Jacqueline Greene is the Director of Economics at ITR Economics.
Since 1948, ITR has provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, they have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Their reputation is built on accurate, independent, and objective analysis.
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Jackie Greene - We help companies know where their markets are going go, where their revenue is going to go so that they can plan better and beat the cycle.
Adam Hooper - Hey Tyler.
Tyler Stewart - Hey Adam. How are you today?
Adam Hooper - Tyler, we're in the studio.
Tyler Stewart - Another good day.
Adam Hooper - Another good day. Can't have a bad day in the studio. Can we? I don't know if we've had a bad day in the studio. There's days like today, where it's another one of those moments where I'm both incredibly grateful to have such awesome guests on the show. And also a bit it's where those reminders of how much of a student I need to be on some of these different segments that we talk about on the show.
Tyler Stewart - We had Jackie Greene, director of economics at ITR economics on the podcast today.
Adam Hooper - Yeah. So ITR economics really incredible firm. They put out a ton of just really detailed economic info. As Jackie let us know 94% accuracy rate
Tyler Stewart - Wow.
Adam Hooper - In predicting these and identifying these cycles. So definitely pay attention to what she has to say today. Generally though kind of a bit of a mixed bag, heading into the early 2020. We talked about, there might be some rough patches, but generally a hopefully as they're kind of calling for a reversal of some of that. Maybe a little bit more of a growth phase towards the end of 2020. So really interesting conversation again deep dive on core economy, different stages. We talked about financial markets, construction, industrial whole bunch of different facets that we touched on today.
Tyler Stewart - Yeah, an incredible track record they have. They haven't missed a recession call since the late 80s. Since ITR economics came under new ownership. So definitely a group to pay attention to.
Adam Hooper - Yeah, really interesting conversation. Talked it kind of rounded it out as to what to be looking for heading into 2020. You'll hear some some consistent themes that we spoke about on prior shows. But also some new and interesting information. Interesting looks on what we're looking at here, as we head into 2020. So there's a really great episode. Again we're very appreciative of Jackie to come and share her time today. Let us know how you feel about these episodes. Is this too much information, not enough? Do you want to hear us dig deeper on some of these topics? Send us a note to email@example.com. As always we love those ratings and reviews. iTunes, Spotify, google play wherever you listen to this show. But Tyler I think with that let's get to it. Jackie, thank you so much for joining us here this morning. We're recording this post-Halloween, so hopefully listeners will bear with us in this. This candy hangover, but really excited to have you on the show this morning. And thanks for coming on.
Jackie Greene - Thank you. I'm excited to be here and I certainly feel the candy hangover. I'm with you.
Adam Hooper - Perfect we'll, before we jump in. Why don't you tell us a little bit about your background, your experience how you got involved with ITR? And maybe what ITR does.
Jackie Greene - Well, I'd be happy to. I'm Jackie Greene. I've been with ITR economics for 14 years now, which frankly shocks me it's been that long. I love what I do. I'm truly one of those people who's very fortunate to get to do what I love. What we do is we help companies know what the future is going to be. And to me that's wonderful. I'm naturally curious and I also want to know what's coming next. I get to figure out the future for a living. How good is that? We help companies know where their markets are going to go. Where their revenue is going to go so that they can plan better and beat the cycle. I think that's what everyone should be striving to do. Is how to do better.
Adam Hooper - So you hold the crystal... We ask our guests all the time the crystal ball. And it sounds like you might know some that secret sauce behind that crystal ball.
Jackie Greene - True we actually use a collection now. It's not just a crystal ball. We also use a wonderful dartboard and some magic 8 balls. When we're really stuck.
Adam Hooper - Perfect. That's perfect. So some of our listeners out there might be familiar with your trends report. For those that aren't. Maybe a quick summary the kind of trends report. What kind of information is in there. And then we can dig in.
Jackie Greene - The trends report has 47 different forecasts and series in it. And what we're doing with the trends report is we're providing every month an update on those trends. So you can see where your industries are going, are the big macro economy is going. Those pages come out as the DA comes out. We used to release it once a month. It's a monthly publication and we still do this collection of it all at the end every month on the 9th. But we have it on demand now. So you can also get it as soon as it's ready up and out there so you don't have to wait the whole month to see where your market's going. So construction and manufacturing and the financial markets and then the overall macro economy such as GDP or U.S. industrial production. and the B2B industry. So there's a lot covered in it.
Adam Hooper - Who is the typical audience for that report? Is it a an average a retail investor like some the audience on here? Is it more institutional audience? Who's the typical reader of that report?
Jackie Greene - Well, that's a tough question. There's been a lot of different people over the years. There's some people who even after they retire they still get it. Because they like it and they can plan their own portfolios better that way. So we have people who are planning their business because they're in the food industry. Or they're in the retail space and they're doing marketing. Or they're purchasing or trying figure out what markets to go into. So it's a very wide audience that gets it. Depends on how they want to be using it. We write it in a way so that it can be used by multiple users. Depending on where you are in that space.
Adam Hooper - Perfect. As we're talking before we started recording here a lot of the conversations we've been having on the show have been around the just general economic cycles. Different stages of the business cycle and economy. Why don't you walk us through the four stages of the business cycle. As you guys identify them. And then maybe kind of where we're at in those. And what some of the indicators are that would indicate a transition from one stage to the next.
