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Peter Brown[/caption]
There is currently a lot of debate over what’s to come for the U.S. and global economies. Many are quite confident a recession is on its way. Others question this notion, pointing to factors such as the increasing rate of job opportunities, high-priced real estate market and consistent consumer spending.
Citrin Cooperman, a full-service accounting, tax and business advisory firm, brought in an economist to help set the record straight. Anirban Basu, chairman and CEO of Sage Policy Group, took to the stage on Oct. 17 at Citrin Cooperman’s New England Economic Summit in Foxborough, Mass., to present on the current and anticipated future state of the economy. With plenty of data to back him up, Basu shared his insights with the crowd of approximately 300. He kicked it off with the following: “We are currently experiencing the lengthiest span of economic stability in history – 11 years – and as history will tell us, it always ends with an economic downturn. The question is, when?”
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Ann Marie Carmichael[/caption]
According to Basu, the duration of a stable economy has very little predictive power of when a downturn will occur. There are, however, plenty of “bad omens” that act as indicators. Any time the actual rate of unemployment dips below the natural rate (a number estimated by the Federal Reserve), issues emerge. This has been a flawless precursor of economic downturns, meaning it has happened before every recession in the past. A significant increase in income inequality can also be an influencer, with prices rising too fast for the general population to keep up. While Basu confirmed the global economy is getting weaker, he stated that the U.S. came in at 2.4% on the October report of global output growth – the best performer in the advanced nations.
He said industrial production has been surging since taking a dip in 2015-2016, but architects are much less busy, and the number of upcoming construction projects is declining.
New England, though, has a strong labor market with 40,710 jobs created in Rhode Island, Massachusetts, Connecticut and New Hampshire between August 2018 and August 2019. With unemployment rates ranging between 2.1% and 3.6% among New England states as of August, a lack of jobs is not contributing to the unemployment rate as much as a lack of skilled, motivated personnel to fill open jobs.
All of these components contribute to the delicate balance that makes up the economy. With so many economists predicting a recession in the next one to two years, people’s reactions can start to influence negative outcomes if they start responding to what they believe will happen (spending less, reducing job openings, etc.). Basu indicated that important parts of the economy continue to perform well, and while he sees the economy remaining stable through the end of the year, people should remain cautious when planning for 2020. Next year’s presidential election could have a major impact on the economy, if it results in any major policy change. In sum, there is nothing immediate to worry about, but until you know who the winner is in November, it may make sense to hold off on any major decisions.
Presidential election could have a major impact … if it results in any major policy change.
Basu finished the presentation with a quote from “The Peter Principle” author Laurence J. Peter that illustrates that no one knows for sure what we’ll see in the coming year: “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”
Basu’s presentation was followed by a panel made up of Citrin Cooperman’s Cannabis Advisory Services Practice Co-Leader Mitzi Hollenbeck and Strategy and Business Transformation Practice Leader Steve Ronan, along with Mike Cotoia, CEO of TechTarget, and John Galvin, CEO of AAA Northeast. Hollenbeck noted that the Massachusetts cannabis industry has yielded about $300 million in recreational sales to states so far this year. With 370 completed applications, another 99 provisional, and 84 final licenses awarded, we are looking at a potentially massive impact on the economy from this emerging industry; the kind that creates jobs, brings in tax dollars and opens up opportunities for ancillary businesses to get involved.
When discussing what companies can do to prepare for a potential change in the economy, Ronan emphasized the importance of keeping up with operational efficiency as a company grows. That way, if the economy shifts, your business does not have to rapidly change to fix operations in response. Cotoia echoed this sentiment. “The worst thing to have to do as CEO is say we need to lay some people off,” he said. “Invest in platforms and programs that can increase efficiency, but remain fiscally responsible. You need to be monitoring and managing [return on investment], and invest in the areas of your business where you see growth opportunities but that also means reallocating resources from parts of the business that are not growing or in decline.”
Galvin noted that companies can track the way different age groups interact with their products and services and adapt how they market to those groups in any economic environment. For example, Galvin said, AAA Northeast has found that many baby boomers consider travel to be a luxury, whereas millennials make travel a priority. Trends are showing that the millennial market will continue to make room for travel in their budgets, and the baby boomers who travel will spend more than in years past. Knowing this helps identify opportunities to provide their members with the travel experiences that best meet their needs and budgets.
In terms of what these business leaders see happening in the market, Cotoia said, “Money continues to go into newer high-growth businesses. Earnings have been pretty healthy. Whenever you have any uncertainty, like with the upcoming election, it always pulls everyone back. Things have been going really well, and I don’t see many signs of that changing, but the election might paralyze some decision making as we wait to see who will be in office.”
Peter Brown is a partner at Citrin Cooperman & Co. LLP. Ann Marie Carmichael is marketing manager at Citrin Cooperman & Co. LLP.
