In this post I thought I would share my takeaways from a presentation given by Chris Thornberg of Beacon Economics this past Wednesday at the City of Santa Fe Springs City Hall. Many of you in Southern California are no doubt familiar with Chris and I found his themes to be fairly consistent with years previous, with notable exceptions.
The first exception to the last few years is, of course, the election of Donald Trump as President (inaugurated today, in fact). Chris made a point of emphasizing that the election has made economic forecasting even more challenging than it was before, simply because no one knows how many of President Trump’s promises will actually come to fruition.
As for the other points of emphasis, they are as follows:
- Economy is not as bad as the media says it is (no kidding!)
- No chance for recession in next two years barring a significant shock
- Consumers drive the US economy
- GDP growth is a healthy 2%
- GDP does not count “free” activities which happen more due to e-commerce
- Employment, labor, standard of living all good
- Wealth inequality, not income inequality, is a concern
- Be careful believing the results of statistics
- Census Cash uses adjusted gross income from tax returns (not a good metric for real income group analysis!)
- Inflation is not a problem. Expect to see 2-3 interest rate increases in 2017
- Entitlements are the problem no one wants to talk about but we should
- 30 years entitlements could be the US entire budget
- 1 out of ever 6 jobs in the US are created in California
- Housing shortage is the problem, not pricing. Need to encourage governments to promote development-not discourage
In the supply chain real estate world, it is easy to see Chris’ points. The health of the US economy is expressing itself in historically high levels of demand for industrial real estate. Consumers are buying more and more goods online, changing the brick and mortar retail market to a final mile e-commerce one. In certain areas, this demand for supply chain real estate has led to unhealthy levels of supply (much like the California housing market). In some markets, there is less than 1% vacancy creating significant barriers to entry and rapidly rising real estate costs.