Tampa Steel: 'Interesting contradiction' in economy

Written by Stephanie Ritenbaugh

Rising geopolitical tensions may threaten stability, while other factors like a climbing stock market and growing government investment point to one thing in the economy: it’s complicated.

“It’s an interesting contradiction out there,” said Dr. Walter Kemmsies, managing partner of The Kemmsies Group, at the Tampa Steel Conference this week.

In his keynote speech on Monday, Jan. 29, Kemmsies highlighted the various elements at play in a post-pandemic world, when the tools used to predict economic conditions aren’t as reliable since Covid-19 upended those models.

The economists who predicted a recession “are now on apology tours,” Kemmsies said, and that’s due to the federal government’s expansionary fiscal policy as seen in the Inflation Reduction Act and the Infrastructure Investment and Jobs Act. The Federal Reserve predicts GDP growth of about 2%, but war in Ukraine and escalation in the Middle East could undermine that outlook. Widening conflicts could increase demand for steel for weapons and equipment, but also risk the ability to reliability ship that steel, he noted.

Meanwhile, structural changes are underway in the US economy since Covid-19. Kemmsies said the most significant of those changes is the labor force, sharing figures from the US Bureau of Labor Statistics that job openings are 1.4 times greater than the number of unemployed people. Between 2022-2023, job adds shifted from the retail sector to the services sector.

“Be very, very careful about dismissing staff,” Kemmsies warned. “It may be very difficult to rehire later. You don’t need a negative reputation in a market where the ability to get new workers is getting tighter and tighter.”

Not back to normal

With consumer spending representing about 70% of the economy, Kemmsies said it’s important to keep an eye on retail sales.

Consumer behavior “impacts monetary policy,” he said. “That means interest rates go up, interest rates go down, and that affects the value of the dollar.”

When Covid hit, the government pumped trillions into the economy. Consumers spending those stimulus payments pumped up retail sales. Had retail sales followed projections from 2019, we would have about $500 billion in retail sales each month. Today, it’s about $612 billion a month.

“The system is not really back to normal,” Kemmsies said. “We are getting back to normal but we’re still kind of recovering from the shock of a 20% jump in sales that nobody saw coming. The port industry didn’t see it coming. Retailers didn’t see it coming, nobody did.”

Meanwhile, demand for warehousing is growing as retailers look for places to store inventory closer to consumers who are shopping more and more online.

“Why would you care? You care because we need more inventory storage capacity,” Kemmsies said. Building distribution centers means more steel demand.

So, forecasting in a post-pandemic world? Asked whether the economic models used pre-Covid to make forecasts are useful these days, Kemmsies answered simply.

“No, they’re not.”

Stephanie Ritenbaugh

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