By Frank J. Diekmann
Economists aren’t often taken for conversationalists, even though the profession comes with ready-made conversation-starters that transcend nearly every social scenario: cocktail parties, backyard picnics, the kids’ school functions, seatmate on a long flight.
What’s the economy going to do? Where’s the economy headed? Should I invest in stocks or bonds? Is this a good time to borrow?
Economists are used to hearing the questions and then pontificating (often for far too long in terms people don't understand, which may be an intentional act of self-defense that helps limit all the questions). But suddenly, a lot of folks don't want to hear the economists--they want the economists to hear them.
Americans, politicians and business leaders had always looked to economists for their weather forecasts on which way the winds would be blowing. But now there seems to be a new wind blowing, and it’s in the opposite direction: A lot of people seem to have already made up their minds about the potential for a recession, regardless of what the economists are predicting.
That much was apparent last week when Catalyst Corporate hosted its Economic and Payments Forum in Frisco, Texas, but I’ve also seen the same thing happening at other meetings of credit unions over the past year or so. It seems people aren’t wondering whether the other recessionary shoe might drop, they already know it’s going to: they just want to know how hard it might hit them in the head.
This when-not-if conclusion in search of findings on the part of credit union leaders and others seems anchored in the conviction the record-setting economic recovery must end, likely soon, even though the disparate group of economists who have addressed CU meetings has been largely optimistic (we’re talking economists, so that’s relative, of course) that there’s plenty of steam left in the boiler.
The response from credit unions? Hey, you know what PhD stands for, right? We’re just not having it.
Perhaps that’s not a huge surprise in a risk-adverse CU community for which the pain of the last recession remains plenty fresh and everyone knows there’s a regulator just itchin’ to knock on the door with a DOR and an “I told you so.”
Get This Question All The Time
During the Catalyst meeting, for instance, Bernard Baumohl, chief global economist at the high respected Economic Outlook Group, said the question he gets more than any other is this: “How many more blows can this aging business cycle take?” His answer: plenty more, although that depends greatly on who is landing the blows.
“Buckle up--the next 12 to 15 months is going to be a crazy ride,” said Bernard Baumohl, chief global economist at Economic Outlook Group. “We are at a pivotal moment in U.S. economic history. But let me tell you right up-front the fundamentals of the U.S economy still look pretty good. Expect to see unemployment under 4% well into next year.”
That’s good news for credit unions that prefer to keep their focus on the loan portfolio, and not the investment side of the business because they have to. Not that anyone seems to want to hear the good news; just give it to us straight, doc.
Baumohl acknowledged despite his own optimism around the economy, there remains an undercurrent of concern that a “recession isn’t just a possibility, it’s probable. So, let me set the record straight: It is extremely difficult for a $22 trillion, free market, highly liquid economy to actually have a recession. That’s why they are fairly rare.”
It’s Not About the Rates
There are three drivers of recession, according to Baumohl: high “real” interest rates, a major geopolitical eruption, and acts of human folly. The one that concerns him most is that last one. “The question we are now asking is, ‘Are we about to have another downturn next year that is the result of another act of folly?’” he asked. “The trade war is a massive foot on the neck of the economy.”
Baumohl said lowering rates further isn’t going to goose economic growth.
“It isn’t high interest rates hurting this economy, it’s uncertainty over this trade war,” Baumohl said, saying additional tax cuts are also not the answer given the $22 trillion national debt.
You can read all of Baumohl’s observations and forecast here.
‘Pretty Gosh-Darned OK’
Another economist was equally optimistic–and equally sanguine. Dr. Mary Kelly, a former naval commander, an author and an economist, told the Catalyst Corporate meeting, “We tend to be so worried about this long growth period that we just think it can’t last, that maybe it’s too good to be true. But the U.S. economy right now is pretty gosh-darned OK. Our GDP remains high at $65,000 per person. This is great. U.S. GDP will end 2019 at $21.3 trillion, up 2.3%.”
Like Baumohl, Kelly sees the biggest threat being self-inflicted wounds.
“A lot of this is about the political spectrum,” said Kelly. “I do think that starting next summer we are going to see some market fluctuations. The market does not like uncertainty. It will start in July and last into November. If someone else is elected other than President Trump, it will last longer, into 2021. That’s not about political views; again, the market doesn’t like uncertainty.”
Judging from the repeated questions economists keep getting, it seems credit unions don’t like uncertainty, either. Perhaps that’s why so many are certain a recession will be here soon enough.
You can read Kelly’s full forecast here.
To The Moon
I have been afforded a great many thrills and honors as a result of this job, the chief being the opportunity to have met so many fascinating, insightful and historic people during my career. That was never more true than during the Catalyst Corporate meeting when I was able to lead a Q&A with Harrison Schmitt, the last living man to walk on the moon.
Schmitt was part of 1972’s Apollo 17 crew who, along with Gene Cernan, spent three days on the lunar surface. He was the first geologist to visit the moon (he has a Ph. D in geology). Cernan was actually the last one to leave the surface, but he has since died, placing this extraordinary mantle of history on Schmitt’s shoulders. In all, just a dozen humans ever walked on any surface other than Earth, and even though it’s been nearly 50 years since Apollo 17, these men also hold the distinction of having been further from this planet than any other people ever have.
A classic underachiever, Schmitt not only went on to become a university professor, he was also eventually elected to the U.S. Senate to represent New Mexico.
Some Observations Worth Sharing
Because I was on stage leading the Q&A with Dr. Schmitt, I wasn’t able to take notes to share in detail the incredible stories and recollections he shared. But here are a few from memory:
- Although the NASA astronauts of the 1960s are best known as the test pilots featured in The Right Stuff, Schmitt got involved when the agency said it was looking for scientists interested in going to the moon. He and a handful of other scientists were eventually selected from a pool of more than 2,500 applicants.
- Although they weren’t pilots, all of the scientists went through the same training, including doing 12 g’s in a simulator. Downplaying that experience as “not pleasant,” Schmitt said he eventually convinced NASA to eliminate that particular test. Reentering earth’s atmosphere, the astronauts pulled 4 g’s, and he noted it was particularly difficult given they had all just been weightless.
- When asked if it wasn’t cramped quarters in the command module with three men, Schmitt said no, as weightlessness meant all the space could be used, as there really wasn’t any ceiling or floor. The same couldn’t be said of the lunar module when the astronauts had their space suits on. He called those conditions tight and cramped.
- Unlike astronauts on the earlier Apollo moon missions who were quarantined for weeks upon their return out of fear over microbes, by the time Apollo 17 took place the quarantines were over. There was a physical, and then the astronauts were good to leave. Schmitt said after several weeks of weightlessness, suddenly being back on earth could be disorienting, and he recalled he was driving when he probably shouldn’t have been.
- At the time of the Apollo missions in the late 1960s and early 1970s, he said the program was costing the government approximately $1 million per minute. That was a big reason Apollo missions 18 and 19 were cancelled. In a twist of fate, Schmitt was actually part of the crew for the later missions but was moved up in order to have a scientist be part of the moon mission.
- Schmitt said when he returned to earth he filed an expense requisition form for the trip with NASA. The agency’s bureaucrats rejected most of the expense request, pointing out he was traveling in government-owned transportation and received government-supplied room and board. But they did issue him a check for $26.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.infoor @FrankCUToday.