One major question continues to loom over the U.S. economy right now: How much longer will the record-long expansion last?
The 2-year, 10-year Treasury yield curve – a closely followed recession indicator – inverted Aug. 14 for the first time since the Great Recession. Manufacturing in the U.S. is in contractionary territory. Meanwhile, business investment has slowed, and confidence is dimming because of geopolitical trade wars and slowing global growth.
Economists say it’s increasingly likely that those risks are going to hurt the U.S. economy. The majority (90%) of experts polled for Bankrate’s Third-Quarter Economic Indicator survey said that these threats are more heavily tilted toward the downside.
But how likely is it that a recession is on the horizon, at least between now and the presidential election in November 2020? You can breathe a sigh of relief: Most economists say it’s possible – but not probable, with the average forecast betting on a 41% chance.
But what could make or break that likelihood? Here’s what top economists are saying.
Odds of a recession between now and the November 2020 election are
25% Consumers are in an excellent position to carry this record expansion through the 2020 election. Hyper focus on the behavior of the yield curve and the trade spat with China ignores the strong position the U.S. consumer is in right now and should continue to be (in) over the next 18 months. - Sean Snaith, Director, Institute for Economic Forecasting, University of Central Florida
25% The risk of a recession is increasing. Erratic policy is raising uncertainty and anxiety, which may disrupt activity and destroy consumer and business confidence, leading to recession. - Bob Hughes, Sr. Research Fellow, American Institute for Economic Research
50% As signs of a broader global slowdown in economic growth emerge, along with ongoing trade disputes between the U.S. and some of its key trading partners, business and consumer confidence have been shaken, which may reduce future business investment and consumer spending. … A slowdown in global economic growth, the potential repercussions from the current trade dispute between the U.S. and China, and other potential market moving events such as Brexit and U.S. budget policy uncertainty, pose significant downside risks to our forecast. - Mike Fratantoni, Chief Economist, Mortgage Bankers Association
The question we keep asking ourselves is how many more blows can this aging business cycle take? We expect the economy will barely avoid a recession next year, and the consumer should get credit for that. But the escalating trade dispute, along with the havoc it has caused to supply chains and how it dampened economic growth worldwide will all be with us — at least until 2021. … What could ultimately tip the economy into a downturn would be a wave of global competitive currency devaluations or a major new geopolitical eruption. - Bernard Baumohl, Chief Global Economist, The Economic Outlook Group, LLC
35% [The] escalating trade war with China, [a] hard-Brexit [and] manufacturing recession all point to much slower U.S. growth ahead. - Scott Anderson, Chief Economist, Bank of The West
50% Tariffs have boosted costs, invited retaliation, disrupted supply chains, and undermined business investment, and it may be too late to turn things around. - Scott J. Brown, Chief Economist, Raymond James
30% Trade frictions are already hurting the stock market and reducing business investment. This unsettling trend could accelerate unless trade tensions are lessened. - Lawrence Yun, Chief Economist, National Association of Realtors
45% The administration might underestimate the impact of a trade war with China and the Federal Reserve will not have the tools to counteract the impact of a global downturn and falling business confidence and investment. Unless the Trump Administration is willing to make more trade concessions, China’s slowing and its ripple effects across the globe, lower U.S. business confidence, tariff disruptions to supply chains and consumer prices, and falling stock prices could all pose sizable risks. - Lynn Reaser, Chief Economist, Point Loma Nazarene University
55% The major risk to the economy is the ongoing and growing trade war. It is hard to predict where this will end with the administration frequently reversing course. But overall, the effect has been to ratchet up barriers to trade, which hurts everyone. - Bernard Markstein, President and Chief Economist, Markstein Advisors
75% While the economy is reasonably strong at present, monetary policy tightening from last December’s hike is still in the pipeline. In addition, fiscal policy is drying up. The global economy is slowing sharply. Manufacturing in the U.S. is on the verge of recession. The trade war is weighing on the economy. Leading indicators are signaling recession: inverted yield curve, negative spread of consumer expectation below current situation, near record high net worth/income and corporate debt/GDP, transportation data, and the acceleration of creative accounting. - Dan North, Chief Economist, Euler Hermes North America
50% Risks of a recession are elevated and rising. - Joseph Brusuelas, Chief Economist, RSM
