With a virtual audience of almost 170 registrants, MCB’s annual economic outlook featuring economist Dr. Terry Clower proved once again to be an engaging and thought-provoking presentation to kick off the new year.
Dr. Clower opened his presentation by sharing reflections about what he called, the year of “known unknowns.” He explained that many factors, which may impact both the national and regional economy, will be beyond our control as policies imposed by the incoming administration begin to take shape.
Dr. Clower continued with an examination of U.S. Gross Domestic Product, sharing that we are seeing growth in the range of 2.6% or 2.7% for the year, reflecting it will be a “solid,” not “spectacular” year, though some trends are predicting an upcoming slowdown. He also pointed to indications that the U.S. labor market is strong, with 265,000 jobs being added in December, as businesses do seem to be hiring and expanding. He cautioned that higher labor costs will cause prices to increase, something that should stay on our radar for the year ahead.
He moved on to speak about consumer confidence and the fact that it played a significant role in the election, as many consumers voiced concerns about the economy. With respect to the housing market, he stressed that we are still simply not building enough homes to meet the nationwide housing demand. He pointed to the fact that many people bought when rates were substantially lower: “Folks may like their house, but they love their mortgage,” leading to sustained market depression. He did state, however, that people are getting “used to the 6% mortgage again,” and are slowly realizing this range is here to stay; he anticipates we may start to see this impact housing activity this year.
Regarding tariffs, a critical topic as the new administration takes shape, Dr. Clower reviewed President Trump’s proposed tariffs and their potential impacts. When international goods costs rise, the consumer pays based on price elasticity. Though profits will rise for some producers, the inevitable effect will be that prices will increase for consumers, leading the Federal Reserve to either maintain or increase interest rates. The possible impact on households could be a reduced household spending power of $46B-$76B annually. According to the American Tax Forum, household costs could increase $2,650-$4,300 annually; the Tax Foundation estimates that household costs could increase as much as $6,000 annually. He also voiced concerns about reduced demand for U.S. exports, as some countries may employ retaliatory tactics.
Some good news for the national economy: if tax cuts are extended there could be a significant boost in spending, for example. But Dr. Clower is concerned about increased levels of credit card debt with extremely high interest rates, particularly among young people. He also expressed concern about materials costs being impacted by disaster recovery in so many parts of the country. As far as banking lending, he expects to see lower regulations, which is positive, but cautions that this does not make a “bad deal good.” Overall, he states, “I am a big proponent of lowering regulation when you can.” He is, however, concerned about the impact of interest rates on M&A activity moving forward.
Dr. Clower attributed a state of current optimism to the incoming administration’s more “business friendly” policies. However, the volatility in areas like trade policy may lead to business uncertainty. Also in his summary he spoke about the possible impact of immigration on the job market, and the issue of business growth possibly constrained by lack of labor availability.
With respect to the Washington, D.C. region, he stressed once again that our region has not grown as quickly as the rest of the nation for several years now. He spoke about the fact that a substantial share of our gross regional product is attributed to data centers. In fact, the data center industry (Loudoun County’s “Data Center Alley” is the world’s largest concentration of data centers) is the only industry in our regional economy that is outperforming the rest of the country. He expressed concern that residents are fighting these data centers in their communities, commenting: “Our best growing sector of the economy is the one we are working against.”
Other D.C. metro outlook factors:
With respect to back-to-office policies, Amazon, for example, has announced its new mandate (though he suspects some of this may be an intent to “weed out” and compensate from previous over-hiring). But we are “living lives differently now”, stated Dr. Clower, referring to the fact that many employees simply don’t want to go to the office five days a week anymore. He spoke about the benefits of “water cooler innovation” but cautioned, “Does it require being in the office five days a week?” He also addressed the issue of possible relocation of some of the federal workforce, but stressed that if you relocate a federal worker, you also lose their household spending in the region. In fact, we could see a loss of two to three jobs for every one federal worker who is relocated (due to subcontracting). Some estimates point to losses of more than 120,000 federal workers in this region in the near future.
Dr. Clower emphasized some of the District’s good news: the arena in Chinatown, the Commanders in D.C. and some federal buildings being redeveloped, which could make the District more competitive if done right.
In wrapping up, Dr. Clower said that he would like to see more public / private partnerships to boost the local economy and utilize our region’s reputation in bio-medical research to develop a new facility similar to the Mayo Clinic where people come to the DC area for treatment, which would boost our local economy. He also focused on the exponential growth of AI and Quantum Computing applications (trends that are going to drive high-value-added growth across this nation over the next 20 years) and the fact that this will require massive amounts of data and data storage. “If we are a place where that data storage happens, then our region can compete effectively for that business growth.”
In December, just weeks before our presentation, Northern Virginia Magazine published an article written by Dr. Clower: “3 Future Scenarios for Northern Virginia’s Economy, According to a Local Analyst.” View the article here: https://mcb.cpa/future-scenarios-for-northern-virginias-economy/
For a copy of Dr. Clower’s presentation from our virtual event, contact [email protected]. For more information on future events, stay in touch with MCB!
Follow us on our social channels and make sure to subscribe to our newsletter and blog to stay in touch!
- LinkedIn: MCBCPA
- Facebook: Matthews, Carter & Boyce CPAs
- Twitter: MCBcpas
- YouTube: MCB CPAs & Advisors