I just got back from the CCA Global convention in Nashville. Everyone was pumped to see one another after a full year. (January’s event was canceled.) One of the highlights was the presentation by Connor Lokar, the baby-faced senior forecaster for ITR Economics, the firm we often reference in this space.
We think these presentations are something everyone can benefit from. Why? You turn on the TV and can find the economist du jour. Problem is they all have agendas depending upon 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 look at what’s happening. They tell you what’s going to happen. More importantly, they tell you what you should 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 odd recession. “We don’t have the things we normally look for in a recession. We don’t have a deteriorating labor market. You still can’t hire even if you want to. We don’t have declining income. Income is growing, albeit much more slowly than a year ago. That’s what ITR Economics thinks of as a recession.”
3. GDP will get worse before it gets better. “But does it really matter to your business if GDP is up or down a tenth of a point? It’s not relevant to your business.”
4. What we have is a stabilizing environment. “Retailers will probably see some negative comps month on month. How could we not? The numbers you posted last year were utterly obscene. Posting 30% growth rates like you did in the fourth quarter of 2020, 2021 and the first quarter of this year weren’t going to happen.”
5. Data is telling ITR Economics that customer traffic will slow. “But that’s not necessarily a bad thing. Retailers need to leverage this in a slowing growth cycle. Work on your business. Prepare for a growth wave that will come next year.”
6. The supply chain is already improving and will continue. Inflation is on the precipice of getting better. The labor market will be less challenging. Turnover won’t be quite as bad.
7. Despite what the White House may lead you to believe, inflation is not happening because Russia invaded Ukraine. It compounded some of the slowing growth we are seeing now. It just added to inflation. Inflation was already at 7% before Russia invaded Ukraine.
8. Russia is overrated. “They are like the Notre Dame of geo-politics. Russia is the 11th largest economy in the world. Not even in the top 10. Texas’ economy is greater. California’s economy is larger.”
9. ITR is more concerned about what the Fed is doing than what Russia is doing. If the Fed continues to tighten interest rates in September and into next year, it could trigger some empirical signals that would make ITR Economics very concerned about what it believes will be an improving macroeconomic trend by this time next year.
10. As we get to the second half next year, we should see a stabilizing U.S. housing market, a stabilizing, recovering U.S. consumer. Thus, as things stand we only have to sustain three or four quarters of headwinds.
11. ITR believes inflation will be coming down by its September meeting. “The Fed is desperate to bail out of tightening and will take an offramp. We think they will be cutting interest rates and go back into easing next year.”
12. Consumer spending is slowing down. “How could it not be? You don’t have a bull stock market like we did at this time last year. We don’t have record-high savings like we did at this time last year. Confidence does not look as good as it did at this time last year.”
13. Strong growth in 2021 was supported by stimulus support, decision-making changing, people moving out of rentals, people moving out of cities into suburban and rural areas. That’s wasn’t going to happen forever, particularly with what mortgage rates and home prices have done in the last year.
14. ITR Economics is projecting a generally flat to slowing growth trajectory over the next two to three quarters, nothing that will last four or six quarters. “What we see is the more you benefitted from COVID-19, whether because of stimulus or consumer decision making, the more ripe you are for more normalization in 2022.”
15. We are entering a period of dis-inflation, where things get more expensive at a slower rate. Things are not getting cheaper. “We are here because we spent too much money. And the government is trying to fix it by spending more money. It doesn’t work that way.”
16. ITR Economics forecasts inflation will get down to 3.5% by the end of next year. “Because we don’t trust the government to resist spending more. That will prevent 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 are not going to overbuild. Housing will stall. Permit issuance is down almost double digits in the last three months.”
