Chris Thornburg of Beacon Economics spoke to the Southern California Contractors Association in January and had a different view than most economists in media. According to a Wall Street Journal survey, 75% of economists polled believe there will be a recession in the next two years, but Thornburg disagrees and says there is, “still little chance of recession in the next 24 months.”
One of the common myths Thornburg debunked is the idea we are “due” for a recession given the length of our current economic expansion, which officially became the longest in history late last year. He quoted former Fed Chair, Janet Yellen, when she said, “I just don’t think expansions die of old age.” Rather, Thornburg explained that recessions occur due to large, rapid and sustained shocks to the economy, and he doesn’t see any of these factors present.
According to Thornburg, the economy is running very steady with GDP not too hot and not too cold. He also pointed out that “Labor markets, consumer spending, business investment, wages, exports and energy are still all on steady, sustainable paths.” This is all happening while interest rates are down and inflation and debt levels are constrained.
Housing is another bright spot. According to a recent article by Forbes, “U.S. homebuilding activity increased across the board to a 13-year high in December.” This puts the U.S. on pace to build 1.61 million units, which is the highest level since December 2006. This is all being done while lending standards are relatively high with the median credit score for mortgage originations hovering at 750.
The potential further good news for the California construction community is Governor Gavin Newsom proposed a $53 billion infrastructure investment over 5 years in his state budget proposal. When you combine this with the federal infrastructure discussions, the impact could be unprecedented.
Thornburg suggests keeping an eye on labor and housing shortages. Unemployment is the lowest in decades, which creates obvious challenges for employers, but housing shortages in places like Orange and Los Angeles Counties creates an equally significant problem for growth, because if workers can’t find a place to live, they won’t stay in California, which exacerbates the labor shortage.
There are certainly some areas of concern in the economy. Thornburg pointed out our country’s political dysfunction and budget crisis due to significant ongoing deficits as two major problem areas. There are also some signs of excessive risk taking, some of which is occurring in the surety industry as underwriting standards have loosened with more surety companies entering the market.
Conclusion
You might be tempted to breathe a sigh of relief, but one thing Thornburg pointed out is shocks to the economy can come at any time. So, while we will hopefully have another two years of an expanding economy, operating with vigilance and discipline as though a recession may be around the corner might just be the thing making you successful. It will most certainly be the thing that helps carry you through when the inevitable time does come.
