Global growth and a fit domestic economy

On March 9, Americans woke up to news that the U.S. economy had added 313,000 new jobs in February, a much bigger gain than analysts had predicted. Despite the rosy job numbers, the overall unemployment rate remained steady due to an influx of job seekers to the market. Americans had long given up finding employment but have now returned to the market due to economic gains.

This bright economic news came a little more than a month after economist Don Ratajczak spoke to attendees at SMC³’s Jump Start 2018 conference. The economic storyteller spent his time on stage pacing back and forth, taking stock of what has been happening around the world since his last update for SMC³ at Connections 2017.

It all boiled down to one fact: There has been a significant increase in global economic activity.

“That’s really the biggest story out there,” he said. “The global economy is rebounding; it’s showing strength and it’s more uniform. It’s not only China now.”

Japan is showing pretty solid growth, he said, after not having grown at all, and Indian growth is being fueled by oil demand. To him, India is a fast-growing economy.

“What’s holding India back, is they have to have roads first before they can use the energy,” he said. “They’re a little behind on infrastructure.”

Ratajczak characterized Europe as “sloughing along” and said Latin America is doing well. Emerging markets in Latin America have actually outperformed the U.S. economy so far this year, he said.

“The big issue with Europe is Brexit,” he said, adding that the European Union is a little less robust without Britain and Britain is a lot less robust.

When looking at the United States, Ratajczak seemed pretty pleased with how things are going, but had warnings for the future. He said that when looking at the health of the domestic economy, he identifies the positive and negative imbalances, along with any current policy initiatives and how they might impact the U.S. economy. Finally, he looks at economic momentum.

The big story on the economic-imbalance front used to be inventory. In 2016, inventory at the retail level was much too robust. Sales were falling off, he said, and inventory was dragging down the economy.

“We closed down over 7,000 chain stores last year,” he said. “We’ve now worked down a lot of the problem.”

Retail is still the domain of the online retailer, though. He told the audience that once automobile sales and sales of construction materials, both areas of retail that Amazon doesn’t currently offer, are removed from the equation, 50 percent of the remaining retail growth comes from online sources. Online sales only total 11 percent of the pie but that level of growth shows what will happen in the future, he said.

“We had an inventory problem. It took a lot longer to adjust it than we would have expected,” he said. “But we are now through the process. We can start to build inventory again.”

One serious long-term imbalance: the structural federal deficit. And with those words, Ratajczak issue a stark warning to his listeners.

“Don’t expect the current tax code to exist for the next 10 years,” he said. “The structural deficit will require a response in several years. With these low levels of unemployment, we’re not feeling the burden of the deficit, but as the economy starts to slow down, sometime in ’19 or ’20, that’s when we will start to see the effects of the deficit,” he said.

“So sell your trucking company in two years,” he told the audience. “Just kidding.”

To hear more from Dr. Don and a slew of other trucking, logistics and supply chain industry experts about how the first half of 2018 and their predictions for the rest of the year, be sure to sign up for email updates about June’s Connections 2018 conference at The Greenbrier in West Virginia here.



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