“Pigs don’t fly, but chickens do come home to roost”. Tucker Hart Adams, PhD. and Senior Partner with Summit Economics, LLC used this quote at CCIM’s conference in Denver, Colorado to illustrate the point that there is no reason to believe that this time the economy will be different than any other time in history. Pigs will never fly and there is nothing anyone can do to change that. Economic crises have been and always will be determined by supply and demand not reaching equilibrium.
The second part of the quote, “chickens come home to roost”, means that there is a natural order to the economy and there will always be consequences. Short-term trends do not predict long-term results but rather historical actions and data are the best indicators of what the future holds.
Whether the economy is booming or the sky is falling, it becomes easy to assume that a trend will continue indefinitely. For this reason, people continue to live in fear of losing their jobs, investors still keep money under their mattresses, and the public still worries whether Washington will ever resolve its differences.
Publicized revisions to projections such as employment, GDP growth, and inflation greatly affect confidence that an economic recovery is underway. Tucker further explained, “Pay attention to the direction of data revisions.” If the revisions are being adjusted upward then it is good news for the economy. If the revisions are being adjusted downward then it means the economy has not fully recovered from the last cycle.
Several government sources, including the Bureau of Labor Statistics, are estimating that 150,000-200,000 new jobs will be created each month throughout 2013 and into 2014. This growth may help decrease the still higher than average nationwide unemployment rate (7.3% as of Nov 8, 2013).
Rail traffic was a final indicator mentioned at the conference as a way to determine whether the economy is truly recovering. A representative from the Federal Reserve office in Atlanta presented a statistic from the American Association of Railroads that rail traffic in the United States has been steadily increasing over the last 22 months. This indicates a continued increase in consumer spending and is often viewed as a good indicator of productivity and consumption.
Between 1953 and 2011 the average 10-year treasury yield was 6.57%. As of today, the 10-year treasury yield is approximately 2.75%. Even though most of the speakers at the CCIM conference were projecting only modest increases (approximately 50 basis points) in 2014, inevitably the 10-year yield will eventually “come home to roost” closer to the historical average. This means that now is still an excellent time to lock in long term fixed rate loans. Economic cycles happen; understanding where the station of the current cycle is the key to making the best decisions.