Navigating Economic Trends: Key Insights from Dr. Kuehl at the Affinis Industry Summit

Several weeks ago, we hosted our eighth Industry Summit, welcoming back Chris Kuehl, PhD, Managing Partner and Co-Founder of Armada Corporate Intelligence. He gave an overview of the economy offering insights on everything from interest rates to the workforce.

In this article, we share his key findings on the economy, election, workforce, and industries. But, before we dive into that data, we wanted to share an overview of where we currently stand.

1. There is historical wage growth of 2.5 to 3.0 percent.
2. Average inflation needs to be 2 percent in order to allow households to build some “headroom” between income and costs.
3. 62 percent of U.S. households are still living paycheck-to-paycheck.

The Economy
With interest rates down half a point, he suggests that financing rates could drop next year. However, if companies wait, in an effort to reduce costs, workers and supplies won’t be available. Dr. Kuehl also indicated we may see another quarter point drop on interest rates in December.

The data shows the U.S. is doing well on economic growth. Our GDP is predicted to increase around three percent. That is driven by consumer spending, government spending, and business and private investment.

During the shutdown, we saw a savings rate of 38 percent. Typically, this number is 5 percent. When restrictions were lifted, consumers flooded the system, causing supply shortages and inflation. While inflation isn’t getting worse, it’s also not getting better quickly. It will take years to go to where it was. A lot of companies won’t lower prices, because they are missing pressure from competitors.

When looking at our economy as a whole, it is best depicted by a “K” shape right now. The upper income households, $100,000+, are doing very, very well. Many companies in various sectors are breaking historic profit and revenue thresholds, and this group is reaping the benefit of that.

By contrast, 85 percent of those classified as low income are living paycheck to paycheck. The middle class is key. They spend as long as jobs are secure, and right now, the unemployment rate is low. Of this group, 55 percent are living paycheck to paycheck.

The Election
While the presidential election has the United States buzzing, Dr. Kuehl recommends focusing on local and state races. Although candidates may talk economic plans, many of the factors that impact it are controlled by the Fed and Congress. He said, “The impact of the presidential choice on the economy will be somewhat limited.” When it comes to who will win Congress, there are razor thin margins with both the House and Senate. This should make centrists very powerful.

Workforce
There is continued concern over the labor supply. Boomers have nearly all reached retirement age, and there is no replacement for all of them. It has gotten increasingly difficult to find workers, so some businesses are investing in new solutions, like AI, robots, etc.

Having a more experienced workforce has also caused increased wage inflation. Organizations are paying more for unqualified workers, because Baby Boomers are staying longer.

When it comes to the data, it has gotten harder to determine who is actually working in a household with the rise of Uber, Door Dash, and the gig economy. Many may not report themselves as employed, although they are generating income. This makes it difficult to know where and how to count these individuals when looking at employment rates.

The pipeline to fill skilled labor positions continues to be slow. Some of this is due to changes in education over the years. For example, only 5 percent of U.S. high schools have an industrial arts program, even though 40 percent of the population are kinetic learners – meaning they learn with their hands. He suggests putting pressure on state and local leaders to direct students in a variety of directions – not just college.

Industries
Global manufacturing is slowing, and retail is above trend and growing. Most interestingly, Dr. Kuehl indicated there is exponential growth happening in the non-residential construction forecast. This is driven by the creation of medical facilities; warehouses, like logistics facilities; data centers and tech-related construction. Office buildings may be making a comeback with Amazon leading the way.