because we don’t trust that the government will resist more spending. That prevents inflation from going back to 1% or 2%.”
17. The housing market is in recession. “Builders are nervous, they have PTSD about what happened 15 years ago. They’re not going to overbuild. Housing will come to a standstill. Permit issuance has fallen by nearly double digits in the past three months.”