Why 2016 is the year of the tortoise and the hare
Slow and steady wins the race
KC Mathews has dubbed 2016 the year of “The Tortoise or the Hare.” From his economic forecaster’s vantage point that means slow and steady growth between 2 percent and 2 ½ percent year-over-year.
“It’s not a negative story,” said Mathews, executive vice president and chief investment officer for UMB. “I think corporate America will fare well in a tortoise-like economy, and I think the consumer will do well in a tortoise-like economy.”
On a cautionary note, he added, “We think in 2016 you’re going to see a tight labor market, which will introduce wage inflation, probably toward the second half of 2016.”
Mathews shared his analysis during a roundtable discussion with winning CEOs of the 28th annual ColoradoBiz Top Company Awards during the group’s annual retreat to Napa, Calif., in October. The trip, sponsored by UMB, Deloitte, Holland & Hart and ColoradoBiz, is a reward for Top Company winners in 11 industry categories.
On a national level, Mathews said the manufacturing sector is a concern, as most regional manufacturing data are flat and could point to a recession. “That would be a potential wild card or spoiler,” he said. “But the bottom line is, the consumer is in a very good spot, and the consumer is almost 70 percent of our economy.”
One question Mathews posed to Colorado CEOs in Napa was whether they planned to hire in 2016. “I would say at least 90 percent said they will,” Mathews said. “The next question was, ‘Can you find quality labor?’ And for the most part the response was positive. There were a few exceptions. In construction, skilled trades, builders, there’s a labor shortage. What I found really interesting was how many of these companies have adapted. They said they’re going to hire young people and train them themselves. Many of these companies are either developing robust training programs or expanding training programs.”
One concern expressed by Colorado CEOs during the roundtable was wage inflation, most notably in specialty fields in which companies often must lure talent from competitors by offering up to 20 percent more in pay. Thus, Mathews projects 3 ½ percent wage growth this year, on top of the 3 percent growth in 2015.
Another hot topic for the CEO roundtable: housing. “Home prices in Colorado have really skyrocketed,” Mathews said. “They’re at a pace double that of the national average. Clearly the affordability of housing is a concern of these company leaders, not only for current employees whose rents are going up, but as companies attract talent from out of the state. These potential candidates come in and look at housing prices – well, it’s going to lead to wage inflation. They’ll say, ‘You’ve got to pay me more to afford this house that cost me X in Kansas City and will cost me X-plus-15 percent in Colorado. So a lot of the businesses are kind of wrestling with that.
“It’s a supply problem right now,” Mathews continued. But, he added, “Housing starts in Colorado are up almost 20 percent year-over-year; the U.S. averaged about 10 percent. The good news is they’re building more housing units in the state of Colorado.”
Wage inflation and housing affordability aside, Mathews expressed optimism as he cited the state’s year-over-year population growth of about 2.4 percent compared to the national rate of about 1 percent. “Colorado is a very desirable place to live,” he said. “People are coming to Colorado; obviously there are jobs in Colorado.”
As he does every year, Mathews asked Top Company CEOs what keeps them up at night and what risks their businesses face. One unanimous answer from these Napa attendees: cyber-risk.
“Even manufacturers have to be thinking about potential hacks,” Mathews said, “so they have to beef up their technology, either outsource it or hire people, and it’s a non-revenue-generating function.”
With that, Mathews closed with his “Tortoise or the Hare” theme and his projection of 2 ½ percent growth in 2016. “It’ll be fine for business; it’ll be fine for the consumer,” he said. “It’ll be fine relative to the rest of the world, which continues to struggle.”