Editor in Chief Mark Arend ponders the math behind recent predictions of recession.
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Editor’s View: Complex Calculus Simplified
Math was never my strong suit. But if one-third of economists surveyed in recent weeks predict a U.S. recession in the next year or two, then how many do not? I’ll go with two-thirds. Ominous predictions make for better stories in the press, so the one-third minority’s view gets lots of attention and headlines. It could happen, to be sure, particularly with the trade war affecting so many markets, from agricultural commodities to building materials to corporate capital investment outlays. But it’s not a coincidence that speculation about a recession is ramping up, despite decent GDP growth and consumer confidence indices on the ascent. It’s about being just 14 months out from a general election. As with so much political punditry, hearing someone say something does not make it true.
Some things that are true do reflect trends in current investment activity into and out of the U.S. And, granted, these trends are decidedly on a downturn.
“With the longest global economic expansion on record, international investors face an increasingly complex calculus in identifying cost-effective opportunities for potential downturn protection, slowing the pace of cross-border capital flows to and from the U.S.,” notes a recent CBRE analysis of U.S. inbound and outbound investment trends. Inbound capital in the first half of 2019 decreased 48% from the same period in 2018, notes the report, much of which was due to less M&A activity. Maybe a levelling off of reshoring activity after the U.S. corporate tax rate was lowered, too. (Yes, I blanched at the “increasingly complex calculus” part.)
“U.S. outflows to foreign regions also decreased in H1 2019, falling 18% year-over-year to $18.6 billion,” the analysis reveals. And this: “Given the less-pronounced pullback in outbound capital, overseas outflows by U.S. investors outpaced U.S. inflows from foreign investors, reversing the trend of the past four years.”
I hope some of these U.S. investors on the outflow side are finding suitable locations overseas in the many free trade zones at their disposal. We’ll be spotlighting some in the November issue, including a few I visited in the Dominican Republic in August, where major expansions to ports are under way with free zones at their front door. This issue includes insights into how Qatar is implementing a free trade zone strategy that is helping it weather icy relationships with its neighbors over the past couple of years. Icy relationships in desert locations can never be good.
Locations in the U.S. and around the world are graded in this issue for their infrastructure and logistics chops, which also factors into global site selection, so use that resource in the year ahead — it’s an annual feature each September. In the meantime, we urge you to put economic predictions in perspective, and to hone your skills at discerning the best sources of intelligence where global locations are concerned. We hope you’ll keep Site Selection on that list.
Till next time,
Mark Arend, Editor in Chief
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