Jackie Greene - Happy to. We have four stages as you said, which is different than some other people. But we're trying to make it as easy as we can. We have what we call phase A, which is recovery. We have phase B, which is accelerating growth. Phase C which is slowing growth and phase D, which is recession. Everyone's favorite part of the business cycle is typically going to be phase B accelerating growth. That's when your business is growing. You're generally very happy during that time. You're busy, but you're feeling pretty good. You're growing faster and faster than you were the year before. It's a great time. That's generally we call the best phase of business cycles Phase C comes after phase B. So you can picture phase B as you're rising up up up up Phase C is where you're still growing, but you're not growing as fast as you were last year. And so it's slowing growth and it's a cautionary phase. So when we color code these because for economists, we have to find ways to make it exciting. We also color code these things. Phase C slowing growth. We put in a yellow orange color because it's you'll be cautious about your future. There's potential for your phase C to go into recession, which would be phase D. Or you can go back into phase B a period of accelerating growth. It depends on what type of business cycle, it depends on what the economy's going to do. It depends on your own internal movements within your business. So that's why it's a very cautionary phase because even in phase C
Jackie Greene - you can make some really dangerous business decisions that put you in a very bad spot. If you're heading into that phase D and that's where we really want to give people the insight. So they know if they're going to be heading into that phase B the accelerating growth. Or if they're going to be heading into that phase D that recession. Phase D recession, if it comes after the phase C for you. That's generally the one everyone's pretty clear on. That's when your sales, your revenue whatever you're doing to track your business is going down and it's going down faster and faster rate. That's the part that most people really dislike. Phase A typically comes after a phase D. So you have your recession phase D and then you go into a phase A, which is recovery. Now the recovery phase that's when your revenue or your sales are still below last year's level, but the rate of decline is easing. You're getting back towards a growth period. But it's also a very dangerous part of the business cycle. Because even though you're recovering and you're heading back towards the better times where you that's when a lot of companies can run out of money. So knowing how long all these phases are going to last. Your business is really crucial step. So that you have the money you have to process you. You know what to do so that you're ready for the phase B. Really we want to know when phase B is coming. If someone's phase. Sorry I keep using phase terminology so much. That's just in my head. When you're in recovery, you really want to know
Jackie Greene - when you're going to hit that accelerating growth period. That phase B. Because if you know it's coming you can get ahead of your competitors. You can have your training programs in place. You can have all the supplies you need. All the inventory you need. So that when that market hits and that accelerating growth is there you were ready before your competitors. And you can capture that growth that they're still standing flat footed. And you are off and running. So that's where knowing where you are in the business cycle and knowing how long you're going to be there and what's coming next is so crucial to help you grow ahead of everyone else.
Adam Hooper - As you're describing these are these intrinsic to each individual business or are you relating these to general economic factors as well.
Jackie Greene - We do it for every business every market, every economy we look at. We're always comparing how the company fits to the overall market. How they can fit to their specific industries. How they fit to the overall economy. And looking how their phases relate to the different parts of the economy that they're involved in. Is how we're able to figure out. Well, part of how we're able to figure out how long they're going to be in those phases and when they can expect those changes to occur. We're almost trying to help them see at least a half business cycle ahead so that they're planning that far but we will typically forecast out their sales three years for them. So that they can really be planning more than just six months out.
Adam Hooper - And so on the timing of these trends are these generally consistent timeframes that it takes to move through one of these phases. Or can they happen fairly abruptly? What do you see there?
Jackie Greene - We study this very closely because there are some times that they're very rhythmic and they're very cyclical. We stay cycles and they can happen in consistent patterns but it's not very frequent that's a nice cut and dry like every 12 months expect a recession. That is not how I have ever been able to find anything if I did I would start playing the stock market a lot more closely on that one. But what you can do is you're looking for those bigger patterns. And that's a large part of what we do. And that's actually part of what we do that makes us so unique. Is we've been studying that since the company was founded. We've been studying this for over 67 years I believe now. We've been getting this to be a more precise thing that we're doing. We've been honing this methodology and so figuring out exactly how long each one of those cycles last by company, by industry, by market, by economy is part of our proprietary methodology. That puts our forecast accuracy as one of the top ones that you can get. We posted 94.7% accuracy rating and that's pretty much higher than you're going to find a lot other people. And that's a four course out. That's not just one month out. So that's a, after a whole year of time has gone by the forecast is 94.7%.
Adam Hooper - That's pretty darn accurate.
Jackie Greene - I'd like to think so. We work hard at it.
Adam Hooper - So you mentioned also that and we talked about. We had Dr. Glenn Miller to talk about the real estate market cycles and how they look at that methodology. We talked about how a sector or a market can go back and forth. Either from in your case, your recovery to accelerating growth or then maybe back to recovery before they get to slowing growth. It sounds like there's the ability to move either way through those cycles. Not just necessarily a linear march forward through those cycles.
