The Economic Outlook for Business Decision Makers

Dr. Mark Dotzour – Aug 28, 2019

The U.S. Economy Continues to Thrive

I once again had the pleasure of hearing an economic update from Dr. Mark Dotzour. Contrary to the relentless negative bias in the news media, Dr. Dotzour is bullish on the economy and the commercial real estate market remaining strong for at least the next 2-3 years. 

Here is a summary of my notes taken in beautiful La Costa, California. Enjoy the notes, and make it rain!

  • 1999, 2006/2007, Now – times when he has been talking about the potential for a recession
  • MD thinks we may still go another full year or so without being impacted by recession
    • Because of the tax cuts of 2017, MD thinks it will drive the economy for 4-6 years (maybe 2021-2023 for recession time)
  • Economy is really strong; no hint of recession at this point
  • MD espouses the same thing as KW…don’t watch the damn news! If you want to stay informed, simply skim the headlines of the Wall Street Journal and talk to REAL PEOPLE who are running businesses
  • US is still creating 160,000 jobs per month
  • MD is not a Republican or Democrat…..he is a registered cynic!
  • Trump’s tweet that the Federal Reserve is the enemy of the people is idiotic and bad for the economy
  • MD thinks Trump will prolong the China debacle until about a month before the election (this would be the perfect time for a photo opportunity)
  • China has stolen our jobs and intellectual property…in exchange we get cheap toys and TV’s
  • MD thinks China needs to do what Japan did in the past…move their manufacturing plants from China to the US (like happened in the auto industry)
  • Why 2019-2020 Will Be Slower
    • Housing industry appears to have peaked
    • Auto industry appears to have peaked
    • Smart phone sales declined in 2017 for the first time
    • Low oil prices will pressure oil and gas
    • Trade negotiations with China causing pain
    • Businesses not using tax benefits to expand
    • Congress won’t be interested in growth
    • Federal budget deficits can’t get too much higher (we are almost at $1 Trillion)
    • Companies “buying ahead” inventor in front of tariffs
  • Current expansion as of August 2019 is 123 months
    • How long can it last?
    • Longest previous expansion is 120 months
  • Longest US Economic Contractions (average lasts 11 months)
    • Dec 2007 – Jun 2009; 18 months
    • Jul 1981 – Nov 1982; 16 months
    • Nov 1973 – Mar 1975; 16 months
    • Dec 1969 – Nov 1970; 11 months
    • Nov 1948 – Oct 1949; 11 months
  • Yields are down, and they are still going to go LOWER
  • MD expects 30-year mortgages to go down into the mid 2% range…wow
  • MD does NOT think interest rates will be going up any time soon
  • Every month somewhere between 80k and 300k people get a job
  • Wage growth is growing at 3.5%
  • There are 7 million OPEN JOBS in the US: Bureau of Labor Statistics
  • Household Net Worth now in excess of $108 Trillion
  • Consumer confidence is at an all-time high
    • The good news is that consumers are not buying in to the BS hype being espoused by the media
  • Per NFIB, Small Business Optimism has “roared back”
  • 10-year treasury has fallen from 2.5% to 1.4%
  • Rate Impact on CRE Market
    • Cap rates are moderately correlated with the 10-year US Treasury bond rate
    • The 10-year bond rate is NOT controlled by the Fed
    • The 10-year bond rate moves up and down with the expected rate of inflation
    • Conclusion: Cap rate might increase when inflation expectations increase
    • Cap rates are not likely to go up any time soon
  • 10-Year Government Bond Rates (Aug 19, 2019)
  • In several countries they are experiences NEGATIVE interest rate environment
  • Advice from MD: simply be careful with leverage on your properties; don’t over-lever yourself and you will be able to weather any recession
KW Net Lease Advisors