The Economy in 2020: Short-Term Shock, Long-Term Awe

February 25, 2020
Written by: Bruce A. Kellogg, MAI, FRICS
Dr. Marci Rossell filled the house again with more than 700 interested members and guests of CREW Atlanta and the Atlanta Chapter of CoreNet Global at the annual Economic Forecast Luncheon on January 16th at the Cobb Galleria.

This year’s headline relates to a few issues of worries in the short term, but a rather optimistic view of the future. We all breathed a sigh of relief upon hearing this news, but we were still sitting on the edge of our seats as Rossell began her presentation. She let us know from the start that we were the first group on her schedule for the year 2020 and, therefore, we were the first to hear her projections for the new decade as well.

A somber beginning to her presentation focused on numerous bankruptcies in the retail arena that occurred over the last few years, including Borders, Toys R Us and Sears. Also, since 2016, several bankruptcies occurred within the energy field, due to the rising price of oil relating to global issues centered around the Middle East. In the capital markets, there has been a shift away from hedge funds and a move toward venture capital, which will see a huge increase in the 2020s. Statistics indicate that venture capital assets have grown from about $25 billion to about $130 billion in the U.S., with the U.S. economy moving toward a more private market. She also noted that there is instability in the retail market, which is a shift in the monetary policy leading to no inflation and an almost 0% interest rate.

Rossell elaborated that, although 2018 saw a trade war and 2019 was ”the recession that wasn’t”, the factors that cause a true a recession were not seen. There was no unexpected negative event that would have caused such a change. Many still predict that a recession could occur in about six to nine months, but even this prediction has declined since it started in the summer of 2019.

Gross Domestic Product (GDP), the traditional predictor of recession, has had two quarters below 0% for a technical recession. However, the future determinations of a recession will likely be different than in the past. GDP is going down while standard of living is going up, in part due to a declining workforce. A global example of this may be seen in Japan, where an aging workforce is becoming evident. Fewer workers lead to lower GDP, however the individual impact is not negative. Trends from Japan often migrate into other countries, like Germany, before eventually moving to the U.S. market. Growth will come when more people are hired, mergers will occur, the addition of capital or an increase in productivity. This process will rely less on the GDP indicator than economic prosperity.

Uncertainty is currently the notion within business plans today, with the long-term difficult to predict. Examples of current events include Brexit in the U.K. and trade wars that equate to policy uncertainties. The strongest indicator appears to be the yield curve. People are waiting to pull the trigger, thereby making decisions at the last minute.

On a local note, Rossell indicated that Atlanta’s future will respond to many factors, such as the economy, its culture, and how it is impacted (or dominated) by other well-run cities. People are leaving larger cities for more affordable options, with lower cost of living and higher quality of life. Although there is currently disillusionment with federal and local governments, overall, people still believe in their local governments, which provide more opportunities to their citizens.

Rossell’s responses to two interesting questions, prior to wishing us a successful and productive 2020, related to artificial intelligence (AI) and climate change. She mentioned that AI can complement labor shortage, due to the decline in population from a few factors, such as aging Baby Boomers and fewer babies being born to the younger generations. As an example, climate change will be very difficult for the insurance industry to deal with, especially if impacting the urban areas.

While recession seems to always be looming in conversations regarding the economy, Rossell has an optimistic view of the coming year and believes that the next recession is not as imminent as we may be led to believe. In fact, she asserted that slow and steady growth is still in our future. Let’s hope she is correct!

Bruce Kellogg

Bruce A. Kellogg, MAI, FRICS, has been in the real estate industry for over 40 years, primarily within the valuation profession and software solutions. He is currently a real estate consultant and serves on several boards and committees for both real estate and non-profits. He currently serves as Chair of the RICS U.S. Southeast Chapter and served as National President of the Appraisal Institute in 2005.