Dec. 9/16 2013; Volume 27/number 16
By Steven Feldman
In the spirit of our annual forecast issue, there is no more appropriate time to report on what economist Brian Beaulieu, principal of ITR Economics, told a packed ballroom of manufacturers and distributors at last month’s NAFCD convention in Chicago. Why should you care what ITR says? Because it claims to be the leading economic trends forecaster in the United States with a proven 94.7% accuracy rate. That’s good enough for me and should be for you, too.
Generally speaking, Beaulieu classified the news as good, if not perfect. He does not see any major derailments in 2014, although the rate of economic growth diminishes in the back half of 2014. That has a lot to do with the bond market, which, by the way, is the only major indicator that foretells something negative for 2014.
The better news is that the economy gets healthier from 2015 through 2017. “Real GDP is above recessionary levels,” he said. “Household valuations are back up to where they were in 2007. This is our recovery. Is it as brisk as we would like? No. But it will continue through 2017.”
Beaulieu does express concern about the business cycle in 2018 and 2019. “Watch interest rates go up three percentage points or more in a 12-month span. That will negatively impact the economy. We can’t live off low interest rates forever.”
As for the housing market, he predicts it will flatline in 2014. However, it picks back up in 2015. He refers to the trend as deceleration. “Couple that with a downward mortgage application trend, and we are looking at a stagnating rise for 2014 followed by a normal rise in 2015-17.” Also: Existing home sales lag behind housing starts, multifamily has peaked and he does not see mortgage interest rates going up dramatically over the next few years.
Beaulieu backed up his positive forecast with a number of facts:
1. There is no significant threat of inflation next year as measured by Consumer Price Index, and energy prices are expected to be benign in 2014.
2. Long-term stimulative monetary policy remains aggressive. Incoming Federal Reserve chairman Janet Yellen said there is lots more the Fed can do to stimulate the economy. Interest rates will be kept low as long as possible. “This helps the U.S. economy get through a somewhat sluggish back half of 2014.”
3. Employment is rising. At least 150,000 jobs per month are being created, which shows a rising economy. “We do not expect unemployment to be an issue in 2014; we don’t expect a whole lot of layoffs.”
4. Banks are lending more money this year than last year. “You should be going out there to get a loan. One of the ways the rich get richer is by borrowing money at this interest rate. This is the time to invest in yourself and your own business. And do it with OPM (other people’s money). How much money? Until you can’t sleep at night. Take borrowed money and look at new markets, new businesses. Think about investing in Mexico.”
5. Retail sales are rising. Sales adjusted for inflation are up 2.5%. “We get nervous if it is below that number, but it is not likely to go into a negative trend in 2014.”
6. Construction is improving, both residential and nonresidential. “We have nothing but positive views, except for housing in 2014, but even that will rise for the following three years. It’s a great time to be in the business again. Make sure you have enough salespeople and inventory to satisfy the demand that will be out there.”
7. Consumers are in great shape going forward. Household debt is the lowest in 29 years and wealth is the highest since 2007. “We have the money to spend. We just don’t feel like spending it as much as we did in the past. However, be aware that consumers may have less money to spend in 2014 because of Obamacare.”