MacRo LTD Blog

Commercial Real Estate Lenders Receive Upbeat Economic Outlook

11th Annual Maryland Bankers’ First Friday Economic Forum hosts speakers with more optimistic forecasts than attendees anticipated.

ItCRE Lenders hear promising outlook was the first Friday of the year, and the Maryland Bankers Association for the eleventh time in as many years gathered together an impressive and varied group of economists who willingly shared their economic forecasts for 2018 and beyond. Once again, yours truly was a guest of BB&T Bank Senior Vice President Area Executive Rob Tuggle and his team from the Frederick area regional office.

This year’s forum featured the ever present and always entertaining Anirban Basu, Chairman of the Sage Policy Group as the opening speaker and panel moderator. It wasn’t but just a month earlier that Mr. Basu gave a cautiously optimistic economic forecast in Frederick at a December Breakfast Briefing as a guest of the local legal office of Miles and Stockbridge. Other featured speakers and panelists included:

  • Kartik B. Athreya, Executive Vice President and Director of Research at the Federal Reserve Bank of Richmond.
  • Ricky D. Smith, Sr., Executive Director of the Maryland Aviation Administration
  • William Adams, Vice President and Senior International Economist for PNC Financial Services Group
  • Rhea Thomas, Economist at Wilmington Trust Company
  • James E. Glassman, Managing Director with JPMorgan Chase and Head Economist for Chase Commercial Banking

Basu’s message was much the same as he gave in Frederick. While he was somewhat skeptical last month that the Republican Tax Plan would actually pass, he believed that under any circumstances the stage has been for a continuation of the better than surprising results of a robust 2017. Well, the Tax Cuts and Jobs Act did pass; so, did that move Basu to have a different point of view?

Answer: Not much, as he anticipates that will provide a much-needed boost in the short term, it is hard to predict the longer-term benefits that the plan will have beyond that.

Speakers Athreya, Adams and Rhea generally echoed Basu’s sentiments projecting a likely very nice 3% nationwide growth rate in 2018 and very possibly well into the following year. But flags of caution were raised as they looked at the months closing in on the 3rd decade of the 21st century. Figuring that the current recovery cycle is approaching its waning years, most shared fears that the economy could soon reach full employment and soon thereafter businesses will maximize their investment in productivity. Once the economy hits full capacity, any further increases in aggregate demand will generate inflationary pressure and increases in interest rates. And then everyone knows what happens after that!

The Optimist Speaks

While everyone on stage sees 2018 and much of 2019 as banner years for business, it was James Glassman who twisted the minds of his fellow forecasters with an even longer-term prognostication for continued growth well in to the 2020’s. Anyone who has read Glassman’s writings of late knows that he sees the current economic cycle to be like no other in recent history.

The X-Factor that Glassman says is already making a difference in this continued recovery is “innovation.” He states unlike recoveries in recent business cycles where technological advances have increased productivity to varying degrees, this time all signs point to significant opportunities for economic growth beyond the so-called full employment model. Glassman states that while businesses were downsizing and seeking new ways to cut costs and at the same time attempting to increase productivity during those tough recessionary years, technological advances in productivity methods and systems grew and continue to do so to the point that full employment is not such a economic cycle pivot point any longer.

Many economists, including Basu, are quick to remind us that despite the fact the recovery growth rate has been slow, we are well beyond the average length of any recent recovery period.

Glassman, on the other hand, says that downturns in business cycles are not about the clock, they are about conditions – specifically “financial imbalances.” This time, however, he states that many of those conditions that usually show up after a prolonged recovery, just are not there now, or even into the foreseeable future.

Inflation and rising interest rates are what has many economists concerned, but Adams and Thomas both say that there are no foreseeable threats in the next 12 to 18 months. Inflation remains “muted.”

The Chase guru believes that in addition to the innovations that are accelerating productivity, there is so much pent up demand in developing countries, the US, Europe and Japan will latch on to these opportunities and cultivate a sustained global economic boom. He goes so far as to say that when future economists look back on this period, it will be compared to another one of the great renaissance periods of history.

Wow! One may think that it takes guts for an economist to spout off such a crazy slur of words. But to state it in front a bunch of bankers, did he go off his rocker… or it may mean he truly believes what he is saying?

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Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He has been an active member of the Frederick, Maryland community for over four decades. He has served as chairman of the board of Frederick Memorial Hospital and as a member of the Frederick County Charter Board from 2010 to 2012.  He currently serves as chairman of the board of Frederick Mutual Insurance Company. Established in 1843, it is one of the longest enduring businesses in Frederick County.


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