Economics in the Time of Trump. 2017 Climbing Wall Summit Loveland, CO Matthew C. Roberts, PhD | www.kernmantlegroup.com 19 May 2017
Who am I? • Owner, Kernmantle Group • Risk management consulting for Agriculture • Associate Professor in Agricultural Economics, The Ohio State University. (left in Dec ‘16) • Specialize in Financial Markets for Ag Industry. • Partner, Vertical Adventures, Inc. • VA founded in 1994 by Alexis & Carrie Roccos (still operating partners) • Two facilities, 16k ft gym & 6k ft training center • I joined in 2013 to facilitate expansion (I speak banker) • Treasurer, USA Climbing • Since 2014 • Sutton Bank, Attica, OH • Board of Directors • Loan Committee Member
How much effect does the President have on the economy?
About this much…
So then does the Presidency matter?
Outline: • Current Situation for Customers: • Employment • Inflation • Disposable Income • Geographic Differences—the meaning of means. • Current Situation for Owners: • Interest Rates/Lending Standards • Labor Costs • Commodity Prices • Outlook for the next 1-2 years: • Interest rates • Economic Growth
How are our members doing?
Now some bad news... Unemployment at ~4.4%--as low as 2007.
New Jobless Claims Continue to Fall— i.e. unemployment is still falling
Openings/Hirings increasing more slowly
Underemployment remains stubbornly high.
Employment trends are positive. • Unemployment is near ‘full employment’ levels. • Labor participation rates are climbing. What about wages?
2.3% annual hourly wage growth over past 4 years. What about the costs to a gym?
But 2% inflation over past 4 years.
~4% Retail sales growth over past 6 years.
Consumer Debt Remains Steady
Wage growth is confusing. • Up until 2014, it acted as it should, keeping pace with inflation, but not much more. • Since then, as the labor market has tightened, there has been no acceleration in wage growth. • Particularly among hourly workers. • Nobody knows why. • My theory: “Don’t suck more than your competitors”
5.3% growth in real Disposable PI since 2014
The Demand Outlook is Strong but Remains Narrow • Disposable income is growing in aggregate. • But wage and income growth is concentrated in top 1-2 deciles of income. • Also remains concentrated geographically • Primarily in metro areas • In desirable locations.
How does that make sense? Median Mean
What is the supply outlook? • What about the factors influencing the cost to build and operate in the climbing industry? • Raw materials • Skilled labor • Interest rates/lending standards
Steel prices expected to moderate on Chinese competition.
Overall Commodity Prices Remain Weak
Commodity Prices Have Remained Flat for ~3 years. • No reason to expect changes, unless temporary supply effects. • Nearly all prices are actually quite boring. • While Rome burns, the citizenry continues to fiddle.
Our employees wages went from 12.40 in 1/15 to 13.30.
Construction Labor costs flat for last 12 months.
Wage pressure is showing up just a bit, but not much. • Construction labor costs have not really risen, but labor shortages in the trades persist. • Slowing projects more than increasing costs. • Service worker wages are rising some • But how much is due to increasing minimum wages? • `Don ’ t suck too much’
Credit Availability and Lending Terms • Interest rates have climbed .5% in the past year, markets expect another .5% in 2017. • ‘Normal’ fed funds interest rates are 3.5-5%, we are now at 1.0%... • The Fed would like to keep raising rates to reload the gun.
Put it together…things are actually pretty good right now. • For ‘target demographic’ they are enjoying wage growth, and even faster growth in their disposable income & consumption. • The economy doesn’t show significant risks. • Construction costs have levelled off nationally. • Operation costs aren’t rising • Low energy costs • Modest wage pressure
So what about this guy?
When has the economy seen its strongest growth in last 25 years? • 1995-2000: Gridlock in DC, enmeshed in Lewinsky Scandal. • 2003-2007: From 2004 on, Bush 43 got nothing done—public & congressional opposition to the war, etc. • 2013-2016: Completely obstructionist Congress. • Stability matters.
What is a likely scenario? • DC becomes consumed with the lint in its own belly button. • Special Counsel • GOP-on-GOP violence • Important things get done (as they did in prev yrs) • For example, sentencing reform • Modest regulatory rollbacks via Executive Branch • Some banking, EPA, labor regulations • Ultimately relatively little actually changes.
What could cause problems? • Trade wars: POTUS has lots of power here, and the US economy is very trade-dependent. • Actual wars: these are bad. • Enacting nearly any policy Trump promised on campaign trail. • Unlikely.
Pee Wee Herman said it best:
So what is the big but? • We are in the longest economic expansion since WWII. • IT WILL END. Likely similar to ‘95 recession, short, mild, caused by increased interest rates. • IT WILL ALMOST CERTAINLY HAPPEN IN THIS PRESIDENTIAL TERM. • Regardless of who was elected. • Will stunt membership growth and spending…are you ready?
Questions? Matthew C. Roberts, PhD matt@ohioclimbs.com www.verticaladventuresohio.com Twitter: @YourEconProf www.matthewcroberts.com 42
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