SENA19 keynote Lindsey Piegza: Data points to tepid economy, potential recession

Seafood Expo North America 2019’s keynote speaker, Lindsey Piegza – chief economist for Stifel Fixed Income – warned that current data on consumer spending and the marketplace point to a greater than 50 percent chance that a recession sets in by 2020. 

Piegza’s review of the U.S. and global economy dove into economic trends of the past few years, and how the U.S. Federal Reserve is likely to react to trends in the economy. According to Piegza, all signs point to the Fed keeping interest rates consistent, or even potentially lowering them in the event of a dampening of the economy.

“This time around, the Fed is acknowledging those early indications of weakness, balancing the economy, and hoping to let us bounce along at a neutral level,” Piegza said. 

The recovery from the 2008 recession, Piegza said, while steady, was at a lower rate than the typical recovery. While a recovering economy typically sees 4 or 5 percent growth per year, the U.S. economy only grew by around 2.3 percent per year between the start of the recovery and the latest data. 

“Really, nothing to write home about in terms of this recovery,” Piegza said. 

That slow recovery has been tempered heavily by a labor market that has been underperforming. While the unemployment rate is currently 3.8 percent, Piegza said that number doesn’t reflect the reality of the labor market. 

“What we have to remember though is this civilian calculation doesn’t tell the whole story of what’s happening out there,” Piegza said. “This does not include the millions of Americans that have dropped out of the labor force.”

The Americans that have dropped out of the labor force entirely can be attributed to a number of factors, but regardless of the reason they’re not included in overall unemployment statistics. In addition, the “vast majority” of those dropouts, according to Piegza, are 20 to 55 years old. Plus, preliminary data from independent outside research indicates that 20 to 25 percent of those who dropped out of the workforce can in some way be tied to the opiod epidemic. 

“When we initially started hearing about this [opioids], it was more isolated to small town America, no one realized the magnitude or the impact,” Piegza said. “It’s something we’re going to have to start focusing on and really giving attention to understand this crisis.”

The rapidly rising expense of childcare is also a contributing factor to people dropping out of the workforce. Due to the high cost of daycare or other childcare services, many women are choosing to stay home instead of going into the workforce. 

“In many cases, childcare costs more than what the private sector is making,” Piegza said. 

Consumer spending has fallen as well. In 2017, spending was up, in part due to the anticipation of an after-tax increase in take-home pay as people bet on the tax reform bills that were widely talked about by the U.S. administration. 

“Nothing had actually changed in 2017, but consumers were more than willing to spend in anticipation of that after-tax increase in their take-home pay,” Piegza said. 

That increase ended up being much lower than consumers thought, with three in four people reporting they did not see a "meaningful" change in their take home wages, according to outside analysis. Many had overspent due to overestimating how much they had in their budget, resulting in a dramatic pullback in consumer spending.

It isn’t just consumer spending that is falling. Corporate spending on durable goods orders – excluding aircraft and defense – has also fallen. 

“When we look at that, it’s a proxy for corporate investment that goes into the GDP data,” Piegza said. 

For the past four or five months, spending has been trending to the negative, and most of that investment has been into technology. 

“It doesn’t paint an optimistic picture,” Piegza said. 

The slow domestic growth and economic recovery is compounded by a slowing of growth overseas. China’s growth has slowed significantly, and many European countries, including Germany, have narrowly escaped falling into a recession. 

That slowing of the economy is juxtaposed with the rapidly increasing debt the U.S. government has been taking on, with no signs of slowing. Piegza said that the current political climate has changed the conversation on that topic and points to little progress in adjusting government spending. 

“It’s not about the economy at this point, it’s about the social direction of this country, and who is going to pay for it,” she said. 

What does all this mean for seafood? In all likelihood, consumption may go down, as while people still will have to eat, they’ll likely curtail the amount they go out to eat or spend on premium products. 

That means that companies will have to find efficiencies to keep products in the price range of consumers with lower spending power. 

“I think as consumption goes down, and people are unable to afford those higher-cost products, it’s going to be up to industry insiders to lower costs,” Piegza said. “Like any industry, it’s going to be a struggle to find efficiencies, including new technologies for processing and distribution in order to keep costs affordable for everyday consumers.”

Consumers won’t stop spending, but what they spend their money on will be in light of tightened purse strings.

“People are still going to be spending, but it’s up to businesses to encourage consumers to spend on their particular product,” Piegza said. “Consumption is trending to the downside, but that doesn’t mean the consumer stops spending, they just have to make tough decisions.”