Jackie Greene - Very true. And that's really a lot of people their goal is to have what we would call the soft landing and that's if it goes from that phase C slowing growth back into a phase B accelerating growth and skip to recession. That's everyone's goal. How they do that it's going to be different. But there are times that you have the hard landing, which is when you go through that recessionary period. Sometimes it's because the macro economy is going to be doing that. And it's hard for a lot of industries to not go through that recession, if the overall economy is going through a big enough recession. 2008, 2009 perfect example when the economy went down so hard it was hard for any industry to really avoid some pain. There were a few that still avoided it but the majority will fall. into it. But there's also times when it's a much more mild recession like the one we're expecting right about now. There're going to be some industries that have softer landings and they're not going to have the same level of pain. There are also things businesses can do internally to help them avoid some of those recessions. Like launching a product, a new product for them can help them be more entrepreneurial even if they're a large existing company. So that they are doing something different. So that it helps them avoid that pain. Or going into a new market. Things like that can help. I've worked with a client before who every time they saw a recession coming they would go and acquire another company. So that they would have a soft landing
Jackie Greene - and they wouldn't have to go through that recession on their top line revenue. So there's lots of things people do to avoid going through a recession.
Adam Hooper - It's interesting the most of the economists and people in this space that we do talk with and we work with. When they speak of these different cycles. They're talking about the economy as a whole right they're not necessarily speaking about how an individual business or individual sector can be going through these different cycles independent necessary not necessarily. Entirely dependent on the overall macro economic picture. But these cycles can occur within the overall span of a general economic cycle. Is that accurate?
Jackie Greene - I want to make sure I understand your question correctly. So you're asking me if a company can have its own cycle within the bigger scope of say GDP?
Adam Hooper - Right. Or industry.
Jackie Greene - Yes. A company can follow along with their market very closely or they can break the cycle and do something different. And sometimes you want to break the cycle and do something different. Sometimes you want to follow along. It depends on what part the market's going through. If the market is growing and you're not following along.
Adam Hooper - That's not good.
Jackie Greene - But it is very possible for a company to break the cycle. A company has a lot more power and the ability to maneuver it's really hard for GDP or even a market to really break a cycle because it's such a big thing. It's like moving an entire mountain versus trying to move a boulder. Company is a boulder, the mountain is the economy. There's only so much you can do for that entire mountain. But you can move a boulder relatively more easily than the entire mountain. So that's why it's fun to work with companies who have that ability to change and pivot and actually affect their own future. It's part of what makes it fun.
Adam Hooper - Right. And so I guess to that example where you had a company that every time they they foresaw this or this recession was coming they were able to acquire a company to be able to not take that hit to the top line revenue. That's an example of a company within this overall economic picture. They're able to recognize that there's this maybe downside event in their specific situation where they can take action to then avoid going from that slowing growth into the recession and either maybe stay in slowing growth or go back to accelerating growth.
Jackie Greene - Exactly.
Adam Hooper - Got it. Perfect. Okay, so now we've cleared that up. Let's talk about the overall economy. Where obviously we're quite long in this recovery. Where are we I guess right now macro U.S. economy? What are some of the factors that you guys look at to get to that determination?
Jackie Greene - Well, macro U.S. economy there are two main measures we look at and there's certainly lots of things we can look at. But what we're going to talk macro we typically are talking U.S. GDP or U.S. industrial production. I personally tend to and actually this isn't just me personally. This is the company as a whole. We tend to watch U.S. industrial production more closely and talk to it more I should say not just look at more closely we watch both very closely more than GDP. Excuse me. Because GDP is quarterly data and it only comes out once a quarter. They revise it every month obviously. But you only really get new data once a quarter. So it's harder to act upon it and harder to have timely information. Whereas U.S. industrial production trends very much the same way. It's still measuring the U.S. economy. It's measuring the industrial side of it, but we have a lot of industrial clients that we work with very closely. So it's actually more closely aligned for them and it's a better gauge for them. But the data comes out monthly and it comes out very quickly and timely. So we're in November, we're going to be getting October data in just about a week or two. Whereas opposed to GDP. You have to wait so long to get updated data. We're able to have a lot more insightful information there. And like I said they trend very much in the same pattern. The difference is there are times when U.S. industrial production will go into a recession whereas GDP won't. The GDP numbers as you know the U.S. economy is very much retail and service sector as well.
Jackie Greene - And not just industrial production. So that side of the, the consumer side of the economy can keep the GDP trend little higher whereas we might see more of that downturn actually in the industrial side. So when we're talking overall macro economy we are going to talk both. I don't want be confusing people. But we do watch that U.S. industrial production. Excuse me. U.S. industrial production trend very closely because of how timely that data is.
Adam Hooper - I'm assuming some of the secret sauce that you guys are working with behind the scenes is how to weight those different factors of those different components of that. Again like you said if the retail and consumer base is helping the GDP look better than maybe the industrial production that may be a different signal than if the industrial production is is growing at a certain rate and GDP is slowing or growing in a different rate. Right?
