What’s the economy likely to do this year? Pretty much what it did last year, according to Tom Cunningham. He’s the chief economist at the Metro Atlanta Chamber of Commerce and a former economist at Atlanta Fed. If you look at economic cycles, we’re due for another recession any time now. But, Tom argues that growth economies don’t die of old age. Unless something comes along to disrupt the expansion, there’s no reason why we can’t just keep growing. Sorry to disappoint you if you were looking for gloom and doom. On this week’s CEO Exclusive, Tom discusses why the US economy is so strong, what pitfalls we may be facing, and a couple of other juicy topics, like cryptocurrencies.
What Goes Up, Must Come Down?
Nope. “Economic growth is sort of the natural course of the economy,” Tom states. “You add more people, you add more technology, you add knowledge, you add skills – growth over time is more or less inevitable.” But, there’s always a catch. The fact that 70% of the US economy is personal consumption puts the US in a robust position for now, but other factors can come along to turn months of positives into a downward spiral.
It’s all standard economics. Tom makes it very clear that, even in the healthiest of times, one cautious corporate eye has to remain on the possibility of a recession. “We’ve had a very nice run of economic growth over the last few years,” he points out. “We are operating in a kind of sustainable path, and I don’t see anything in the near term that’s going to take us off that.” But, he also points out that, at some point, we will face the dreaded “R” word.
Keep Spending Money, Y’all
“In the US, about 70% of the overall economic activity is personal consumption spending,” Tom points out, “that’s more than any other industrialized economy on the planet.” This works to the country’s advantage because it means the country has a fairly advanced situation and that the citizens are fairly wealthy. In the case of the United States, we are starting from a unique and overall better place.
But, there is a flipside to this. “If consumers get skittish, you can have a problem,” he says, making it clear that something can and will come along to undermine their confidence. The last time this occurred was with the real estate market of 2008. “If we have a sharp recession, we tend to get sharp rebounds.”
Beware of Policy Shocks
The biggest threat to the current economic climate are “policy shocks.” There are many examples of such risks. “Trade disruption would be very unhealthy,” Tom argues, “and it’s very difficult to understand what’s coming out of D.C. in the near term.”
The biggest area of concern is oil. “Oil shocks have traditionally been a trigger,” he says. He cites Jim Hamilton and a blog called EconBrowser which has worked on the issue of what kills expansions. “In 2007, it was a run on oil prices,” Tom states. “In 2001, it was a run up in oil prices.” It was the same in the ’80s, and the ’70s. While fracking has been able to help stabilize the market a bit, it looks like our continued reliance on fossil fuels is still an issue that could cause problems and take the economy with it.
For You Fiscal Conservatives Out There…
Another concern amongst pundits and politicians is the national debt. It comes up every time a piece of spending legislation is brought to Congress or a new policy is implemented by the government. While it appears that the US can run deficits indefinitely, it may have more to do with managerial control than money owed. “The real issue is ratio of debt to income,” Tom states. The country currently has no problem selling debt, with the US being seen as a “relatively safe haven” for that money.
But, that’s not the case for the rest of the world. “Countries like Argentina have very difficult trouble getting their debt to income ratios (under control) before they have a crisis,” Tom says. He also points to a book by Carmen Reinhart and Ken Rogoff called This Time is Different, which argues sovereign debt in the modern economic climate. For this economist, the title is a bit of a misnomer. “The basic answer is no, it’s never different,” he argues. This is even true of the US, where runaway entitlements, insane healthcare costs, and a rapidly aging population can create problems.
Beware of Cryptocurrencies
They may seem like the hip new high-tech way of doing business, but Tom warns companies to not fall for cryptocurrencies, like Bitcoin. In his view, it comes down to something as basic as how to settle contracts. “If you and I contract with each other and we settle our contract and we are happy with it, there’s no problem,” he figures. “We can settle it with Bitcoin, we can settle it in dollars, we can settle it in bananas, it doesn’t matter.”
However, it’s unclear how you resolve any dispute when transacting between countries. Tom points out that jurisdiction and valuation may be two major sticking points. “If you are trading in Euros,” he states, “it’s not clear which sovereign court system you are going to use.” And then there is the most troubling aspect of this new “money” system. “As a speculative device right now, it’s obviously, well, speculative,” Tom adds, “and there is no sovereign behind it.” No sovereign means no set jurisdiction, which means no set source for legal remedy or recourse. Very risky.
Robots Won’t Replace Humans
Finally, we hear about it all the time. I’ve been talking about it a lot on the show. Robots are taking jobs away from hard working human beings. A.I. will step in and do much of the automated thinking required to keep your business moving in this new, interconnected, global economy. For Tom, this is not a death knell, but a challenge, one moving a bit faster than others in the past. “We need to keep this in a larger historical perspective,” he states, pointing to indicators like the monthly labor market report and the need for a highly skilled workforce to face down this supposed threat.
For Tom, the real problem is the exact opposite. “At the moment, our problem is that we don’t have enough workers,” he says. He states that many companies that he talks with are having trouble attracting staff with the necessary skills, and while an important and new factor to consider, technology is not dampening demand for labor, specifically the highly trained type. “It’s not about college degrees per se,” Tom argues, “it’s about training.” Given the proper set of tools, the human can work well alongside its new “partners.” Without it, tech threatens to overwhelm.
For an economist like Tom Cunningham, the US seems to be in a pretty solid position. We have sustainable growth. We have good fundamentals. Our workforce is becoming better trained and more skilled. But, there are always risks. So, right now, 2018 is looking good…unless, of course, something “shocking” comes along.