Beyond the Build


Economics: Where Fun Goes to Die

Last week, our CFO Del Allen attended a presentation by Mr. Kevin Kliesen, the Business Economist at Federal Reserve Bank of St. Louis, and the person to whom we can credit the quote used for this post’s title.

As most of us know, the recovery is a slow one. There is flat income growth and cautious capital spending by businesses. The unemployment rate is elevated when the real numbers are studied. That is the not so good news. (Although I am reminded that this is still better than in the midst of the Recession. I always try to be thankful for the things I have, and not what I do not have.)

The good news: 

  • Consumers seem to be resilient with monthly job gains improving.
  • Home prices are improving and household wealth is rebounding.
  • Manufacturing orders and shipments are up.
  • Inflation is running below the Fed’s target of 2.5%
  • Oil futures suggest the possibility of weaker energy prices

At the close of the presentation, Kliesen shared a “Consensus Forecast.” He said these models have been a little too optimistic in the last few years, with more wrong predictions than accurate ones. Hopefully this view is more realistic:

  • Capital expenditures by businesses are escalating. The low cost of capital is improving business confidence.
  • The modest rebound in global growth has boosted manufacturing and exports.
  • Favorable housing dynamics and improving household wealth are contributing to increased sales of consumer durables.
  • Monetary policy is super easy, yet inflation is contained.
  • Budget deficits imply higher future taxes, which is a disincentive to save, work and invest.

Kliesen said that modest economic growth might just be the new normal. 

Still, we were pleased to hear that The Fed has an exit strategy for normalization of the market. The goal is to get interest rates to become a little closer to what we are used to while controlling the money supply. It’s a challenge because we are in uncharted territory, and the timing is tough. There are many imperfect models, but and the Fed revises them frequently, lending more uncertainty to markets.

But all in all, it seems like there’s a good team at the helm, and we are slowly headed in the right direction.

Merrill Stewart Jr.

Merrill Stewart is Founder and CEO of The Stewart/Perry Company, a commercial building contractor based in Birmingham.