May 15, 2019

Wednesday Insights

May 15, 2019

The 2019 Boom & Vroom economy took on new meaning this week.  While we received evidence of more Vroom from Q1 Corporate Earnings – like those from an ACRE National Network sponsor,  Monmouth REIC (MNR) with a +160 percent increase in reported Net Income Attributable to Common Shareholders for the quarter ending March 31 2019 compared to the same period in 2018 (along with the 15 percent increase in both Gross Revenue and Net Income all while maintaining an enviable 98.9% occupancy rate at their 100+ warehouse assets),  as well as NFIB small business optimism via the  Small Business Optimism Index which rose 1.7 points to 103.5 in April 2019, the Boom piece of Boom & Vroom may now be better characterized as the “Continued Detonation of Tariff Trade War munitions.” Boom there goes your 401(K) value – again, for a while.  Don’t fret, though, all will recover like after last December’s Fed rate hike over-reaction. 

However, just as we survived the 10 percent tariffs to thrive since last Summer’s implementation (note Q4 2018 and Q1 2019 corporate earnings from the likes of global consumer staple companies like Procter & Gamble or equipment manufacturers like Caterpillar here in Q1), we can weather these 25 percent tariffs because what is at stake is everything.  Our Supply-Chain is adept at finding the materials needed by industry through new channels, like Vietnam, South Korea, Australia, Canada and Mexico. 

The Bush to Clinton to Bush to Obama quarter century of let China walk all over the U.S. in trade with no regard for intellectual property rights must end.  Fair trade with our largest trading block (Canada and Mexico) via the negotiated USMCA/NAFTA 2.0 agreement mitigates most of the 25 percent tariffs on China trade – if Congress doesn’t screw it up and make ratification a 2020 campaign issue.  Below is the USMCA timeline to keep in mind.

 

 

Trump fan or not, this trade war with China is a battle we have to wage now - and win!  Keep in mind that China needs U.S. trade more than we need it with them. We purchase 4X China goods for every 1X they purchase from the U.S. Just one example of a mounting pressure for China is meat protein.  Is anyone following the Asian Swine fever outbreak across Asia?  A new swine fever in Asia is leading to destruction of millions of pigs across Asia that represent 15 percent of the region’s protein source? China is the world’s largest producer and consumer of pork, and China will need U.S. agriculture and meat come this Fall to replace such loss of a key protein source across the entire Asian continent. 

The biggest economic news to cover since last week is the new NFIB Small Business Optimism Index. NFIB Small Bus. Optimism Index is back on the rise in this Vroom economy - as I predicted during the Q1 period even though the Index slid from 103-104 range to 101-102 levels during the Gov Shutdown and onset of  10% tariffs. The NFIB - along with AAR org RailTime Indicators are 2 of my MVP leading economic indicators that haven't failed me and my forecasts in past 2 decades.  So what are the nuts-and-bolts details in the latest May report for the April 219 period?  While the key ratio is 8 favorable categories to the single-negative category, here is a little more context straight from the NFIB report:

  • “NFIB's Small Business Optimism Index in the US rose to 103.5 in April from 101.8 in March, and well above expectations of 102.3. This reading remained at a historically strong level consistent with solid growth.”
  • “One Index component fell, one was unchanged, and eight improved.”
  • Labor market indicators improved, with continued reports of strong hiring.”
  • “Last month’s soft spot in inventories improved and profit trends posted a very solid advance.”
  • “Additionally, expectations for sales, business conditions and credit conditions all posted gains.” AND
  • Inflation pressures remained subdued.”
  • From a historical perspective, the NFIB Business Optimism Index in US has averaged 98.28 from 1975 until April 2019. The Optimism Index reached an all-time high of 108.8 in Aug 2018 - and a record low of 80.10 in April of 1980. Therefore, April’s 103.5 reading is VROOM!
     

 

Conclusion: Last week I traveled to Little Rock Arkansas with CCIM Global President Barbara Crane and learned all was “Razorback Optimistic” (Arkansas for Bullish). I progressed to Seattle to speak at a Colliers Logistics & Transportation conference and attended an amazing presentation by David Schwebel from Swisslog (David.Schwebel@Swisslog.com) on the next generation of Supply-Chain warehousing.  All I can say is OMG – Oh My Google, Amazon and WalMart are behind.  Reach out to David for his slides if you have the slightest interest in what is next for industrial warehousing and our Supply-Chain.

I concluded the week in New York speaking to BOMA’s National Advisory Council and was treated to an enlightening case study by Kurt Padavano from Advance Realty Investors on reclaiming manufacturing land in New Jersey for Logistics Centers and modern industrial parks.  If you haven’t looked at the dynamics of the New Jersey industrial market lately, you need to (3.5%-<5% vacancy rates and rents north of $8.50/sf up to the $12.00/sf level).

May will finish out with everyone in Las Vegas at ICSC RECON next week and a plethora of new housing data.  The month of May that has come and what is to come looks like:
 

My recommendations from last week are still valid:

i. Feel comfortable planning a Summer vacation;

ii. Go hire a newly minted college graduate. You know you need the labor and they don’t want to move back home with mom and dad;

iii. The economy is still in Vroom phase. The 25% tariffs redefine Boom to “Continued Detonation of Tariff Trade War munitions.”   

iv. Send to me at ACRE your best new insights on retail.  ACRE & CCIM are busy on our next research paper that will “Re-tell the Retail Story.”  I promise this paper is not about more store closings.  What is occurring in retail is a disruptive but positive story  that has many new dimensions, and it is the new opportunity asset play. What insights do you have about an Adaptive Reuse project or experience at ICSC next week in Las Vegas? Please forward to kcconway@culverhouse.ua.edu.

 

 NATIONAL NETWORK MEMBER NEWS                                                          

 
 

 ADAPTIVE REUSE                                                                                         

 
 

 OPPORTUNITY ZONES                                                                                 

 

 CONSTRUCTION TRENDS                                                                              

 

 ECONOMICS                                                                                                

 

 FINANCE                                                                                                     

 

 LEGAL / RISK MANAGEMENT                                                                       

 

 LOGISTICS                                                                                                   

 

 RESIDENTIAL                                                                                                

 

 SITE SELECTION                                                                                           

 

 TECHNOLOGY                                                                                           

 

 WORKFORCE DEVELOPMENT (powered by CCAP)