Jackie Greene - Exactly. Right now U.S. industrial production is in phase C slowing growth and so is U.S. GDP. If we're talking about both, but we have started seeing actual contraction occurring in U.S. industrial production. In line with our forecast timeline actually, which is pretty nice. But we are starting to see that happening whereas U.S. GDP was also in a phase C slowing growth. It's not contracting and we're not expecting it to contract during this business cycle. So there is that slight difference, but they are in both in the same phase right now. Both on the back side of the business cycle. But there is a different level of activity hitting Excuse me, different activity going on in that we do see that contraction in US industrial production.
Tyler Stewart - When you get the U.S. industrial production report next month. What will you be looking for to see whether or not we're still if phase C maybe we go back to phase B? Or we're looking at phase D here in the near future?
Jackie Greene - Well, I'm always mixed on that about what I'd like to see and what I really think I should say because I know what we're forecasting. So I like being right. So what we're forecasting is that U.S. industrial production is going to stay on the back side of the business cycle into about mid 2020. So that downturn that contraction that we're starting to see in U.S. industrial production. Sorry, I think that's a candy hang over in my throat. The downturn we're seeing in U.S. industrial production. It's going to continue into about mid-2020. It's not going to be transitioning back to phase B anytime soon. There might be some a little blip here in the data every now and then. But as far as overall trends go. we're on the back side the business cycle and that's going continue. Like I said first half of the year. GDP is also going to be on the back side into about mid 2020. But it's not going to actually contract and that's the difference between the two. The consumers are going be strong enough to keep the consumer side of things up and the retail side. Plus the way we can count those things is a little different than US industrial production. So between the two we're going to see that back side of the business cycle. If you're in manufacturing or in the industrial space you're going to feel more pain than if you're in the consumer side of things.
Adam Hooper - And then in the most recent report though you said that that will maybe shift back into that phase B, the accelerating growth and we're talking before the recording. Maybe by latter part of 2020. You're expecting that to kind of write and come back into that accelerating growth phase.
Jackie Greene - Yes, we expect the end of 2020 is going to finish strong. Now there's going to be that pain during the first half of the year into the mid part of the year. We're going to have some recovery in the second half of the year. But by the end of 2020 we will be back in phase B, accelerating growth for many segments of the business. Excuse me for the economy. I got to be careful with that because we're talking U.S. industrial production. We're talking GDP and those I'm confident we'll be in that phase B by the end of 2020. But there are segments that will not because they don't all move through the business cycles at the same time. That's the way the economy works this non-residential construction for example lags the overall macro economy. So that's going to go through at a later point in time. So I just want to be very careful this isn't a blanket statement covering everything. But overall manufacturing will be in that more accelerating period by late 2020. But with that being said because it's late 2020 by that point. I do expect 2021 to be stronger than 2020. So it's. Hold on through this point in the cycle. It's not going to be a fun ride for the next couple months unless I say that it's not going to be fun right. But there are ways to make it fun right now come right back to that. Hang on through the first half of the year. Second half is going to be getting better but 2021 is really where you're going to be seeing more of that upside. Now it can be a fun part of the business cycle if you're on the downside.
Jackie Greene - In that recession is when you can really. Things have slowed down enough that you can actually take the time to improve your process. Improve machinery. Do the improvements that you need to do while. You need things to be a little slower. So that you're ready for the growth in 2020 and 2021. That's the key is knowing how far is your market actually going to grow in late 2020 and in 21. If your market's going to grow above where it was this year. You're going to need to be ready for more. And so you use the downturns to actually get yourself ready. So that you're ahead of your competitors and can take on that extra work. Take on and you have the capacity whereas your competitors are caught off guard in trying to add capacity while they're trying to grow. So knowing how your markets in particular are going to do is really a key piece of what to do during this downturn.
Adam Hooper - It was the first guy I worked for. His saying was "The best time to sharpen the saw is when the mill is down."
Tyler Stewart - That's get ready get prepped, get everything in order. So that when that growth does turn back on you can be in a position to to take advantage of it. You mentioned how to make it fun during a recession. How does a company make it not fun? What are the things companies are doing, that make that time just not as fun as the guys having fun.
Jackie Greene - Well, I think there's lots of different ways to have fun. I think that's all part perspective that's going can be really tough question to answer for everyone. But one of the things that I try and remind people is even if you are in phase D recession. That really depends on how you're measuring your business. A lot of people are going to be measuring their revenue and their sales. But just because your revenue and sales are in phase D recession doesn't mean your profits have to be. So you have to be watching all the different parts of the business. Even in phase D recession for your sales and revenue. There's things that you can still do to protect your profitability. And that's in our ITR trend report. We have the management objectives and we talk about those on every subject page, but we also have a whole collection of them that people can look through and read through. So there's things you can do to protect profitability during all the different parts of the phase. So it's still fun if you're still making money. I appreciate that part but also a part where we work with people to do is make sure that you know what's coming. So that you can keep your team's morale up and you can still have fun with it and get them energized. If you're feeling the pain and so you immediate reaction is to cut a whole bunch of people.
Jackie Greene - That's not going to help it feel good for anyone. You're going to hurt morale more or it's going to bring down the company more in general. Because there's that pain and everyone's always concerned. And then frankly if you're having just a short downturn, but you don't know it and you're going to be coming right back up. You're going to need those people. And it's such a tight labor market right now. It's such a struggle to find the people with the right skill set in your area set. You're going to be kicking yourself for it. So that's why there's ways to have fun with it frankly because you know what's coming. You can be getting ready for it and if you're just seeing this as a way to get yourself better and be more prepared for what's coming next. To me that's fun. I like ways that I can make myself better. So I'm always looking for how can I improve and how can I get ahead.
