A HARD LANDING, A SOFT LANDING OR 'NO LANDING' AT ALL
Brice Wallace
The suggestion of “hope for the best and prepare for the worst” has been around a long time. But Robert Spendlove insists that it’s great advice for businesses entering 2024.
Speaking at the ChamberWest Fall Conference in West Valley City, the economic and public policy officer at Zions Bank and state legislator listed three possible futures for the economy: a hard landing, a soft landing and “no landing” featuring a continued overheated economy with pressures on inflation and the labor market.
“One of these is correct, but we don’t know, right? We don’t know which one,” Spendlove said.
Given that uncertainty, he urged businesses to build reserves, lower costs and otherwise be prepared.
“I don’t think the hard-landing case is the most probable, but the soft landing, that’s what we’re all hoping for and that soft landing includes a recession.”
But a recession this time likely will not include the federal government helping out, he warned.
“I don’t think there’s the political will in Washington to increase spending and increase the debt in order to soften the blow for us,” he said. “So, it will be less-intense than it could be, but we’re kind of on our own. So you need to be preparing now, and anticipating the slowdown and not having it catch you off-guard.”
Whatever happens to individual businesses and to the national economy as a whole, Spendlove listed several advantages that Utah has to weather any storm. Those include job growth that is second-strongest in the national since February 2020 and an unemployment rate of 2.5 percent. And Utah’s labor participation rate of 69.8 percent far exceeds the national rate of 62.8 percent, thanks to a surge during the past six months.
“We are bringing people in off the sidelines,” he said. “We are re-engaging people and doing it very successfully because our economy are so strong and our economic conditions are so strong right now in Utah.”
But some economic components in the state continue to be challenges. Utah has 30,000 fewer homes that it needs, leading to a crisis where housing costs are significantly higher than the national average.
“If we don’t fix this, our kids and our grandkids aren’t going to be able to live here, and we’re going to see them moving out,” Spendlove said. “We’re going to see them moving to places like Arkansas or Mississippi or Alabama, where home prices are much more affordable than they are now in places like Utah and Idaho.”
Spendlove also noted that Utah emerged as the nation’s best economy in the aftermath of the Great Recession of 2009, “and I feel like we’re similarly positioned right now as well.”
“Yes, it’s tough. The national economy is tough, the international economy is tough, but Utah is performing really well, relative to other states. … Yes, Utah is exposed to national and international uncertainty, but our fundamentals are really strong. We continue to have one of the best economies in the country. We’ve been through this before.”
Much of Spendlove’s presentation focused on the national economy and its drivers. He cautioned that having an inverted yield curve, when longer-term bonds have a lower yield than short-term debt instruments, has always portended a recession. A recession typically occurs about 18 months after the inversion, which happened in the U.S. in July of last year. “That (inversion) essentially says that the bond market is broken,” he said, adding that this inversion has been around for the longest period ever.
“Now we start coming to the question of, ‘OK, this has been a trustworthy indicator that a recession is on the way,’ but is it today?” he asked. “We just don’t know yet. It will take time for us to really understand.”
He contends that some sectors, including manufacturing, real estate, tech and financial services, already are in a recession.
Meanwhile, the 10-year Treasury rate is the highest since 2007, the 30-year mortgage rate is the highest in 20 years and inflation remains “sticky.” The Federal Reserve’s interest rates are the highest in 20 years as it tries to put the brakes on an economy and shrink the inflation rate to the desired 2 percent level. And the national debt continues to rise.
“By itself, this isn’t that big a deal,” he said of the debt but added that the cost of servicing that debt will be.
“That doesn’t cause our country to collapse … but it will constrain our ability to grow and our potential,” Spendlove said, because it will force the federal government to put money into servicing the debt rather than putting it into healthcare or infrastructure.
As painful as it might be, Spendlove said he prefers to see the Fed be steadfast toward that 2 percent inflation goal and withstand the political pressures that could cause it to exacerbate the nation’s economic woes. “It’s going to be painful, and it’s going to be difficult,” he said. “We’re going to have financial conditions continue to be tight if the Fed holds the line.”
Spendlove also takes solace in the past, such as in the financial crisis of 1873, when speculation crashed, high inflation ruled and the nation experienced a real estate crisis.
“The message is, yes, this is tough and, yes, this is unexpected, but we have been through things like this before, and we got through it,” he said. “And we will get through this. It’s just we’re in that period right in the middle where it’s kind of bumpy still and difficult to understand.”