SLIDE 1 Matthew C. Roberts, PhD | www.kernmantlegroup.com
Economics in the Time of Trump.
2017 Climbing Wall Summit Loveland, CO
19 May 2017
SLIDE 2 Who am I?
- Owner, Kernmantle Group
- Risk management consulting for Agriculture
- Associate Professor in Agricultural Economics, The
Ohio State University. (left in Dec ‘16)
- Specialize in Financial Markets for Ag Industry.
- Partner, Vertical Adventures, Inc.
- VA founded in 1994 by Alexis & Carrie Roccos (still
- perating partners)
- Two facilities, 16k ft gym & 6k ft training center
- I joined in 2013 to facilitate expansion (I speak banker)
- Treasurer, USA Climbing
- Since 2014
- Sutton Bank, Attica, OH
- Board of Directors
- Loan Committee Member
SLIDE 3
How much effect does the President have on the economy?
SLIDE 4
About this much…
SLIDE 5
So then does the Presidency matter?
SLIDE 6 Outline:
- Current Situation for Customers:
- Employment
- Inflation
- Disposable Income
- Geographic Differences—the meaning of means.
- Current Situation for Owners:
- Interest Rates/Lending Standards
- Labor Costs
- Commodity Prices
- Outlook for the next 1-2 years:
- Interest rates
- Economic Growth
SLIDE 7
How are our members doing?
SLIDE 8
Now some bad news...
Unemployment at ~4.4%--as low as 2007.
SLIDE 9
New Jobless Claims Continue to Fall— i.e. unemployment is still falling
SLIDE 10
Openings/Hirings increasing more slowly
SLIDE 11
Underemployment remains stubbornly high.
SLIDE 12 Employment trends are positive.
- Unemployment is near ‘full employment’ levels.
- Labor participation rates are climbing.
What about wages?
SLIDE 13
What about the costs to a gym?
2.3% annual hourly wage growth over past 4 years.
SLIDE 14
But 2% inflation over past 4 years.
SLIDE 15
~4% Retail sales growth over past 6 years.
SLIDE 16
Consumer Debt Remains Steady
SLIDE 17 Wage growth is confusing.
- Up until 2014, it acted as it should, keeping pace
with inflation, but not much more.
- Since then, as the labor market has tightened,
there has been no acceleration in wage growth.
- Particularly among hourly workers.
- Nobody knows why.
- My theory: “Don’t suck more than your
competitors”
SLIDE 18
5.3% growth in real Disposable PI since 2014
SLIDE 19
SLIDE 20
SLIDE 21 The Demand Outlook is Strong but Remains Narrow
- Disposable income is growing in aggregate.
- But wage and income growth is concentrated in top
1-2 deciles of income.
- Also remains concentrated geographically
- Primarily in metro areas
- In desirable locations.
SLIDE 22 How does that make sense?
Median Mean
SLIDE 23 What is the supply outlook?
- What about the factors influencing the cost to build
and operate in the climbing industry?
- Raw materials
- Skilled labor
- Interest rates/lending standards
SLIDE 24
SLIDE 25
Steel prices expected to moderate on Chinese competition.
SLIDE 26
Overall Commodity Prices Remain Weak
SLIDE 27 Commodity Prices Have Remained Flat for ~3 years.
- No reason to expect changes, unless temporary
supply effects.
- Nearly all prices are actually quite boring.
- While Rome burns, the citizenry continues to
fiddle.
SLIDE 28
Our employees wages went from 12.40 in 1/15 to 13.30.
SLIDE 29
Construction Labor costs flat for last 12 months.
SLIDE 30 Wage pressure is showing up just a bit, but not much.
- Construction labor costs have not really risen, but
labor shortages in the trades persist.
- Slowing projects more than increasing costs.
- Service worker wages are rising some
- But how much is due to increasing minimum wages?
- `Don’t suck too much’
SLIDE 31
SLIDE 32
SLIDE 33 Credit Availability and Lending Terms
- Interest rates have climbed .5% in the past year,
markets expect another .5% in 2017.
- ‘Normal’ fed funds interest rates are 3.5-5%, we are
now at 1.0%...
- The Fed would like to keep raising rates to reload
the gun.
SLIDE 34
SLIDE 35 Put it together…things are actually pretty good right now.
- For ‘target demographic’ they are enjoying wage
growth, and even faster growth in their disposable income & consumption.
- The economy doesn’t show significant risks.
- Construction costs have levelled off nationally.
- Operation costs aren’t rising
- Low energy costs
- Modest wage pressure
SLIDE 36
So what about this guy?
SLIDE 37 When has the economy seen its strongest growth in last 25 years?
- 1995-2000: Gridlock in DC, enmeshed in Lewinsky
Scandal.
- 2003-2007: From 2004 on, Bush 43 got nothing
done—public & congressional opposition to the war, etc.
- 2013-2016: Completely obstructionist Congress.
- Stability matters.
SLIDE 38 What is a likely scenario?
- DC becomes consumed with the lint in its own belly
button.
- Special Counsel
- GOP-on-GOP violence
- Important things get done (as they did in prev yrs)
- For example, sentencing reform
- Modest regulatory rollbacks via Executive Branch
- Some banking, EPA, labor regulations
- Ultimately relatively little actually changes.
SLIDE 39 What could cause problems?
- Trade wars: POTUS has lots of power here, and the
US economy is very trade-dependent.
- Actual wars: these are bad.
- Enacting nearly any policy Trump promised on
campaign trail.
SLIDE 40
Pee Wee Herman said it best:
SLIDE 41 So what is the big but?
- We are in the longest economic expansion since
WWII.
- IT WILL END. Likely similar to ‘95 recession, short,
mild, caused by increased interest rates.
- IT WILL ALMOST CERTAINLY HAPPEN IN THIS
PRESIDENTIAL TERM.
- Regardless of who was elected.
- Will stunt membership growth and spending…are
you ready?
SLIDE 42 www.matthewcroberts.com 42
Matthew C. Roberts, PhD matt@ohioclimbs.com www.verticaladventuresohio.com Twitter: @YourEconProf
Questions?
