With the last votes of Tuesday’s national election still being tallied, it remains unclear which parties will control Congress when its next session kicks off in January. But Dr. Chris Kuehl says no matter who is in charge one thing is clear — their campaign promises to fight inflation will go nowhere.
Kuehl says inflation remains a major economic challenge and how consumers and the Federal Reserve respond to it in the coming months will determine if and when a recession hits the economy in 2023. But Kuehl says politicians’ capabilities to impact inflation are fairly limited. They can complain; they can demand action from elsewhere; but legislation can’t solve the economy.
If a potential recession is coming, D.C. can’t stop it.
Speaking Thursday during the opening general session at the Used Truck Association (UTA) Convention in National Harbor, Md., Kuehl shared what he anticipates for the economy in the months ahead, its current strengths and weaknesses and, if a recession does occur, the impact it could have on the trucking industry.
Kicking off his presentation, Kuehl says a frustrating aspect of economic prognostication these days is far too few people really understand how the economy works and how GDP calculations are made. Kuehl says these misconceptions lead to uninformed conclusions about how stable the economy is.
He cites manufacturing exports as an example. Kuehl says the United States accounts for 40 percent of the global value of manufacturing, more than double China’s manufacturing value and far ahead of any other nation in the world. Kuehl says people dramatically underestimate that value, and then see periods where exports are low like Q2 and Q3 as examples of weak manufacturing production where the reality is the opposite. Manufacturing produced at a stable rate during that period but products weren’t exported because the dollar was so strong, globally, that other nations chose to delay their purchases until prices came down.
“You have heard for years we are no longer a manufacturing nation. That’s not true,” he says. “China makes the junk that goes in Walmart. We make the machines that go to China to make the junk that goes in Walmart.”
Kuehl also touched on current inflation drivers and the arithmetic that goes into inflation calculations. On the former, Kuehl says most price increases seen in 2022 have been driven by supply chain issues, oil pricing, wage inflation and reshoring. He says when the supply chain was at its most fractured, companies raised prices for the products they could move because demand was so strong. Russia’s invasion of Ukraine spurred the oil price inflation, while decades of labor shortage issues are finally hampering hiring rates and driving up the cost of the workforce.
As for reshoring, Kuehl says that’s a great long-term shift for the U.S. economy. He anticipates $1 trillion will be invested into reshoring over the next seven years. But he also notes reshoring is costly, particularly in this climate.
Kuehl also notes those inflation drivers do not guarantee a 2023 recession. He admits GDP rates are falling globally and central banks are altering rates to combat inflation. If that continues and it forces consumers to reduce their purchasing, a slowdown next year is likely. But he also says consumers could possibly invest the “excess savings” they’ve held since the pandemic into the economy in the fourth quarter and, coupled with the influx of infrastructure spending coming forward, reduce the likelihood and severity of a future slowdown. “We could spend our way out of the recession,” he says.
Finally, Kuehl says trucking and other industries shouldn’t get too caught up on comparing this year to last. He says the pandemic recovery was unique and unrepeatable. If the economy can return to pre-pandemic growth rates that’s a good sign business is normalizing.
“What makes this year feel slow was last year was so fast,” he says. “We were growing at 6 percent; we never grow at 6 percent.”