40% While economic fundamentals remain solid in 2019, there are several downward risks looming on the horizon. A prolonging of the current trade war is likely to broaden its impact on U.S. exporters and consumers, through higher prices. A moderation in the pace of hiring brought about by companies’ concern over the economic outlook is likely to translate into a slowdown in wage growth, leading to softness in consumer spending. These factors could provide impetus for a slowdown toward the midpoint of 2020. - George Ratiu, Senior Economist, Realtor.com
40% We expect domestic strength will more than offset global headwinds. However, the longer the drags from policy uncertainty, trade tensions, weakening global growth and tightening financial conditions linger, the higher the risk of a hard landing. - Gregory Daco, Chief U.S. Economist, Oxford Economics
75% I think the trade war will prove to be the catalyst for this recession, and that it will happen sooner rather than later. - Amy Crews Cutts, CEO and Chief Economist, AC Cutts & Associates LLC
0% [Downside risks include] global trade weakness, weaker consumer confidence/spending. - John E. Silvia, CEO and Founder, Dynamic Economic Strategy
30% This administration, like most administrations, will pull whatever levers it can, and make whatever deals it must, to prevent [a] recession. Still, an administration has only so much influence over a $20 trillion economy, especially with interest rates so low already. - Robert Frick, Corporate Economist, Navy Federal Credit Union
40% U.S. financial markets are on edge because of the escalation in the trade tensions between the U.S. and China, and we have updated our subjective probabilities of how this will play out through Trump’s first term. Our baseline assumption, with odds of 35%, is that the current tariffs plus the 10% on the remaining $300 billion in Chinese imports, scheduled for Sept. 1, remain in place through Trump’s first term. We assign a 25% likelihood that there is further escalation in the form of 25% tariffs on all Chinese imports. The likelihood of a full-blown trade war, which includes 25% tariffs on all Chinese imports and tariffs on imported vehicles and parts, have risen to 25 percent. The best-case scenario is a sustained de-escalation in the trade war, but those odds are only 20%.
- Ryan Sweet, Director of Real-Time Economics, Moody’s Analytics
Sarah Foster covers the U.S. economy for Bankrate.com, a financial products website.
Strategy has been the cornerstone of Spring Grove Nursery since Becky and Jamie Thomas planted their first tree 20 years ago. The husband-and-wife team founded the nursery in Mazon, Illinois, after carefully contemplating the size and scope of their newly fledged business.
They didn’t enter the nursery industry on a whim.
Becky grew up on a corn and soybean farm and Jamie’s family also has roots in farming. The pair both studied horticulture in college. Becky graduated from the University of Illinois with a landscape architecture degree and Jamie studied recreation, parks and tourism at Western Illinois University. They were carving out their own path, with no immediate plans to become farmers themselves. Becky worked at a local design/build firm and Jamie was in the park maintenance division at a local park district.
Like most ag families, everyone in the family helps at some point on the farm, and Becky’s dad could count on her to help when he needed it most.
As the Thomas family grew from two to three with the addition of their daughter Maggie, Becky returned to the family farm helping her parents with the books while Jamie worked for a local farm drainage contractor near the family farm.
“My dad was an innovative and forward-thinking farmer. He was a leading pioneer in precision farming technology, and he was an inspiration to us thinking about starting our own growing operation,” Becky says.
Becky and Jamie approached her parents about joining the family farm operation with a venture of their own, to which they were quite supportive of the idea. Since both Becky and Jamie had a horticulture background, coupled with a shortage of trees in the marketplace, they decided to research starting a tree nursery. For a year, Becky and Jamie pored over Excel spreadsheets to find the best strategies and scenarios for their new business.
“We were starting from scratch, so we looked at so many different business scenarios,” Becky says. “We asked things like ‘What size do we want to start out the trees?’ ‘Where will we source liners?’ ‘How many acres should we plant first?’ ‘How long will these be in the ground before harvest?’”
The couple was very conservative in their estimates and purposely planned on production costing more and trees selling for less.
“Becky’s dad was an integral part of this process, as well as some of our partners we ended up doing business with,” Jamie says. “We knew some great people in the industry who taught us what trees cost per year to produce.”
There were several discussions regarding which market segment would be their customers. They eventually decided to serve multiple segments including landscape contractors, park districts, municipalities, retail garden centers and rewholesalers.
“We tried to keep it pretty even so when the market fluctuates, we wouldn’t have too many eggs in one basket,” Becky says.
They settled on a 60-acre nursery and took their business model to the bank, which wasn’t the smoothest process.
