Regardless of all the talk of a recession, soft landing, or something in between. Many…
Beaulieu, a nationally renowned economist and president of ITR Economics, predicted: “The U.S. economy and your economy in Colorado will slow down in 2019…Expect a slow down, but don’t expect a break down”. He then went on to say that: “An aging population, rising health care costs, growing government entitlements, higher inflation, and unsustainable borrowing will all combine to crash the U.S. economy and usher in another Great Depression in the 2030s,” Beaulieu said at a recent speech in Denver.
Will there be a recession/correction?
I think most would agree, sometime in the next twelve months or so, the economy will experience another economic cycle. There are so many micro and macro factors from a slowdown in housing, to government turmoil, to a slowing global economy, to nervous consumers and business, to etc… Needless to say, there are a considerable number of risk factors to the present economy and one of these factors or many will lead us into the next economic cycle. Unfortunately, nobody knows exactly when one or many of these factors will trigger the next recession, but sometime in the next twelve months is an accurate guess.
The market is providing some interesting signs recently on what type of recession we will have in store next. The stock market has crashed 15%+ and yet overall the economy remains healthy on the surface with unemployment low, leverage low at lenders, and inflation in check. What will derail this cycle?
- Cause: I don’t see a smoking gun like the S&L crisis or the subprime crisis. The upcoming recession’s cause is complex with many different smaller factors from international trade, to interest rates, to increased corporate debt, to political turmoil, decline in brick / mortar retail, and too much capital chasing high yields on risky corporate debt. None of these items are smoking guns, but combined they’ll lead us down the path to a recession/correction
- Length: Since there is no smoking gun/ single trigger this could be a long process similar to 1987
- Shape: My initial reaction is that this will be closer to a U shaped
- Pain: This correction likely will be long and slow with lots of volatility as we search for a “bottom”.
What does this mean for Colorado?
I don’t see the bottom dropping out in Colorado. I see a moderate slowdown in Colorado’s future with real estate taking a breather and staying stagnant to possibly declining up to around 15%. This will not be like the last recession as there don’t appear to be the sheer quantity of excesses. I wouldn’t panic at this point as long as you make sure you have ample capital to sit tight and ride out the next market.
What about a long term “depression”?
Beaulieu went on to further predict: “An aging population, rising health care costs, growing government entitlements, higher inflation, and unsustainable borrowing will all combine to crash the U.S. economy and usher in another Great Depression in the 2030s,” Wow… Beaulieu is quite the optimist! When reading this, I couldn’t help but wonder how accurate this prediction is versus the horoscopes in the Sunday paper.
Economists have a hard-enough time predicting next quarter. Yet somehow this economist can predict this far into the future? It is not possible to predict an event 11 years in the future with the multitude of factors that can happen in well over a decade.
I found it interesting, one of the pillars of his predictions in 2030 is much higher inflation. I don’t see this happening. In the global economy labor will be distributed to lower cost locations. For example, textiles are made in India as opposed to Georgia as their labor costs are substantially lower. We are experiencing a short term “blip” in increased labor costs that will be quickly contained as business automate. For example, in the next five years, you likely will not walk into McDonald’s and place an order with a cashier, just like ordering a pizza from Dominoes there will be an app that frees up labor for higher skilled tasks. A great example is banking. I haven’t been into a bank branch in three years nor have I spoken to anyone at the bank. I’ve done everything online with electronic deposits and the banks app. Technological advances and distribution of labor to lower cost locales will keep inflation in check.
Don’t get me wrong, Beaulieu has some valid points that will need to be addressed over the next decade like healthcare, government spending, consumer and business debt loads, etc… but none of these items point to a global recession. There are way too many factors that can change in an 11 year period to make a prediction.
Don’t get too excited about the prediction of a “global recession in the 30s” there is ample time for things to change between now and then. In the meantime, enjoy the Colorado sunshine and rest assured that you will be just fine and Colorado will remain a desirable place for residents and businesses.