Sitting against a backdrop adorned with a picture of Niagara Falls, economist Peter Linneman delivered his well-known mantra: Don’t bet against the US economy. Even now, don’t bet against the US economy.
“(Niagara Falls) is the most powerful waterfall in the world,” he explained to Walker & Dunlop President and CEO Willy Walker at the start of the July 20, 2022 Walker webcast. It is a good analogy with the American economy. It’s powerful. It continues. There may be times when it’s a bit slower. But it continues and what the US economy is doing is quite amazing.
This did not mean that there is economic, geopolitical and health volatility around the world. But during the hour-long webcast, Linneman preferred a more positive analysis, rather than the sadness and woe aired by the media and political parties.
The first focus? Increase job growth. “I find it amusing that people keep saying workers aren’t going back to work,” he said. “But excuse me. We have added 2.7 million jobs over the past six months. I consider them to be workers returning to work.
But what about inflation and interest rate shocks? One is an outgrowth of the other. And the reason for the first – inflation – is due to supply falling short of demand, a factor that dates back to the pandemic. In fact, Linneman is still confident that today’s inflation will be transitory, while acknowledging that it has been higher than expected. “When we shut down the economy, demand and supply both fell,” he explained. “When this happened, there were only two possibilities. Supply would return faster than demand or demand would return faster than supply. Demand exceeded supply.
While the war in Ukraine has worsened inflation – “no economist predicted this,” Linneman said – “his belief in transitory inflation hinges on 3% growth in industrial output.” Manufacturers say that it is very profitable at today’s prices to increase production, and they are doing it,” he said.
This is true, he said, even in the area of energy prices. Linneman reminded Walker and webcast listeners that the higher prices are the result of less production; again, due to the pandemic shutdown. Drilling operations are intensifying, although “there is still a long way to go. But that’s when oil prices will normalize,” Linneman said.
Which led to a discussion about trade. “We’re really good at weapons and weapons systems,” he said, indicating that countries like Taiwan, Germany, France and even Poland might be lining up for some of these products. Coming back to energy, “we will become an even bigger net exporter of oil and we will benefit from it,” he commented.
Then there is calorie export. “People forget that Ukraine and Russia were basically the biggest calorie exporters in the world,” he said, with the war blocking those foodstuffs to Central Asia and North Africa, not to mention. name just a few regions. “If you’re a farmer in Nebraska, you’re going to plant more of what costs the most,” he explained. Maybe you don’t enjoy it so much right now, but you will enjoy it in the future.
Turning to real estate, Linneman stressed that he remains bullish on industrials and multifamily, while giving a nod to retail.
Surprisingly, he also felt the office could be a strong contender. The reason? Because it’s slow right now. “It will come back,” he predicted. “And by the way, if I’m wrong, it won’t be a good bet.” He also noted that foreign investment will continue to pump money into US real estate, despite the strengthening dollar. “Do you prefer to be in Colombia given what is happening there or in Chile?” he said, adding that Mexico, Germany and Venezuela are also not very desirable. “Would you rather be there or in Miami?” It’s not that hard to make us more attractive, try as we might not.
Although the topics changed, the main theme of the webcast was patience. Yes, things look depressing in the short term. But what’s interesting about the economy and the real estate industry is that “we’re in for the long haul,” Linneman said. The United States is still in good shape, despite everything. “We’re not in the business of the next six minutes or the next six days.”