I love showing that image center top for the labor shortage, especially the sign that is literally anyone, although we're begging and please still hiring are also nice. It called that revolution in industrial two years outperforming historical guidance.
We have to do this differently.This is a whole-of-society effort where we need the young to re-image the future, understand the data of the vulnerable, offer novel solutions and re-connect the whole.
They can't do anything about energy production, they can't do anything about food production, they can't really manipulate that part of the economy, but through the manipulation of interest rates and monetary policy, they see themselves as able to manipulate demand. And if you are even remotely involved or deal with the industrial market, it is at a pretty good place to play these days, which is maybe the easiest way that I can say that. On the other side of the economy is demand.
I don't know what that means for the future, but I wasn't thrilled to read that when I did. And what I was looking for is I was looking for a trend in the data that basically said, "As the Fed starts tightening, there's a clear downward trend in the core inflation measure that they like to utilize." We will likely adopt an eclectic approach and try to involve scholars across regions, disciplines and theoretical standpoints. I'm simply saying, if you are going to argue against this kind of spiky trajectory and for something that looks more like a plateau, then you have to take issue with some of those factors, some combination of those factors and think whatever part of that argument you disagree with, you think that it more than makes up for the other factors that I'm citing on the slide.
Well, the first thing I want to show you in order to address that is a metric that I call aggregate earnings growth. I also had the extreme honor of introducing our guest, Ryan Severino, Chief Economist of JLL, a fortune 500 global real estate firm, who will make a wonderful presentation to us this afternoon. First is that, since the pandemic, we have seen a very notable shift in the composition of spending on the part of consumers in the economy. So the birth rate has now fallen below what's known as the replacement rate, which means as people, we're just not replacing ourselves with the subsequent generation.
I see it as a compliment to labor.
Thanks very much. I am not sure the parallels are so clear, but COVID-19 definitely provides a new lens, and new material, with which to take account of where we might be headed. There's really good empirical research going back decades that says that. I'm a little bit concerned with the Fed's ability to actually go out and target what it thinks it can target. For us in the US we're a little bit insulated from this because we are such a dominant food producer in the world. Andrew Sheng: New Data, New Systemic Analyses for Novel Pandemic Crises. In the talk and discussion with the participants, she will reflect on whether the Hamiltonian moment is over, and whether the missed opportunity to reform the European institutional framework will have momentous consequences not only for the South, but also for the role of the EU in the international arena.
The last thing I want to back out of this is that fiscal stimulus because Again, I'm not a political person, but I think it's fair to say that the appetite to keep spending like that when inflation is already running at eight and a half percent, you're not going to find that across the political spectrum these days.
It's driven by e-commerce certainly going back to that slide I showed toward the beginning of the presentation, but boy, logistics, and supply chains, and even the resurgence of manufacturing have really pushed industrial into the cat bird seat as we sit here in 2022. That is not going to make people feel tremendously happy, but it's not actually dissuading anybody's behavior.
The bad news is this pandemic has certainly disrupted production and the supply side of the economy. But if that persists and we actually see it manifesting in food shortages, we will not come through that unscathed either. That of course raises the important question, how are consumers able to accomplish this? I don't think that's going to be the case. EisnerAmper is the brand name under which EisnerAmper LLP and Eisner Advisory Group LLC provide professional services. So even just the little bit that we've seen and the conversation that's going on, given how tight the industrial market is starting at least at the margin to show up in some of the data.
I'm going to start very big picture, fundamental economics with the supply side of the economy. I went back and I looked at history and I wanted to see how long after that economic bottom it took vacancy rates, nationally in the US, to stop rising.
It has become clear that the current global pandemic is as much of a health as it is an economic crisis.
So fingers crossed, but maybe not holding our breath on this. But this is I think in a lot of people's minds, this is what, as I'll show you, makes them uncomfortable, this is what they don't like about inflation right now. But I think in the absence of the Fed really getting aggressive, it's hard to envision with this much momentum, a recession materializing, again, unless inflation really becomes the self-fulfilling prophecy. Maybe look at it on a lag basis." If you have any questions, we'd like to hear from you. And then lastly, the pandemic is still with us, whether we want it to be whether we don't want it to be. This has been an incredibly fast labor market recovery, the fastest since the SNL crisis of the early nineties. What was the second part of your question? So I am cautious about the idea that inflation is damaging. I said, "Fine. During the webinar the author will present the argument of the book and cosider what it has to tell us in the light of the current pandemic.
