No New Recession
on the Horizon
Economists Cover Global and U.S. Hot Points at Inaugural Podolsky|Circle Economic Summit
Podolsky|Circle CORFAC International held their Inaugural Economic Summit in early September at the Westin O’Hare in Rosemont. Approximately 100 guests attended the event, which was designed to provide attendees with commercial real estate interests an opportunity to hear firsthand insights and perspectives about the global and US economies from respected experts.
The two presenters, both eminent economists – one with the Federal Reserve and the other in the private sector – came to a similar conclusion: the US economy is not in jeopardy of slipping back into a recession. Though their paths and metrics varied slightly, the two agreed that, while levels of uncertainty do exist, we have several years before we can begin to worry about the next economic downturn.
“We are nowhere near a recession,” said Peter Langas, Managing Director and Chief Portfolio Strategist for Bessemer Trust, a privately owned and independent multifamily office that has served individuals and families of substantial wealth for more than 100 years.
William Strauss, Senior Economist and Economic Advisor of the Federal Reserve Bank of Chicago, concurred with Langas, characterizing the US as having a “tortoise” economy.
In analyzing Langas’ and Strauss’ remarks from a Commercial Real Estate perspective, Podolsky|Circle Principal Alissa Adler stated, “With the expectation that interest rates will remain at historic low levels, even if there is a gradual increase, it remains an ideal time to refinance or purchase an asset.”
Fellow principal Adam J. Tarantur, CCIM added, “We understand that in spite of a generally improving economy there still can be uncertainty or guarded optimism, which proves people learned from the last recession. That said, having a clear strategy for real estate assets in light of overall conditions is wise in any market, good or bad.”
In his remarks, Langas said there are three primary areas of concern that are impacting, and will continue to impact, the US economy, the first two being oil prices and economic conditions in China.
“The elephant in the room,” he said, “is the Federal Reserve. We are in unprecedented territory, with essentially a zero interest rate and how large the Federal balance sheet has become.”
He suggested that the primary questions before the Fed are: How they unwind the situation (“you can’t have a zero Federal Funds interest rate forever”); when they unwind it; and how they communicate and execute the changes that are coming.
“The market doesn’t believe the Fed will raise interest rates that much,” Langas said. “It won’t be soon and it won’t be done quickly.”
Strauss looked at a number of different barometers including utilization, inflation and labor.
“It is really difficult to find any areas of over utilization,” Strauss said. “There are still a number of market segments that have quite a bit of slack.” He specifically cited housing and manufacturing as markets with more room for expansion.
In talking about inflation, or the lack thereof, Strauss suggested that inflation typically should always be at about two percent, but said that ours is currently very low. He attributed part of that to the price of oil, which translates to lower prices at the pump and to heat households.
“These are very elastic markets,” Strauss said. “The Fed doesn’t see inflation getting out of control,” but instead sees a healthy build-up over the course of several years.
For an in-depth review of the Podolsky|Circle CORFAC International Inaugural Economic Summit, click here.