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Confidence Index with Alan Beaulieu

June 18, 2021

The CEO Confidence Index has declined two months in a row - what trends have contributed to this decline, and what comes next? Catch our newest TrendsTalk episode with ITR President and Speaker Alan Beaulieu to learn more.



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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hello everyone. I'm Alan Beaulieu from ITR Economics and thanks for joining me today for another episode of TrendsTalk.

Today, I want to talk to you about something that came across my desk yesterday, and that was an email from a friend/client and I appreciated the email a lot and I always do. I like reading what's going on in peoples' minds and businesses and what's happening in their particular world. This one mentioned a CEO Confidence Index, and I'm not sure which one, but it was fairly lengthy and it had lots of quotes from different CEOs. The point of the article was that the CEO Confidence Index had gone down for two months in a row.

I don't know whether that decline was caused by an expectation of slower growth or whether the decline was caused by an expectation of continued pricing pressures in source materials, supply chain difficulties, labor difficulties because the comments went both ways. The comments included fears of inflation, container shipments going down, imports going down, and it kind of got into the world of fuel there. Another, is because one in particular, was because they thought revenue would be going down next year, which is possible depending on the business that you're in. With others, because it was slowing down and I wasn't sure that's what would cause confidence to go down there, but, we get ahead of ourselves.

Let's talk for just a minute about some of the particulars there. Yes, inflation spiked of late. There's no doubt about that, and there is some concern amongst some folks that this is just going to become a sore point for a long time to come. It's not, that's what I wanted you to know, that the rate of change in a lot of commodity prices, including oil, is going to start moving lower. Now that doesn't mean oil prices are going to move lower. Just because rate of rise going to slow very noticeably doesn't mean steel is going to drop like lumber just did. It just means that there's going to be a cessation of that rapid rate of rise. And this copper is going to level off, aluminum, that sort of thing.

So that CPI inflation that you hear, we don't think it's a sustainable and that's because of the demand poll. The demand poll is showing signs that it will ease later this year in 2022. How do I know that you say? Well, because the leading indicators are telling us that, and those of you that know ITR economics know that we are all about leading indicators and therefore them now saying that we will see the U.S. economy and other economies slow down in the rate of rise later in 21 and in 22. I know you can read lots of articles about the phenomenal GDP rates of growth, but the leading indicators aren't suggesting that, there's a slowdown that's occurring in China. And that is also an indicator of slowing the rate of rise. And the flattening out in copper for instance, copper is a key commodity in the world and over 50% consumption by China.

So what we're looking at here is a system that is saying, if you're worried about this pressure on pricing, you shouldn't be it will ease. If you're worrying about a slowing rate of rise in 22, if that's your worry, I guess you should be, but I wouldn't worry about it because it's a slowing rate of rise. They'll still be at record high levels, we'll see U.S. manufacturing and GDP record high levels. We're going to find the demand pull in most industries remains strong, just not at today's backbreaking pace and with prices leveling off it means that inflation doesn't continue to spike. So all in all, it might be thought of that we're returning to, what's that word? Normal; as we go forward, something to be looked forward to. I also want to comment on the thought about containers and imports, because I was particularly intrigued by that.

I looked at imports from around the world and the three-month moving average. Most of you that know ITR know what that means. Those of you that don't, I suggest and encourage you to please go to our website, ITR and see all of the tutorials about all of the three-month moving average and rates of change, it will brighten up your world and help you see into the future. Well, the three month moving average for imports from the world is at a 28 month high. And when I do a one over 24 on things, I find that that's a really good number. 28 month high is certainly encouraging. Well, look at it from China. Yes, it went down in the first quarter, but it's very normal for China imports to go down in the first quarter, April lowest on average. April really saw a decline in an imports from China.

One month does not a trend make, things were very normal in the first quarter. We'll see what happens. The imports from Canada at a 20 month high, which obviously precedes COVID, and Mexico 22 month high precedes COVID and the rates of change are positive. Suggesting that more imports are coming in. So what's the story on containers? I mean, every day when I look at what's happening in freight news, it's about containers and pricing and prices are soaring and it adds to your woes. I sure get that. It makes life difficult and it's understandable. And when you're looking at today's container prices, it's easy to get nervous about the future. But here's the deal, container shipments are actually up, above where they were pre-COVID and above where we were in 2019. It's funny, nobody was complaining about the number of containers coming in in 2019 its the demand poll that has been causing this.

And I just explained the demand poll will be easy because containers coming in from Long Beach, are actually 33 and third percent higher than they were 24 months ago, on a three month moving average basis. LA 28 plus percent, Georgia, New York Harbor, and Houston, all posting double digit gains over where we were 24 months ago. And so really containers are coming in. There weren't enough containers, enough shift to meet the demand, with demand easing and supply rising, it's easy to see why prices will be leveling and likely to follow suit after lumber down the road. And when all that comes about, it means that now the consumer confidence index CEO's, I mean, confidence index. I understand the nervousness, but I would remain bullish if I were you. I remain confident in your ability to make money. The U S business competence index is actually signaling that the economy expands through the rest of this year.

But I think it's going to reach a high soon and begin to signal that slowing mid rise, I would take the signal to mean that demand and sales are going to go up and they're going to continue to go up through 22. Here's the thing you need to worry about though, cash and profits. With the labor pressures and with the other pricing pressures, you want to make sure you don't outrun your cash, like straight line forecasting, 21 into 22. And you want to make sure that you have enough cash to allow you to continue to climb that hill. Hey, I mentioned labor we better touch on that.

You know what happens in September? Federal employment insurance runs out. You know what else happens? The kids go back to school, you put those things together and all of a sudden there are people who are going back to work and it won't be easy and it wasn't easy before COVID it got impossible. And that just means it's going to be more like it was, more like the labor battle you were fighting, as opposed to the labor battle you've been losing over the last couple quarters. Chin up, look up, things are going ahead and you're going to be fine. For more information, please go to our Website and I wish you the best. Thank you for this attending our TrendsTalk, have a great day.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.