By Brett Milam
Brian Beaulieu, CEO of ITR Economics, gave the Clermont Chamber of Commerce’s annual economic forecast talk on April 20 titled, “Winds of Change.”
Numerous county and state officials were on hand, including State Representative John Becker, a liaison for Congressman Brad Wenstrup and County Commissioners Ed Humphrey, David Painter and David Uible.
Beaulieu, who has given this talk 10 times prior, forecasted an upswing during his 2015 and 2016 talks, but also warned of a coming recession by 2019. His, “Winds of Change,” talk was no different.
“People have asked me numerous times this morning, ‘Do you have good news for us?'” Beaulieu said, to start off his talk. “There is no good or bad in my line of work, there just is what it is. For some people, rise is good, for some people rise is bad.”
The winds of change can sometimes seem like a gale force wind lately, Beaulieu said, between the tax cuts, tariffs, protectionism and so forth ongoing in the economic climate.
Right now, there is a “go, go, go” mentality to the business cycle, but that downturn is coming in 2019, Beaulieu said.
“Some of us are going to experience some pain in 2019 and then we’re going to recover in 2020,” he said.
As with the last few talks, Beaulieu emphasized again two complicit culprits: labor shortages and inflation.
“We can certainly compete and probably beat anyone we choose to because the world is facing a labor shortage,” Beaulieu said.
So to stay competitive, it’s about capital efficiencies and the use of robotics and artificial intelligence. Deploying capital smartly is “our competitive edge,” Beaulieu said.
However, protectionism being the “political flavor de jure” brings inflation, i.e., the cost of business and life goes up because of protectionism, he said.
There are times when protectionism makes sense, Beaulieu said, but when a labor shortage is ongoing, protectionism is just asking for higher and higher wages going forward.
“Sometimes you have to right the policy at the right time and that’s not only easy to achieve,” he said. “Some people would question the stability as of late, but it’s still better than in other places.”
Throughout the talk, an astute listener might see parts of it as a repudiation of President Trump’s economic and immigration policies.
For example, Beaulieu pointed out that Amazon isn’t crushing the United States Post Office because the Post Office is making a lot of money as the “last mile” for Amazon.
In another example, Beaulieu pointed out that the United States is a manufacturing powerhouse, a point that pushes against the conventional wisdom on manufacturing. Trump since the campaign started in 2015 and well through his presidency, has said one of his big plans is to restore manufacturing to the United States.
In another instance, on steel and aluminum tariffs, Beaulieu said you simply can’t go back in time to when the United States had greater steel capacity on the domestic side. Steel imports are needed to offset that loss in capacity.
“So maybe he did it to protect profitability in the steel industry,” Beaulieu said, referring to President Trump. “Except Nucor made over a billion dollars in profits in 2017. Maybe it was to create jobs.”
But that runs contra to there being 171,000 people employed by the steel industry, which is the highest it’s been since 1992, Beaulieu said. Demand is going up for those jobs without increasing the supply, meaning the labor costs go up.
Beaulieu is also concerned with a trade war with China.
“You gotta be aware of the unintended consequences, like inflation. Inflation has a way of gutting out your economy from the inside out,” he said, adding that supply chain disruption adds to that problem. “We hope to high heaven this is all a negotiating tactic — the ‘art of the deal’ — because if isn’t, you know that $100 billion tariff would do to the Chinese? It would make them have to consider, ‘Okay, we’re not buying your debt anymore. In fact, we may just decide to sell the debt that we own because you don’t want to play nice.’”
Such an action would cause interest rates to skyrocket and the next five years of forecasted “relative bliss” would go out the window, Beaulieu said.
“Protectionism is a very dangerous game to be playing, is what I’m saying,” he said, adding that it’s what keeps him up at night, not knowing how this is going to end and maybe nobody does besides “maybe Mr. Trump himself.”
Beaulieu also took aim, in part at tax cuts. He said the tax cuts have been good for the general merchandising stores, like Walmart and Target, where the average person with an extra $40 in their pocket are using it at those general merchandising stores, and he certainly trusts the people with their money more than the government.
But tax cuts aren’t everything, either, Beaulieu added, even if they “may” add a short-term boost.
“If all we have to do is lower taxes to make our economy grow faster, it’d be a no-brainer, but there’s more to it than that,” he said.
It has to do with the effective tax rate, not the stated tax rate, Beaulieu said. Additionally, businesses don’t make big financial decisions on capital equipment based on the tax code; they make it based on long-term trends since the tax code can be changed three years later.
“I don’t want you to harbor any illusions that somehow going to get a nitrous oxide boost to the economy because of tax changes,” he said.
Another issue is people unwilling to address the spending, especially entitlement spending, Beaulieu said.
“If you’re going to have a tax cut, you also have to have a spending cut,” he said.
The debt is ever-growing and it does matter, especially given a potential looming trade war with China.
“Please understand that welfare is only 9 percent of where we spend our money,” Beaulieu added.
Welfare is chump change compared to other spending issues, he said.
Beaulieu also had five reasons inflation will start to tick up: the dollar is weakening, copper prices are going up, labor costs are going up and protectionism is the rule of the day.
“Whenever we start closing our borders to workers, you’re going to start seeing more inflation than you thought you were going to see,” Beaulieu said, saying that’s a fifth concern.
In a closing note, Beaulieu had a lot of good things to say about the Millennial generation.
“We all need to understand that Millennials think differently. They are the smartest generation to ever come down the pike, but they are different,” he said. “We need to respect those differences, honor those differences. They are the best, recognize them as being the best.”
Along the same lines of respect, Beaulieu also took a moment to step out of economics to deliver a message about respecting people we disagree with, saying, in part, that Obama and Trump were both “equally patriots with good intentions,” but who had and have “different visions of how we get to the same goal.”
“Let’s just try to remember that, that we respect the differences and the other person, we can solve a lot of problems,” he said.
After his talk, when asked by The Sun if the tariffs and protectionism, the “flavor of the day,” drive him nuts as an economist, Beaulieu said they do, although the problem with them isn’t relegated to the current president.
“Politicians tend to live in the past rather than see the future, no more or less than other politicians,” he said.
Sponsors for the evening were Great Oaks Career Campuses, the University of Cincinnati Clermont, Grant Career Center, The Myers Y. Cooper Company, REDI Cincinnati, Clermont County, and Union Township.