FGIA Economic Outlook Addresses Turmoil in Europe and COVID Recovery

March 7th, 2022 by Travis Rains

Dr. Chris Kuehl, managing director of Armada Corporate Intelligence, provided an economic outlook for the United States and Canada during the Fenestration and Glazing Industry Alliance (FGIA) 2022 Annual Conference that took place last week in Amelia Island, Fla. He addressed the mounting challenges and potential impacts of the Russian invasion of Ukraine.

Ukraine and Russia
Kuehl opened by noting economic outlook assumptions were challenged within the past week due to world events. While sanctions have been implemented, Kuehl said they will impact Europe more than Russia in the short-term as Russia is the number one supplier of gas to all of Europe. Russia, he said, would “suffer down the road.”

“Because right now, gas prices and oil prices, as you’ve noticed, have been skyrocketing; $110 a barrel today and still probably going up from there,” Kuehl said. “Part of this is because the big oil buyers in Europe are boycotting Russian oil. They’re not required to, they’re just doing it because they’re not happy with what’s going on in Ukraine. That means about 70% of Russian oil is not being sold.”

Historically, sanctions have lesser impacts when one country is willing to bail out the country on which sanctions are imposed. Kuehl said China has pledged to pick up some of that oil-buying slack, but not all. And he noted that China will do what’s in its best interest in regards to what they’re willing to pay Russia for the oil.

“Europe is facing some pretty grim economic outlooks for the short-term because they’re going to have to figure out how to replace what they used to buy from Russia, which is mostly fuel,” Kuehl said.

Kuehl predicts that Ukraine will eventually fall to Russia, whether it be in weeks or months. When that happens, the most-affected commodities will be gas, oil and food.

Economic Outlook

“We’re not really sure what the current situation is going to do to things like inflation, the supply chain, [and] all the issues we’ve been dealing with for the last year,” Kuehl explained. “We were thinking that we were going to get up around 3.5%, maybe 4% growth this year, which is coming back to sort of the high end of normal. Now we’re thinking maybe towards the end of the year, if we’re lucky. But we’re more likely to be in that 2.5% range for the bulk of this year.”

Kuehl noted that it was 2021, not 2020, that resulted in current conditions, adding a “recession by edict” in 2020 saw money put into the hands of consumers, which is the traditional route for rising out of recession. However, consumers had nowhere to spend that money as the service sector shut down due to COVID. He said people spend approximately 65% of their money on services, and in 2020, those services were not available.

“2021 was supposed to be kind of a slow recovery,” Kuehl said. “Everyone was expecting that as we got control, theoretically, of the pandemic that consumers would slowly come back into their normal patterns. There was nothing slow about it. We hit the ground like we were on fire.”

The second quarter of 2021 saw growth at 9.6% before slowing to 6.5%. But Kuehl noted the latter figure is still three to four times higher than the usual growth rate.

“We were growing at a tremendously fast rate and we weren’t ready because we had come off a recession,” he explained. “So a lot of the real issues began to develop in 2021 and we’re still dealing with them now.”

Commercial construction is seeing growth, up nearly 4% after being down 44% five months ago. However, there remains a bit of a slump in housing, which is still much higher than in previous years. Kuehl said 70% of the country is short on housing. One driving factor behind that shortage is reshoring, as 69% of people doing business in China report they are likely, very likely or extremely likely to relocate back to the U.S.

There remain 11 million job openings with 6 million people looking for work. Kuehl also said 10,000 boomers hit the retirement age each day, and that 7 million women have yet to reenter the workforce following the pandemic. The issue is the people who are needed, such as those in the trades, are not in that prospective employee pool.

Inflation is expected to drop, but there is uncertainty with respect to how fast it will do so. Kuehl also said that energy pricing is 70% of the driving force behind current inflation. Wages are starting to become an issue, but they will be more of a problem later in the year as opposed to immediately.

Interest rates are set to begin increasing this month as well. Kuehl said the current notion is for three quarter-point rate raises and not half-point raises, though there are some discussions about raising them a little higher.

“We were sort of looking at that upside which was getting us back to that 2019 trend relatively quickly, and now we’re looking at the downside,” Kuehl said with respect to economic growth. “The good news is even the downside prediction has us recovering from where we were in 2020. So we’re back to 2019 already, and it’s now just a matter of whether we keep that trend going. The sense right now is that as long as there’s this much turmoil in the world, we’re sort of flattening out.”

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