Adam Hooper - If you have that visibility to what the other side of this down bit looks like. I think a lot of times it's an uncertainty. Okay this guy's is falling. We don't know how long this guy's going to fall for. So we're going to cut and we're going to know lay off and retract. But if you know it's a short term thing then you have some visibility to what the other side of that might look like. You have better information hopefully you can make smarter long term decisions rather than just kind of reacting to that uncertainty.
Jackie Greene - Exactly.
Adam Hooper - So 2020. End of the year hopefully heading back to the accelerating growth. You heading into an election cycle. Speaking of uncertainty how has that historically affected these forecasts or does it heading into a period of I think most would agree some economic or some political uncertainty.
Jackie Greene - It affects us in that everyone asks about us. But in terms of the actual economy it doesn't. It's such a small thing for such a large economy. There's short term things that can be done and you do see some short term impacts in terms of actually changing the cycle or changing the way the economy moves. It's such a big machine. I'm going to go back to that mountain analogy. The economy is a giant mountain. One man or sorry one person whoever is in the White House can't move the entire mountain by themselves. They might be able to throw things at a it chip at it sort of thing and do small dance to it but they can't change the entire cycle. They can't change the entire economy on their own. That's not the way our economy works or our government works. So it's something that's asked a lot but all the research we've done over the years shows it does not impact the economy. There might be those short term bursts like when there's a tax cuts sort anything but it never has a lasting effect. And we've done lots of research to that and effect as well. It's not a long term effect in that sense.
Adam Hooper - Interesting. So switching to financial markets. How dependent or independent are those from those two kind of core U.S. economic factors, GDP and industrial production. How independent do the financial markets move typically from those factors?
Jackie Greene - Well, they go in with the economy in that they impacted by the economy or they impact the economy also. It depends on which ones we're talking about such as commodities. There's a lot of motion in commodities. Your oil prices, your copper prices, steel tariffs can impact steel prices. All those sort of things. There's a lot of motion that gets tied into it. But there's also a lot of economics tied into it that for example U.S. industrial production. If it's on the back side business cycle there's less demand. There's going to be lower prices too. So there's some emotional pieces, there's also some economic pieces. Overall though prices, commodities, inflation, interest rates. They're all in the back side of the business cycle right now. It's going to be short. Now's a great time to borrow money. If you're going to be investing in wealth creating assets.
Adam Hooper - Okay. Say that one again.
Jackie Greene - Now's a great time to be borrowing money. If you're going to be investing in wealth creating assets.
Adam Hooper - Okay. I thought that was what you said. Most of the listeners of the show are looking at investing in wealth creating assets. So I think that's probably a good for them. I just want to make sure we heard that right. We've seen that too. We've talked a bunch of lenders and people in the finance side again in our space and the real estate world. We just had another rate reduction the other day from the Feds. So rates are still historically all time lows. I think there is a really good lending environment and leverage environment right now to lock in those longer term rates certainly in the real estate space. I think we're seeing a lot of investors and smart managers taking advantage of that and locking in on long term these pretty historically low rates still even in this environment.
Jackie Greene - I agree. Frankly at this point given where the rates are if you are sleeping through the night well you have not borrowed enough.
Adam Hooper - That's an interesting way to put it. If you're sleeping through the night well you're not borrowing enough. You feel that the rate environment is that good. That it's time to. It's time to take as much advantage of that leverage as you can right now.
Jackie Greene - I'm going to put a little asterisk or caveat to that in that if it's going to wealth creating assets and depending on your own personal horizon. If you're looking to get out of the business or change it you got to look at your own personal horizon. But if you're going to be in this for long enough to get the good return on. Then by all means you should be doing it.
Adam Hooper - So in the general let's just go to to kind of public equities. There's been a lot of volatility there lately. End of 2018 saw a pretty big blip. We've had a couple of blips this year. You say that those generally are on the back side. So that would be slowing growth phase. Is that a cause for concern? Is that something that heading into this again still saying in a pretty low rate environment is that going back in accelerating growth or what if some of the indicators that people can look at to try to get a picture on which direction some of these different metrics are going to go?
Jackie Greene - You're correct. It's on the backside business cycle right now. Let's use the SMP 500 for a gauge in the stock market. Because that's what we use in the ITR trends report. This definitely phase C slowing growth at the moment, but I'm not seeing things to cause concern there's definite signals that suggest the market could go up. And some of them are saying we could see some more downside pressure. I got to be very clear we don't forecast the stock market. We observe it. This is one we promise never to forecast. But on my own personal side of things. I don't see it as a big cause for concern really largely because I always think back to the old saying. "Bears and bulls make money, but pigs get slaughtered." So when I'm looking at the stock market even if it's going down. I'm just looking for the right time to now get in near the low. So that I'm ready for the next rising trend and it's okay as long as you have the right timing and the patience and even our statical analysis phases that we do we're leading them to the stock market. You can do that with companies. You can do that with stocks to get a sense of Is this the right time? So there's a lot of that you can do on your own personal investing side of things not just with your company.
