KANSAS CITY, MO — For the past year, the pandemic has sent the US economy into relative upheaval with shutdowns sending unemployment rates through the roof and panic buying clearing bread off store shelves and skyrocketing sales data.
In a keynote address during the American Society of Baking’s BakingTECH conference held Feb. 16-18, Alan Beaulieu, president of ITR Economics, shared his company’s methodology for tracking trends with a proprietary set of theories for developing economic forecasts.
With COVID-19 cases finally coming down and vaccines rolling out, hope may finally be on the horizon. So, what will that mean for economic activity looking ahead?
We are obviously in the midst of radical change — whether pandemic- or government-driven — that has reached crisis-level proportions, but one thing remains: Our economy will move forward.
“We will continue to employ people,” Beaulieu said. We will continue to make money for the stakeholders — from the shareholders to the employees to customers — and we’re going to do what’s necessary. You’re here; you’ve proven that you can get through it.”
With anticipated tax increases and a minimum wage raise expected for $15/hour, Beaulieu predicted some inflationary pressure for a labor-intensive industry. “As costs go up, there’s only so much efficiency gains to recapture, and therefore there will be upward pressure on prices,” he said, suggesting that bakers will have to, in turn, pass along price increases. That said, those increases will happen during a period when it’s acceptable to do so.
“That’s going to be the big difference,” Beaulieu said. “When we get to that point, you’re not going to see a massive wave of inflation like the early 1980s wave, but you are going to see some inflationary pressure. If it gets to 2% or even 2.5%, the Federal Reserve Board won’t do anything about interest rates, but you’ll have all the cover you need to be able to raise prices.”
The key is incremental increases with key products and with the right timing, and Beaulieu advised bakers to rely on help from their marketing departments to map out a reasonable plan.
Looking further down the road in regard to debt, Beaulieu did observe the US economy to be embarked on a “non-virtuous path” while currently operating under an unofficial modern monetary theory program.
“I cannot see a world in which that line of thinking does not come to harm because sooner or later, the balloon inflates so much that it cannot be covered by just inflation,” he said, noting that simply investing in the currency will ultimately devalue it. Over time interest rates will increase, and that will create more pressure to raise taxes — which furthers the need to borrow more — and so on. “That’s the cycle we seem to be on,” he said.
“Whatever you need to do to get more market share — whatever the product, methodology or message — however you need to invest in reaching more of your customers, now is the time. You don’t want to lose tomorrow in this process.”
Despite that, there’s good news: “That’s a problem for the future you,” Beaulieu said, suggesting that the effects of the cycle won’t be felt until somewhere around the second half of the decade at the earliest. For now, he observed, interest rates remain quiet.
That means now is the time to make strategic investments including acquisitions, R&D, process efficiencies and marketing.
“Because of interest rates, this is the perfect time to make acquisitions,” he said. “This is the perfect time to invest in your products and innovate. Whatever you need to do to get more market share — whatever the product, methodology or message — however you need to invest in reaching more of your customers, now is the time. You don’t want to lose tomorrow in this process.”
Beaulieu advised manufacturers in the supply chain to not hesitate in investing in efficiencies, especially around materials and labor. Specifically, he said that labor rates are going up faster than inflation. “The labor problems you face now are only going to get worse,” he said. “We’re not going to see a major influx in cheap labor.”
He also suggested it’s time to reinvest in marketing. “If you’ve been holding back on that cash because you need it for operations, it’s not the time for that anymore,” he said. “It’s about advertising and marketing and investing to be ready to go, go, go. You’re going to be busier going forward.”