And again, I think if nothing else like last cycle, the treasury market will clearly signal to the Fed that they think they've gone too far. But I do think inflation can back off relative to where we've seen it over the last few quarters, but I would strongly caution that this is not going to be a panacea. Therefore, I think organizations are using this not just to check a box and tell their clients, "Hey, look. There's one other thing going on that is clearly worth discussing and that's the situation in Eastern Europe. In Angrynomics, Mark Blyth and Eric Lonergan explore the rising tide of anger, sometimes righteous and useful, sometimes destructive and ill-targeted, and propose radical new solutions for an increasingly polarized and confusing world. I think it's fair to say has been charged with doing more things than it was originally intended or it was originally chartered to do. It would vary, but it would be at higher levels. *Time is displayed in your local time zone (Africa/Abidjan). EisnerAmper LLP is a licensed independent CPA firm that provides attest services to its clients, and Eisner Advisory Group LLC and its subsidiary entities provide tax and business consulting services to their clients.
So they think if supply is not keeping up with demand, then they can bring demand down to try to bring those two things back into a better equilibrium. I want to discuss the impact that inflation is or is not having on the economy and how I think the powers that be including central banks like the Fed are going to respond to it. Programme Director for the International Growth Center, India Programme, Topic: Economic trajectory and fiscal response during COVID-19: The case of India, Time: June 4 2020, 13:00 (Timezone: Africa/Abidjan), Join from PC, Mac, Linux, iOS or Android: https://ysi.ineteconomics.org/project/5e947f40a6a5c2058bd14aea/event/5eceb64ce89ccc3179adae5d, If you experience any issues with the site, please email@example.com, https://ysi.ineteconomics.org/project/5e947f40a6a5c2058bd14aea/event/5eceb64ce89ccc3179adae5d. For office and industrial, it's about eight quarters. That is an incredible, incredible motivator for consumers to go out and spend both in a non-discretionary manner and a discretionary manner. Because if we tell ourselves a narrative that says the future is going to be worse, well, then it's very easy for us to think maybe we should back off spending, maybe we don't need to go on vacation, maybe we don't need new furniture, maybe we don't need to refurbish our basement this year, whatever the case happens to be. I'll concede that the crystal ball gets murkier beyond the end of next year, '24, '25, '26. It's a function of three things. Professor Sen will be talking about the likely trajectory of the Indian economy over the next 2-3 years and would be reflecting on the nature of its fiscal response.
How has COVID-19 affected politics and social life in developed western countries? I know it makes us unhappy.
I think growth certainly decelerates partially because of higher rates and partially because of the supply chain starting to ease up a little bit, demands starting to back off, but I don't think that we're inevitably headed for a downturn. Because again, we live in a world of probability, not a world of certainty. Learn more about the Econ Lowdown Teacher Portal and watch a tutorial on how to use our online learning resources. The model thinks it's going to have a hard time pushing beyond that without causing a downturn.
Inflation is dominating the conversation today. And that brings us to a point where I'm not wholly surprised to see inflation.
And then how are these purchases being financed? And I think that will help us navigate the labor shortage because it's going to persist for a prolonged period, five, 10, 15 years at least, something like that. How is this really impacting people on maybe the bottom end of the economic spend spectrum? I don't see it backing off enough that I think that this narrative is going to be materially different as I try to peer into the crystal ball and I think about this market 12, 24, 36 months down the road. So the only thing you need to understand when you look at this slide is that if the red line is higher, it means the supply chain is more disrupted. And that dovetails with your second question. If you exclude those periods, you don't those particular episodes, you don't see a lot of empirical evidence that says inflation is detrimental to economic growth. And what I mean by that is since the pandemic, we have shifted more towards consuming goods and away from consuming services, which makes sense.
If that's the case, then why is the Fed so concerned about it? Again, you probably don't need refresher on risks and surprises, but I do want to highlight some of the important ones as I think about the global economy and the domestic economy. The one other pushback on this that I get when I bring this up is somebody will say, "Well, what about higher levels of inflation in the US? These research-based essays offer insight and analysis focused on advancing an economy where all can thrive.
So I want to start with inflation.
If I shift to the bottom, inflation Again, I think I have a sense of where inflation is going, but it has certainly been surprising on the upside.
You definitely gave us a lot of information. Whether it's the balance sheeters that have more use of the credit cards now.
In fact, if any of my econometric students handed this in as evidence of a tight relationship, I would hand it back to them and say, "Find a tighter relationship."