Adam Hooper - You mentioned before consumer and retail is going to help in keeping the U.S. GDP healthier than maybe some of the other indicators. Where is CPI? Where do you see that heading? And what are again some of the factors that might influence that or that people can look out for?
Jackie Greene - Consumer pricing is in phase C slowing growth. Prices are rising but they're not rising as quickly as they had been. So this trend is projected to continue into about late next year. Before we start to see prices rise at faster rate again. So again you get into late 2020 with prices only rising at that slowing rate. But then by 21 as the economy's overall picking up again that faster growth in 21 for the overall economy also means prices are going to rise at fast rate. Now part of this is tied to commodity prices going down though as input prices go down some of those savings can be passed along to the consumers. On the flip side of that though tariffs and trade wars have a way of increasing consumer prices in the long run. So that's definitely a threat to some of these forecasts that we have out there.
Adam Hooper - Stocks, bonds typically tend to move inverse to one another. What is the outlook on long term bond rates right now?
Jackie Greene - U.S. government long term bonds are in phase D recession. Federal Reserve cut the fund rate like you mentioned earlier. And that's playing a part in the bond prices decline as the Fed funds rate declines. It signals that people don't need to pay as much for money and the bonds market follow suit. General fear about the health of the US economy can impact bonds as well. Whereas in contrast the weakness in the global economy can also help the bonds market kind of a flight to safety situation. Overall we expect bond rates will remain relatively low through out this mid 2020.
Adam Hooper - Will they also be the the beneficiary of this trend back towards so I guess if they're in recession maybe they go back to the recovery phase later 2020.
Jackie Greene - Yes.
Adam Hooper - Okay. So that's good. So I mean it sounds like generally again back to what you said before. First part of 2020 might be rough, might be some blips. A lot of people are talking about the recession. This might be a rough patch, but doesn't seem to be very protracted at least again according to ITR analysis now not going to be necessarily a multi-year protracted issue. Hopefully writing itself and may be coming back into a healthier position by end of 2020.
Jackie Greene - Very correct.
Adam Hooper - Now getting, I guess more specifically into the real estate space. Construction you guys track pretty closely as well. How does that look now? Again hard to say at a macro level. Obviously everything is so market specific but generally how does construction industry, construction activity look right now from your analysis?
Jackie Greene - Let's start with the single family housing market because that's one of the nicer parts to look at at the moment. Single family housing market is heading into a period of growth. So it's been contracting, but it's on the upside. It's going through that recovery phase and we are seeing some growth emerging. Now we're going to expect to see single family housing starts to rise into about late 2021. So this new period of growth is going to be the start of a good stretch of growth for people to take advantage of. Now the majority of the commercial side isn't this rosy. Many segments are either already on the back side business cycle or heading there. And this is pretty typical. As I mentioned or alluded to earlier. Commercial construction typically lags or non-residential construction typically lags the main economy. So U.S industrial production U.S GDP by sometimes by the year even. So some parts of commercial construction will end 2020 in recession. But the upward movement or momentum that we're going to see in GDP in U.S. industrial production during the second half of 2020 means that we'll see that upward momentum in the commercial construction space in 2021.
Adam Hooper - And so you say that's typically can be up to about a one year lag from commercial construction activity relative to you said maybe the industrial production.
Jackie Greene - Yes.
Adam Hooper - Single family though you said starts. You think that will continue to rise until 2021. That seems like a pretty healthy segment of the market. Is that a mostly a pent up demand issue we just haven't been we're adding supply at a rate to keep pace with demand for new homes. Is that one of them? What do you say are the main drivers behind the I guess attractive start rate in single family?
Jackie Greene - Yes. Short answer. Supply and demand. You are right. We need to. There's the demands we meet the supply. For a little while there multifamily was outperforming and actually multi-family is technically in phase B. But it's a little misleading. So we're expecting single family housing to really outperform the multi-family sector through the next couple of years. Part of that is also millennials are getting older and they're looking to raise families. They're starting to want to have their own homes. They're going for the single units at that point not the multifamily. So it's some of that shift in the consumer preferences driving some of that demand. And there's just enough households being created enough people getting ahead that they're ready for that. The market seem to be moving fast enough that we just need to be building more and we don't have enough inventory just off existing.
Adam Hooper - And so this is on any of the multifamily space you're talking on the construction side for new supply. Do you guys do any analysis on existing stock or differentiating between new construction of class A units versus a value added repositioning of orders and housing stock.
Jackie Greene - We do look at the existing and we do look at different ways of cutting it. We look a lot more at the news simply because that's definitely where a lot of our clients are looking us to be involved in the new construction. If they're in construction and not as much of the remodeling side of things. But it's because of the inventory being used up that we're seeing so much of the construction in the single family but not in the multi-family. Multi-family got plenty of inventory right now and that's part of why we're going to see multi-family it's in kind of this little bit of a rise then it's going go down next year. Then it will start to rise up a little bit again in 2020 but overall it's not going to be a real growth period in 2021. It's not going to be a boom market again in 2021. They'll be kind of around today's level.