“Starting trees is a long-term process with a big upfront investment that doesn’t bring quick returns. That’s not a normal scenario for a bank,” Becky says. “We secured financing from what was then called Farm Credit Services, we got some help from my parents and we used the Farm Service Agency through the USDA.”
The new business owners planted their first tree in the field in 1999.
After all that meticulous planning, Spring Grove Nursery was a reality. Jamie was working full time at Caterpillar during the day and tending to the nursery at night.
“It was a lot of hard work, but it was fun. And it was ours,” Jamie recalls.
Their first crop of trees was harvested around 2001, a little sooner than they predicted. By 2005, Jamie started working at the nursery full time.
“We were learning to grow trees along the way and develop our market and our sales strategies,” Becky says.
Early into their new career as tree growers, a menace hit the market – the emerald ash borer. This destructive pest appeared in Michigan in 2002 and it was quickly apparent at how serious a threat it was to the nursery industry, landscapes and forests. Some 30% of Spring Grove’s production was made up of ash trees.
“When we first started, our planting palette was mostly bread-and-butter trees. We didn’t have a lot of diversity at the time,” Becky says. “We decided to stop planting ash immediately.”
They knew the communities would have to stop planting ash and replace them with other types of trees. Becky and Jamie added several new genera into their planting mix.
“That was a big decision for us,” Jamie says. “We were worried about how this would affect sales down the road. Instead of having 200 of one tree, we were now going to have 50. It turned out to be the right approach overall since that’s what happened in the landscape industry anyway.”
People were looking to the nursery industry for answers and looking for alternatives to ash. Becky and Jamie were able to build trust with customers by explaining their options.
“These conversations were based in education and it was a great tool we could offer our customers,” Becky says.
Just as the nursery was hitting its stride, Becky and Jamie faced their greatest battle – the Great Recession. But the meticulous planning, the spreadsheets and the strategizing from the start of the business, as well as their perseverance and industry partners, helped keep the nursery going during this tumultuous time.
“The nursery industry in northern and central Illinois was hit really hard and we had to stay very lean,” Becky says. “We were already lean because we were basically a startup.”
Some nurseries stopped planting. But Becky and Jamie stood strong and decided it was better to keep planting and be consistent. Spring Grove’s bank pushed back on that decision.
“The bank reminded us that the operating budget was getting tight and to skip planting trees for a few years. But being consistent and planting a new crop every year was really key for us. It was really hard to do, but that long-term outlook and vision allowed us to say ‘No, we’re going to plant every year,’” Becky says.
When this determined husband-and-wife team started planning the nursery in the late ‘90s, they had three goals in mind: a superior product, hands-on and trustworthy relationships with customers and a fair price.
“That guided us when we were first starting out, and when the recession hit, we stayed true to that mission,” Becky says. “Everyone was beating each other up on price during that time, but we weren’t going to do that.”
It wasn’t price, but the value of the product that was the center of all conversations with potential and current customers, Jamie says.
“We knew those tough times wouldn’t last forever,” Jamie adds. “On the other side of the recession, we learned that our consistency helped keep us going. We never sacrificed the quality in the field. We kept maintaining trees and we didn’t cut back on labor costs.”
The art of marketing
Becky and Jamie knew selling trees went far beyond simply sharing an availability list. Instead, they share the many benefits of trees as part of their marketing plan.
“We used to go to the ANLA Management Clinic every year, and one of the first ones we attended included a presentation by Nancy Buley of J. Frank Schmidt & Son and Keith Cline of the U.S. Forest Service about the calculable benefits of trees,” Becky says. “We jumped right on it and started telling people about how trees absorb stormwater, help reduce air pollution and reduce cooling and heating costs for buildings. Since then we’ve added more benefits to our marketing campaigns as more research becomes available.”
Focusing on the benefits message makes it easier to sell more trees and takes the emphasis off of prices, Jamie says.
“What’s really fun for us is when our daughter was in kindergarten, we started planting trees with her class every year and would teach the kids about the same benefits. It’s been a fun sideline that we’ve done,” Becky says.
Recently, Spring Grove Nursery has been selling to more municipalities and park districts than in previous years.
“We love working with that segment of the market because we’re working directly with and for communities,” she adds.
Becky’s brother Chris and his wife Marlee help keep them up to date with retail trends. They operate iTrees.com, an online portal for tree sales in the Chicago area.
Properly priced products and tracking costs continue to perplex some in the nursery industry, but Becky and Jamie’s strategic way of thinking helps them clear some of the confusion.