And that's been really helpful for us as we've really tried to push ahead. In his new book "Slowdown" Danny Dorling demonstrates the benefits of a larger, ongoing societal slowdown. Travis Epp: Ryan, final question. Well, let me show you how it's actually manifesting itself since then and then I'll talk about why it's been the case. Videos showing how the St. Louis Fed amplifies the voices of Main Street, Research and ideas to promote an economy that works for everyone, Insights and collaborations to improve underserved communities, Federal Reserve System effort around the growth of an inclusive economy, Metrics that show progress of the affordable banking movement, Quarterly trends in average family wealth and wealth gaps, Preliminary research to stimulate discussion, Summary of current economic conditions in the Eighth District. So I think they'll proceed cautiously.
As I tell my older daughter all the time, we live in a world of probability, not a world of certainty.
Not just lockdowns associated with the pandemic, but you've probably heard they're going through a very serious issue now with their real estate market, which has been over leveraged in a way that we have certainly grappled with in the United States and other developed countries over the last couple of decades. Travis Epp: Ryan, as we hit 1:00, on behalf of EisnerAmper, Sarah, and myself, we want to thank you very much for giving your comments and your insights today. Zoltn Pozsr: Financial stability in the age of Covid-19. So, I took that economic bottom, it's the same for all property types, I added the average for each of the major property types and I got to that history projected time of peak.
If the Fed raises rates too much and they overshoot, they will almost certainly cause a downturn and the market will not be shy about telling them that they have gone too far, much like they did last cycle. Again, we had that surprise reading last month because of the situation in Eastern Europe exacerbating things. And then lastly, I think industrial remains the darling of commercial real estate.
But if production of a certain good in our globalized, specialized economy is concentrated in one or two parts of the world and production of that thing gets shut down, well, there isn't a plan B, or C, or D, or E. And that is a lot of what we have faced over the last couple of years and it is exacerbating the inflation that we are already feeling. Because if you've been paying attention, the consumer sentiment index, which is produced by the University of Michigan in early June, recently hit the lowest level on record. Now, that raises a really important question. Ryan also holds a master's degree from Columbia, a bachelor's degree from Georgetown University, and is a CFA charter holder.
Andrew Sheng invites YSI scholars to crowd-study the financial condition of those most vulnerable to lockdown, drawing upon diverse data sources to build a more composite picture of how different systems are inter-connected, interdependent with contingent reflexivities. It's not a plateau where inflation runs up last year into this year, stays at an elevated level for a number of years and then starts to come down. EisnerAmper LLP is a licensed CPA firm that provides attest services, and Eisner Advisory Group LLC and its subsidiary entities provide tax and business consulting services.
You're starting to see some nascent signs of improvement there. And that gets us to this metric that I'm calling core CPI, core inflation, less fiscal stimulus. We need to figure out how we can work on bringing this down in a more managed fashion."
I simply created a scatter plot and I looked at growth in the economy on a calendar year basis against inflation and I lagged it by one year because there's this Usually when I bring up this topic in discussion, somebody says, "Well, it takes some time for everyone to adjust their expectations and moderate their spending. If I showed it to you say on an annualized growth basis, it would look even more pronounced than this slide. Our Personal Tax Guide highlights tax planning ideas that may help you minimize your tax liability. This is how I think about this. Receive updates in your inbox as soon as new content is published on our website. So what do I mean by that? This slide is the output of my scenario forecast model.
It doesn't run up, stay elevated, and then come down after a prolonged period of time. WIthin the history of world health crises this pandemic seems to be as pivotal as were leprosy, plague and smallpox, that all made irreversible effects on the evolution of modern society. Some of it is certainly financed by the strength in the labor market, by the fact that we have a labor shortage and wage growth is growing strongly, but also because consumer balance sheets are in a very strong position right now, especially those affluent balance sheets. We are a net exporter of food and food related products to the rest of the world. In that sense, the Board of Governors of the Fed is drafting the dealer community to take part in the war effort by financing the war on Covid-19. So with that, I am going to shut up and conclude my remarks, but we are going to take some questions for the balance of the time.
I say that because if I contrast that with retail sales, which is the black line on this slide, retail sales are still at or near record high levels despite consumers feeling so doer about things. And that will hopefully give the Fed some ability to say, "Maybe we should ease off of this a little bit." Sarah Brand: Ryan, thanks so much. And then everybody chuckled and he felt a little sheepish, but I emphasized this because the model was pretty much spot on about that. What I'm showing you on this slide is an index that has been produced by the New York Federal Reserve. It's really this economy destroying juggernaut. If it is lower, it means it is less disrupted.
