Is the nation headed toward recession?
Rising interest rates, high gas prices, supply chain issues, labor force shortages and the highest inflation in 40 years are prompting lots of commentators to raise the prospect of a looming recession.
But Ryan Severino, chief economist at JLL, looks at the issue this way: “If we keep the faith on this, there’s a really good chance that we can avoid a downturn.
“If we start to lose that confidence and adjust our behaviors, that’s where I think this could become a bit of a problem at some point,” Severino said.
Presently, he said, “I still think there’s good momentum. Job growth is strong. Wage growth is strong. Consumers are spending money.”
However, he noted: “We don’t live in a world of certainty, we live in a world of probability.”
If rising interest rates start to influence psychology and the way people behave as economic actors, a downturn could become a self-fulfilling prophecy, said Severino — who has been quoted in The Economist, The Wall Street Journal, The New York Times, and The Financial Times, and others.
Severino was among a panel of experts assembled by Hillsborough County Property Appraiser Bob Henriquez to talk about such issues as the economy’s impact on the current and projected real estate market in Hillsborough County. The panelists shared their expertise at a morning meeting at The Cuban Club in Ybor City, on June 23.
Tampa Mayor Jane Castor offered a snapshot of what’s happening in Tampa — noting she has meetings all of the time with companies that want to move their headquarters to Tampa, or establish a presence in the city.
Other expert panelists shared their insights about what’s currently happening in the commercial and residential markets.
Severino focused on the national picture.
He expects inflation will peak this year and then begin to decline.
He notes that the pandemic, the government stimulus and the war in Ukraine each have contributed to an inflation rate that’s the highest it has been in four decades.
“The situation in Eastern Europe is not helping at all, with this,” he said. “Right now, because that part of the world is so important to energy production and food production and the economy, it is having an out-sized effect,” he said.
Severino also noted that the pandemic remains disruptive.
“It’s certainly disrupting the supply side of the economy.
“China is still shutting parts of production down because it’s (COVID) still spreading,” he said.
Economists look at core inflation, which doesn’t include food or fuel because those prices are too volatile, Severino said.
In looking at the current inflation rate of 8.5%, and backing out fuel and food, the result is 6%.
Then, back out the government stimulus of $6 trillion, that drops it to in the 3% range.
“(It’s) not as bad as 8½%, but certainly not where the Fed would like it to be,” he said.
The demand side of the economy, on the other hand, has been “doing a spectacular job of rebounding,” he said.
“It’s (inflation) not really impacting behaviors.
“Watch what consumers do and not what they say, because if you look at what consumers are doing, which is pretty much all of us, we are pretty much out powering the economy,” he said.
U.S. consumers make up 18% to 20% of the global economy. By itself, the U.S. would be the second- or third-largest economy in the world, he said.
He also noted that “the aggregate spending power of consumers has grown faster than inflation has.”
The aggregate earnings figure, he explained, serves as a proxy for the overall spending power in the economy. It’s based on the number of people working, how many hours per week they are working and the hourly wage they are paid.
“The Fed thinks the labor market is too hot,” he said.
The Fed wants to tamp down what it views as an excess demand for labor, Severino said.
“I’m not so sure that they’re really going after the right thing,” the economist said.
“I worry that there is potential for collateral damage.”
“The bad news is the more aggressive the Fed is with interest rates, the higher the probability of the dreaded R word. The good news is that the Fed doesn’t have a really great track record for even following its own forecast for a measure that they themselves control,” Severino said.
He expects the Fed to respond to signals it gets from the economy.
“For now, short- to medium-term, I still feel confident about the economy,” the economic expert said.
Published July 06, 2022