“Costs are always a challenge and there’s no set formula,” Jamie says.
The nursery industry lacks clear benchmarks, especially since certain costs are customized to each operation, Becky explains.
“We have a lot of conversations with Charlie Hall and try to read as much as we can from him, but there’s so much variability from operation to operation,” she says. “Besides tracking production costs, we also have to consider what our local market will support.”
The nursery is transitioning to GrowPoint inventory control software, which will allow them to track costs more closely and price trees accordingly.
“If it’s more difficult to grow a buckeye than say an Autumn Blaze maple, we can charge more for that buckeye,” Jamie says. “Or if a tree needs more touches throughout production, we’ll want to price that tree differently from others. Since I’m out in the fields every day, I know how many times a tree gets touched from the time it comes off the liner truck to the day we dig it.”
Jamie will be able to access production and inventory information from the field.
“We also wanted to invest in something that would allow our staff or family members to access that information when our business eventually transfers to the next generation,” Becky says. “A lot of nursery production information is handed down from generation to generation. Since we’re the first generation growing trees on this farm, we needed to get the information out of our heads and into a program.”
After 20 years, the nursery has expanded to 95 acres and a more diverse plant palette, and this sedulous couple is geared up for the next 20.
“Any challenge that comes our way — weather extremes, shortages and gluts, labor shortages or economic issues — we try to find the positive and learn from them,” Becky says. “It’s important to be adaptable.”
For more: www.springgrovenursery.com
The Urban Land Institute's latest Real Estate Economic Forecast shows that while real estate economists are tempering their views on economic growth in the U.S., they continue to forecast positive gross domestic product (GDP) growth, slower but solid job growth and steady real estate markets and returns through 2021.
The conclusions in the ULI report are based on an August 2019 assessment that surveyed 41 economists and analysts at 32 leading real estate organizations.
Despite these headwinds, the U.S. set a new longevity record for economic expansion in July 2019, exceeding 10 years for the first time since records have been kept.
“The main takeaway from the forecast is that contributing economists see no end to the current record-setting economic and real estate expansion that started in 2010," says ULI leading member William Maher, director of Americas Strategy and Research at LaSalle Investment Management. "Economic growth, including GDP and job growth, is forecast to moderate from the strong levels of 2018, which should keep long-term interest rates low. With the likely exception of retail, which continues to be weighed down by restructuring, real estate fundamentals and returns should stay steady through 2021."
The semi-annual survey, which covers the forecast period of 2019-2021, made these predictions:
U.S. GDP will grow by 2.3% in 2019, down from 2.9% in 2018, but unchanged from the previous forecast, released on May 1. GDP growth is projected to moderate to 1.7% in 2020 and then rise slightly to 1.9% in 2021.
Net job growth should average 1.7 million per year through 2021, compared to a long-term average of 1.1 million. The expected job growth of 2.2 million in 2019, 1.4 million in 2020 and 1.5 million in 2021 is up from the prior forecast. However, many economists are predicting slower job growth as the number of skilled or qualified workers dwindles. The national unemployment rate is forecast to remain at its current level of 3.7% in 2019, the lowest rate of the past 50 years but edge up to 4.1% by 2021.
Expected yields on the 10-Year U.S. Treasury note declined from predictions of six months ago (and even more dramatically compared to one year ago) for all forecast years. The year-end yields are forecasted to be 1.8%, 2.0% and 2.3% in 2019, 2020 and 2021, respectively. This is compared to year-end projections of 2.8% for 2019 and 2.9% for 2020 and 2021 made this past April; and projections of 3.3% for 2019 and 3.5% for 2020 made in October 2018. The decline in the expected yields for the 10-Year U.S. Treasury note “is a remarkable shift and should be positive for real estate values,” Maher says.
Real estate transaction volumes will moderate over the forecast period after a strong 2018. The final 2018 volume of $579 billion was the second highest level since the global financial crisis and cannot be sustained, according to the forecast. Economists predict transaction volumes of $475 billion in 2019, $450 billion in 2020 and $415 billion in 2021, all down from prior forecasts. Expectations for annual CMBS issuance fell slightly, to $75 billion in 2019, $65 billion in 2020 and $75 billion in 2021, just below the long-term average of $80 billion.
Commercial real estate price growth as measured by the Moody’s/RCA Commercial Property Price Index (CPPI) is projected to moderate over the next three years to 5.1%, 4.0% and 3.9% in 2019, 2020 and 2021, respectively. CPPI forecasts are up for all years compared to forecasts of six months ago, possibly due to lower interest rates.