In this crisis, the penalty rate part of Bagehots rule was replaced with friendly rates for the core with Covid-19 there is no moral hazard in lending to the core of the system at low rates.
I think it's much more probable that inflation decelerates in the coming periods than it stays consistent at high levels in the coming periods. Travis Epp: Ryan, thank you very much.
So I honestly answered their rhetorical question and I said, "Columbia University. The box that I've superimposed on this slide is really the period from which the war broke out in late February to where we are today.
Even if you go back to the 1970s with the geopolitical events that exacerbated oil prices in the early 1970s and the late 1970s, you don't see inflation look like a plateau. The COVID-19 crisis is stress-testing not just economies, but our economic paradigms and analytical tools. And I say, "Okay. It's a function of how many people are working, how many hours per week on average are they working, and what the average hourly wage is? Travis Epp: You also mentioned earlier that a lot of companies, as a result of the pandemic, they look at the supply chain and there's more consideration given to onshoring versus what we've been doing when we've outsourced the factory floor overseas.
In this talk he will introduce this new line of reasoning and consider its significance for new economic thinking in the context of post-pandemic world, From Calvin to Hamilton? I'm sorry, Travis.
The manufacturing sector of the economy has actually come bouncing back a bit now that we're seeing companies think a little bit about reassuring and nearshoring because they don't want to be so dependent on supply chains that are linked to production in only one part of the economy, global economy on the other side of the world. History suggests that office and industrial should hit peak vacancy in '22, retail and apartment should hit peak vacancy in '21. All rights reserved.
Every country has had a different policy response to the crisis; and within countries different political parties have championed various approaches. If that sentiment actually starts to impact behaviors of consumers, of organizations that typically spend money, then it could very well become a self-fulfilling prophecy.
I want to switch gears a little bit and talk about commercial real estate broadly, but then particularly what it really means for industrial logistics.
It's going to take some time for it to decelerate. Travis Epp: A lot of companies when the pandemic had-. And now there is a very robust consideration for social and environmental impact. *PLEASE ACCESS THE RECORDING HERE. What I mean by that is, let's say for argument's sake, your favorite restaurant is closed. Current single-minded focus on flows and monetary creation to deal with financial crises have ignored second-order effects of social inequality, balance sheet fragility, the rise of Precariat, gig economy and job/income vulnerabilities and social/political polarization exposed by the lockdown. If you are, just for arguments sake, say median income and below, then obviously it's having a more detrimental impact on your ability to really function as a normal economic unit. Ryan Severino: I would say unambiguously it is a positive. Prior to JLL, Ryan worked at Moody's and he also worked at Starwood Capital Group and Prudential Real Estate Investors.
It is not a function of the pandemic. But I think given the pandemic, we have certainly seen an interest in companies thinking about bringing that if not explicitly back to the US than somewhere closer to the US. If you think back to the summer of 2020, we're still in the pandemic so the first time I showed this to someone, I was doing the presentation online similar to this, and I showed someone that forecast and they were just they found it so impossible that they felt compelled to come off mute and interrupt me and criticize it.
It looks more like mountains. So some questions have come in with their labor shortage.
And thanks for that introduction. I just don't see that when I look at this data. The European vessel in stormy water. Again, this is their hammer and they go around looking for nails.
But the other thing that happened, and I say this as a very apolitical person, in addition to this resurgence of pent-up demand being unleashed, the Federal Government came out and spent unprecedented levels, aggregated to about six trillion dollars. What I mean by that is if you look at inflation on a calendar year basis, it tends to run up quickly and then start to come back down relatively quickly.
And I created this slide to answer the question, where are we in the commercial real estate cycle? Do you have amenities in the neighborhood?
And that's a little more precarious. Do you have amenities in the building? Some of that has been moved to the extent that it could into Southeast Asia. Any thoughts on sort of what we should expect through the rest of the year for potential rate increases and the likelihood of recession? I see, but I hate to be buzzworthy, but this synergistic relationship between technology and labor, I don't see artificial intelligence, machine learning, robotics automation as a job destroyer.
We didn't get to all the questions and we'll try and respond to those people offline. Well, again, if you're the Fed and you have that hammer, the solution is to tamped down inflation by raising rates potentially empowering the rest of the economy. So I don't have a good sense of exactly where that's going. But in a moment like this that is clearly exacerbating what's occurring, you could see that is causing that headline inflation to really run ahead, even though core inflation is, as I'll show you a little later, tentatively seems like it might be stabilizing and finally trending down. And I call it, watch what consumers do, not what they say. Even when I lag this one year, I do not see a strong relationship between those two things. I just want to go off of that.