Adam Hooper - For the new construction. How about office? What are you saying in the office space?
Jackie Greene - Offices is in a nice phase B accelerating growth for the moment. So I got to add that because it's one of those ones that's about to tip over into phase C slowing growth. It's heading into the back side of the business cycle and given how far office construction typically lags the macro economy that makes sense. It's the right time for it. But the nice thing is nice is subjective but for most people I assume this is nice. We're not expecting this market to head into phase D recession. Construction will generally rise through at least 2021. Sorry let me clarify. The office construction will generally rise through at least 2021.
Adam Hooper - What is driving that continued growth and through through 2021 for office space?
Jackie Greene - Last year's growth. That's the back of lagging the overall macro economy. You get the benefit from the growth the overall economy went through last year. In particular the B2B space. So as the businesses were growing and they need more office space. So they were building it high employment numbers are helping businesses needing more office space.
Adam Hooper - Switching to industrial construction with this period of industrial production going through again slowing growth right now and maybe Rocky phase really next year. How does the construction market relate to that industrial production trend?
Jackie Greene - There is still that lag and the reasoning for that is because businesses have to make the money. They have to have the profits in order to fund a lot of their construction. And frankly this is one of the things where we work with our clients on. Because a typical thing is a company will grow through phase B that accelerating growth and it's feeling good and it's rising and rising even as they're starting to head into phase C they're thinking about expanding because their classes constraint. They typically will do a big expansion of their industrial construction when they're heading to the back side of the business cycle. So that's why you see a lot of the delay and that's why we work with our clients to really see could you really need to be expanding at this point or is that downturn heading into a recession or is that going to be sure enough time span that it does make sense for you to really make that investment right now.
Adam Hooper - So in industrial production and in manufacturing. Seems distinct or different look at manufacturing versus industrial production.
Jackie Greene - So manufacturing is very much in alignment with industrial production. It's actually manufacturing is the largest segment of U.S. industrial production. There's also utilities and mining within U.S. industrial production, but manufacturing is the largest segment. So they do move very much in sync. The majority of manufacturing is going to follow the same outlook that we've been talking about for U.S Industrial production or GDP. Most segments are on the back side business cycle. They're either in that phase C slowing growth or phase D recession and they're going to stay that way into mid 2020. But they will end the year on that upswing. We were talking about for the overall economy it's going to be late in the year. They will end on the upswing. Now some segments will be slower than others. For example here is how we do a truck production still limited in phase A recovery as we close out 2020. So they don't all move in perfect sync with the US industrial production. But they're fairly close.
Adam Hooper - What are some of the factors or triggers or set of conditions that would drive. I guess that's a pretty bad pun with heavy trucking that you just mentioned. That would drive some of these changes going forward. I guess are these factors that a listener to this podcast an investor in some these asset classes are there factors out there that they can be keeping an eye on. Or you have a feeler out there for that might trigger some of these improvements in these different factors. What are some of the things you guys look at?
Jackie Greene - Some of the things we're looking at. We're always looking at the leading indicators because they're going to give us advance warning, but some of the factors right now are for example the global economy is on the backside business cycle. So when you figure many of our trading partners are either slowing or already contracting. It's going to put downside pressure on our exports. So less demand on exports means we're not producing as much here in the U.S. because there's not so much demand for it outside our borders. That's going to be some of the downside pressure. Those are things you're going to be looking for. Germany's industrial production trend has been in recession longer than ours has. It entered. I forgot how many months ago was it eight months ago? but upward movement in some of our major trading partners is going to be a positive sign for us. It's not one of the things we're watching as much as the leading indicators because we get a lot more advance warning and there's a lot more that can happen to the individual economy verse similarly indicators that we watch so closely. But some of the other things that we're watching because they're more outside the realm of normal economics though are some of the tariffs in the trade talks. There's normal economics that business cycles rise fall. That's all very normal and we expect that. Tariffs and trade talks can be a little disruptive this time through the cycle. So it's a little bit different. There's always something a little bit different but that's one of those things
Jackie Greene - we're watching a little bit more closely because it has the power to disrupt some of the normal status quo. Just like in 2015. The recession during that time period was more extreme than normal would have been. Because the way oil behaved when OPEC didn't change its production output as it normally would have been every other circumstance it was a unique situation. That no one would have expected to happen. So we just watch those things very carefully in case there's something that changes that we need to adjust. Like if and everyone was just fed up with trade docks and then decided we're not trying with you whatsoever anymore. We'd have to really examine our forecasting. Because we're assuming that we're going to be driven to make money and so businesses find a way. They're looking for ways to make money. So that's why I don't worry about those too much. But there are things I have to keep watching.
Adam Hooper - You seem interested in along that line. How often do those surprise unforeseen events obviously there have to be some contingency in the forecast for those those unknowns. How often do you see those things occur? How severe are they or can they be?
Jackie Greene - Thankfully not that often. We use the phrase black swan event when those sorts of things occur. Frankly not that often. As a company ITR economics has not miscalled a recession since the late 1980s, when our current CEO and owner bought the company. So we've been on time with those recessions. We've been able to call them such as the 2008 2009. We were in print in 2006 warning people about that. So thankfully we're not caught off guard with those sorts of things. Sometimes so we know the recession is coming but until we get closer. We don't always know the why for it because we can see things turning as potentials. But until you get closer you're not sure, which of the five potentials it ends up actually being. We might spot 17 things that could be dangerous, but five are what actually come together to make the problem.