Real estate economists have upgraded equity real estate investment trust (REIT) returns, following a very strong start to 2019. The National Association of Real Estate Investment Trusts (NAREIT) total return composite is forecast to average 9.8% from 2019-21, up from a forecasted average of 5.7% six months ago. U.S. REITs are up by 28% year-to-date as of September 2019, so the full year forecast of 15% for 2019 may be conservative.
The single-family housing construction outlook weakened over the past six months, as higher construction costs may be slowing demand. Unit starts are forecast to fall from 877,000 in 2018 to 850,000 in 2019, 810,000 in 2020 and 800,000 in 2021. Expected construction in all years is below the long-term annual average of 975,000 homes and would mark the first decline in deliveries since the global financial crisis. Home price growth is forecast to average 3.2% over the next three years.
Nursery Management: Should growers expect much of the same labor shortages in 2020 that they've experienced in recent years?
Tal Coley: Unfortunately, I think so. But there’s efforts to alleviate some of those problems, both on the legislative and regulatory side. But I can't say or emphasize this enough — it's just a very, very hard environment to operate in right now between the politics of the day, as well as the the looming elections in 2020. When you have those as a backstop on trying to get solutions, it makes it very difficult. But I don't think it's going to get any worse. Do I think it's going to get any better? I don't know right now because it's all very uncertain. We will have to see.
NM: What's on the horizon for the H-2A and H-2B programs?
TC: For H-2A, the administration has been [making] improvements on the plan through [Secretary of Agriculture] Sonny Purdue. It’s been about three steps. They reduced paperwork, created a website that was much more user-friendly for the H-2A program, and they've just released a set of new proposals in the last month or two that were pretty extensive and are still going through the regulatory process. Legislatively, they are trying to put a plan out there on the House side, which has been ongoing for quite some time now. It’s a bipartisan group of lawmakers in the House that are trying to get a solution for H-2A and make improvements on the program. What is in that? They keep it tight to the vest. I know it's getting down to critical mass now and they're going to either be releasing it or saying, ‘You know, we just couldn't come to an agreement.’ The good news is that there is some action on H-2A at the agency level. For H-2B, they got extra visas last year. We’re trying to get that again and to continue that increase. It's always a year-to-year thing. With all these appropriation bills, it does give an opportunity to get some language in there and to get more H-2B workers in the system. Unfortunately, H-2B has a cap, whereas H-2A does not. You’re always up against that cap and it’s never enough on that regard … I feel a little more hopeful with the H-2B. There seems to be a very wide swath of bipartisan support on trying to get a solution there … Is it the silver bullet solution that everybody wants and everybody's looking forward? No, but there are some gains that have been made, just no touchdowns as of yet.
NM: Is it fair to say horticulture and agriculture have a labor crisis?
TC: I would say yes. When we do town halls and engagements at state association trade shows as well as out in D.C., the first issue that comes up with anybody that I have encountered on the grower side is always labor. It's always at the front of everybody's mind. Unfortunately, it's been in the front of everybody's mind for so long and it's been an issue at hand for a long time … So yes, I would say it would be at a crisis level for some, especially depending on what area you're in.
NM: Is there any legislation in the works to help ease the labor situation?
TC: I think the effort on the House side is probably the one that’s pretty paramount right now. Obviously, they have to all agree to the components of it … but if it does pass the House, the question becomes, ‘Will the Senate take it up or will the Senate build their own plan?’ We really don’t know at this point … There will be some efforts in regard to H-2B going forward with some of the appropriations bills however … We’ll just have to wait and see, at this point.
NM: What are some solutions growers might use to hire more/new employees?
TC: That is a very good question … I do know in our industry, especially on the nursery side, a lot of folks are turning to the H-2A program. Yes, there's some costs associated up front, but you do get the help that you need. Whereas, if you aren't in the H-2A program, then it’s a crap shoot … We have a lot of people turning to H-2A these days, whereas, maybe 10, 15 years ago, not so much.
NM: Do you have anything else you’d like to add?
TC: I know it’s a lot of speculation, but that’s the nature of this issue. The good news is that we’ve got bipartisan support on a lot of these efforts, whereas, some other issues that are in front of Congress, not so much. That’s what gives me hope, that eventually, there will be a solution out there.
For more: www.AmericanHort.org