ITR Economics’ outlook on the commercial market

Just got back from the Starnet conference, where the mood—and business—was quite good. These commercial contractors are enjoying a strong start to 2023 with solid business across all segments. Practically every member is doing well in healthcare and/or multi-family. Some cited strong government work. We heard education and casino work were strong for some. Inevitably, if residential is slowing then commercial is growing. It’s like a giant pendulum.

With that said, one of the highlights was the ITR Economics presentation by one of the two principals, Alan Beaulieu. We highlight his thoughts regularly in this space. There were plenty of bullet points from his 75-minute appearance. We’ll have to tackle this in two parts. Here is the first:

1. The U.S. economy will be in a very mild recession in 2024. But that’s not our world. The commercial flooring sector is going to see growth through the middle of 2024. “You’re going to find that you’re busier, you’re going to find that sales are good, you’re going to find that you’re profitable.”
2. On the back side of 2024, the rate of growth is going to slow for commercial, and then it’ll be a mild recession during the first half of 2025. “You have 18 months before that recession comes around to you.”
3. Regarding GDP, when somebody says the U.S. should be growing regularly at 3.6% or 4.6%, you’re talking to somebody who doesn’t understand math. “That’s not going to happen.”
4. The politicians will say all sorts of fun things next year. The media is going to holler when there’s a “recession” going on during a presidential election year. Both parties will be blaming each other. “That’s all noise. It doesn’t mean a thing.”
5. The reality is housing was put into the steep recession because the Federal Reserve Board raised interest rates. This is a Fed-created problem. They did so they could take care of the inflation that they put into the economy. “They created inflation, and now they have to kill the inflation—and by doing so, they will put us into recession.”
6. When interest rates become unfriendly, it brings about recession. “There’s no mystery here. There’s no, ‘I wonder if it’s going to happen.’ It happens.”
7. If the Fed does not unwind the inversion, if we don’t see a rightness occurring in the interest rates, the recession will last longer. So, the Fed has the potential of making a mild recession in 2024 into something steeper that lasts well into 2025.
8. The customers that commercial contractors are servicing, the ones who are building buildings, the ones who are renovating existing buildings, are in good financial condition. They have lots of cash. They’re not defaulting on their debt. There are not a lot of bankruptcies going on. Business profits are extremely high. Cash is good. “When businesses are healthy, you don’t have a serious economic problem.”
9. Despite ITR’s forecast of a Depression in the 2030s, Beaulieu said that can be good news. “It’s going to give you a great opportunity to make a lot of money.”
10. Consumers are in good shape, and consumer spending on goods and services is two-thirds of the economy. People have lots of money. “Yes, there is a segment of the population that doesn’t. But they’re not your customers, so you don’t need to spend a lot of time thinking about them.”
11. Retail sales are slowing in the rate of rise. “That’s OK. We’re going to see it level off. That’s that recession, and it’s going to be mild.”
12. The sentiment that people just don’t want to work anymore is a myth. The reality is that we have more people working in the United States today in the private sector than ever before. It’s at a record high. What we have is an economy that grew so fast that we created more jobs than we can possibly keep up with, and this is an unfixable problem until the Great Depression. “You will be facing a labor shortage that will not quit. It’s getting exacerbated because baby boomers are retiring.”
13. The price of flooring could go down, but if your price of installation is going to do nothing but go up because of the labor, that’s where you’re going to run into a hard time. “You will have to explain to people that costs are going up because the labor costs are expensive.”
14. If you want to hire a millennial and keep a millennial, you have to remember three simple things. They want to do well, which means you have to pay them well. They want to do good. They want to know when they come to work, working for you benefits society. And third, they want to be involved. Millennials want to be part of the conversation. You have to talk to them; you have to listen to their feedback.