Tyler Stewart - Do you watch business news or read business news. If you do what sources do you look into? How might you recommend our listeners watch business news read the news? What should they take from it? What shouldn't they take from it? How would you gauge the business news out there?
Jackie Greene - I always take it skeptically. Is that wrong? My problem is I have access to so much data here at ITR economics. That we have thousands of indicators. Thousands of data sets. So every time I hear on the news they're talking about a number and what it means. I instantly go to our data and I look and say, "No, you're telling me this is the worst it's ever been, but it's not." I always take it a little skeptically. I want to listen and learn all this. I'm always watching the news or reading the news or listening to it while I'm driving. That's not the shortage, but it's one of the things I like to hear it. So that I can then go corroborate it with other intel because everyone has a bias. Because I want to be very careful about what I'm actually pulling from it. And it's one of the things I worked with the team on this When you read anything you need to go find it and verify it by other sources. Because it's too easy just to take a number and distort it to be whatever you want it to be.
Adam Hooper - So I guess with and then the 94% historical accuracy, we'll give you a bit of a red carpet here to write some storylines that we should be paying attention to as we head here into 2020.
Jackie Greene - One of the things I would be watching very closely is the tight labor market. I know it's something people are very aware right now if you're trying hire anyone you're definitely feeling the pain but it's going to be an ongoing issue for at least the next three years. So you're going to be really wanting to find more creative ways to recruit and retain highly skilled people. It's difficult and that's just going to get more expensive. People are going to be more expensive year after year. The other side of it is look for ways to automate where you can reduce the needed body count. Also look at what sort of non-financial benefits you can provide. There's all different things that motivate different people. And that's one of the things that you have to really know who your team is. Who is working for you? What is going to be beneficial for them. I know this sounds heartless and cold but I'm an economists or I go for it. But how can you do things with less people? What can you do to be more efficient?
Adam Hooper - Machines are expensive. Yes, but their prices don't go up the same way that human healthcare does every year or pension funds or the 4-1 case. Whatever the case may be. So to me that's one of the big things to be watching is what can you do to be more competitive in the tight labor market? Because it's not going to get any easier.
Jackie Greene - I think that was one of the things that we saw coming out of the 2008 09 recession. Was there was such a reduction in the labor force that companies just had to adapt and figure out how do we get that production back without hiring those people back necessarily. Whether they couldn't hire them back for a reason or just just found a way to become more efficient. And it seems like that kind of kicked off this trend. Obviously we talked about automation a whole bunch and robotics and A.I. and process automation.
Adam Hooper - It seems like again that's that's a trend that's going to continue throughout the labor force even with a tighting labor market. How do you become more efficient with the resources that you have? Maybe again whether it's a reaction to not being able to fill those positions. Or a reaction to just becoming more efficient in some of those down cycles.
Jackie Greene - Exactly.
Adam Hooper - So tight labor market anything else out there that I guess again specific listeners that are investing in the commercial real estate space. Healthy debt environment anything else in the investment real estate space that you see as something to look out for or to watch heading into 2020.
Jackie Greene - Heading into 2020, we're running out of a lot of time to be doing a whole lot. If you're investing in that market. Especially real estate it comes back to that old adage of location location location. Just because you can buy a place out somewhere doesn't mean that's really the place to be doing it. So knowing the regional information and the trends of it are so important. Such as the demographic trends for a while there was that boom of construction going because the pipelines were rolling around the mountain region of the US. But when that slowed down so did the construction needs. So really knowing is there a sustainable trend that's going to warrant that growth is going to be some of the key information that you're looking at.
Adam Hooper - Perfect. Okay. I think that's a lot of what we wanted to cover. Is there anything that we didn't cover that you'd like to add before we wrap up the show today.
Jackie Greene - I can't think of anything. If I got all your questions and you're happy. Then I'm good.
Adam Hooper - Perfect. What don't you tell listeners how they can learn more about what you guys are up to with ITR economics and where they might be able to find some information that you guys put out there.
Jackie Greene - All right. Well there's actually many ways to stay up to date with ITR economics. We're actually a pretty outgoing group for a bunch of economists, which is kind of shocking. But we have blogs on our website. We have our website itreconomics.com. We tweet we're on LinkedIn. Our speakers are traveling all over the world spreading our updates. Or frankly you can even just call us. We have some pretty friendly people here and we'd like to help. We like to talk to people as much as it sounds weird for an economist. We really do.
Adam Hooper - Perfect. Well, we'll put show notes links to all that. The show notes for the episode here. So listeners can learn more and stay in tune with all the different factors that we spoke about today. And keep track of what's going on here. As we turn the corner to 2020.
Jackie Greene - Excellent. Thank you.
Adam Hooper - Perfect Jackie. Thank you so much for joining us today. Really great to have you on.
Jackie Greene - My pleasure. I Hope you enjoy the rest of your day.
Adam Hooper - Likewise, thank you.