NAR’s Lawrence Yun: Corporate Profits Sky-High, Yet Recovery Lags
If there’s a phrase of the week in commercial real estate — and seemingly everywhere else — it has to be “fiscal cliff.” In previous months, you might have bumped into this term here or there as part of the presidential election seasonal background. But in conversation at NAR Conference & Expo 2012, “fiscal cliff” is a constant refrain, something you will hear several times a day, if not per hour. It’s on morning television (I counted five uses in around 20 minutes on the Today Show), it’s on the convention floor, and it’s in the national dialogue. If you used “fiscal cliff” as a drinking game (morning rules: coffee only) you’d be wired and climbing the walls inside of an hour.
So I found it to be something of a surprise when NAR Chief Economist Lawrence Yun took the stage to lead the Economic Issues & Commercial Real Estate Business Trends Forum, because while he did glancingly refer to the FC, the most eye-popping slide he presented wasn’t about a cliff, but about a chokepoint.
The enduring “cliff” is about the narrative of how government expenses are outpacing its ability to pay for what it does. But there’s a serious case to make that a broadened tax base, where employment is high and the corporate spending that drives employment is also high, is a giant part of what is missing. Without corporate spending, the tax base doesn’t grow and, well, fiscal cliff ahoy.
With worker productivity up at record levels and tax rates on corporate coffers among the lowest in the western world, “corporate profits are sky-high, but they have reduced their spending,” said Yun, throwing up a slide indicating the boardrooms of the country are indeed flush with the very green stuff we could all use to avoid the dreaded fiscal cliff. But they’re not spending. “If businesses used the cash, it would speed recovery,” he continued.
Which means to me, we have the wrong buzzword this week. Why not replace “fiscal cliff” with “corporate chokehold”? Is it because it’s easier to beat up on Washington when we feel it so often beats up on business?
Some further highlights’ of Lawrence’s presentation:
World Trade Continuing To Double
Promising good things for the industrial/warehousing sector, Yun added that world trade continues to double every ten years. More trade means more shipping, which means more rail and intermodal traffic, which means more goods and more logistics structures to distribute them. The business of moving stuff around remains a growth industry and benefits the industrial sector.
The Fiscal Cliff
“I don’t think it will happen,” said Yun.
Dodd-Frank / Size Matters
There’s beating up on government regulation, and then there’s just reporting about workflow. The Dodd-Frank legislation has produced a nearly 10,000 page set of regulations, the sheer size of which is benefiting the largest banks and kicking the smaller ones out of compliance and therefore lines of business. Why? JPMChase has a legal department employing scores of attorneys and is therefore in a position to digest Dodd-Frank. Your local bank might have one lawyer to deal with 9,000+ pages of regulation.