And unfortunately in the short run, this rift is getting wider, not narrower. I wonder a little bit if the solution isn't potentially more dangerous than the actual problem it's trying to solve. That does not look like anything approximating a linear relationship because if there were a linear relationship, you would see a downward sloping line. Well, they're going to raise rates. And that's about 3%. And I created it in the summer of 2020 because I was getting asked the question, how long does it take after the economy stops contracting for commercial real estate to stabilize? Let me show you what I mean by that. For several years Geoff Mann has been thinking about the political-economic and geopolitical futures that might emerge in world subject to extreme climate change (especially in collaboration with Joel Wainwright).
How is consumption being financed? And if I compare the growth rate of that on a year, over year basis to that headline inflation figure I was discussing earlier, you could see that really since the initial stages of the pandemic, that difference has been positive.
And even within that realm of high inflation, I don't really see a meaningful relationship between these two variables. We see properties that have better consideration for environmental and social impact having higher rents, trading at higher prices. While statistics tell us that the vast majority of people are getting steadily richer, the world most of us experience day in and day out feels increasingly uncertain, unfair, and ever more expensive. The problem is that inflation stems from many sources, its impact remains maybe unclear at best if not actually minimal, but it could manifest itself into a bigger issue down the road. And you could see that kicked that difference between headline and core inflation into a higher gear.
I don't have any problem looking on a lag basis." Let's take a look at that." As Bella indicated, my name is Travis Epp and I'm in charge of the industry growth for EisnerAmper's manufacturing and distribution practice. Paraphrasing Churchill: we give you the balance sheet, and youll finish the job
They can manipulate interest rates, they can manipulate money supply, to a lesser extent they can manipulate banking regulation. We are seeing it show up very clearly in real world data. It's this difference between the headline inflation, which is being driven, again, largely by energy and food and the underlying core inflation, which is mostly driven by everything else that we purchase as consumers. The main thing that they can do is they can manipulate the financial side of the economy. We're just going to have to find a way to do more ourselves because we're not going to be able to rely on just the idea of going out and hiring people. I would say we haven't seen that as much. So some households the ones that don't have as much saved up. We have seen all of those things really come roaring back. But let me show you why I'm a little bit dubious about what the Fed can do, especially as it pertains to core inflation and wage growth.
ESG and corporate sustainability. It's considered to be a differentiator. Supply is growing, but struggling to keep up because of the pandemic really morphing, and evolving, and shutting down production continually.
Whether or not this persists on a permanent basis, I think is the jury is still out on that a little bit, but certainly for the foreseeable future in the world that we live in, as we start to think through the longer term ramifications of what this pandemic means, not just for the economy, but for commercial real estate and in particular industrial commercial real estate, I think they are going to be outsized important players. We received some questions in advance of the seminar when people registered and we also have some questions online that we will try and get to. In this webinar Mark Blyth will be discussing the questions of anger, politics and economics that have been in focus of his new book "Angrynomics".
So earlier this week, the Federal Reserve Chairman Powell indicated that rate increases increase the rate risk of a recession. We can relatively safely, relatively, consume goods at home whereas we have to consume services for the most part somewhere else. Money, Politics & Social Conflict in the Age of COVID with Thomas Ferguson. The birth rate situation is a little more intractable. I think for us in the US, there's some good news and bad news about that. But the other part of this that I won't say I worry about, but I think about is should we actually fear higher inflation? The 2008 crisis revealed that financial systems are networks, and COVID-19 showed how viral contagion and conventional tools (monetary creation) plus lockdowns can bring on recession, depression or conflict. People who get jobs they might rent apartments, they might need new clothing, they might need a new car. In this series, we provide an overview of the effects of the COVID-19 crisis, and the immediate crisis responses.
You can go to your second favorite restaurant, or your third favorite restaurant, or your 47,000th favorite restaurant. That's a very economist speak I know, but it certainly has the ability to cut into a lot of discretionary spending, really crimp people's ability to leave I think any semblance of what they would consider a normal life.
Additionally, Ryan is adjunct professor of real estate finance and economics at Columbia University in New York. And then they said, "Where did you learn to forecast anyway?" So you could see if you look at our empirical data, the model was spot on with that. Some of the possible topics we could cover include the FED response, macroeconomic policy response, erosion of civil rights, effects on emerging markets, effects on reaching sustainability threshold, effects on global supply chains, the role of the pharmaceutical industry, and the future of work.