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Port Authority’s Alexander Heil at Newark CRE Summit: Expect Strong Q2 But Headwinds Imminent

Jul 27, 2018
by Josh Anderson

JERSEY CITY, NJ — Dr. Alexander Heil is the Chief Economist in the Planning and Regional Development Department of the Port Authority of New York and New Jersey. As Chief Economist, Dr. Heil provides strategic leadership on regional economic issues to the agency. He is responsible for developing and managing the agency’s economic research and analysis agenda, helping to ensure that the agency’s major investment and policy decisions are informed by sound economic principles and analysis, and increasing awareness of the region as a unified economic entity by regional governmental, business, and civic leaders. Dr. Heil was the Keynote Speaker at CapRE’s upcoming 2018 Newark CRE Summit, where he gave a presentation titled “Morning Keynote Address: The Trump Economy, Newark Job Growth, and Impact of Regional Transportation.” Below is a transcription of the first part of his comments.

Alexander Heil, Chief Economist in the Planning and Regional Development Department of the Port Authority of New York and New Jersey

“For those of you who like to listen to economists, you know that we fall into one of two categories – there are glass half-full and glass half-empty kind of people,” began Heil, before prefacing his remarks with a tongue-in-cheek sneak-peak. “I’m bringing some bad news, but there is an up-side. I’m going to tell you exactly when the next recession is going to hit – the year, the day, the month, and the time, so stay tuned and you’ll learn something by the very end of this presentation.”

“We’re going to talk about the macro-trends happening and what keeps us up at night, including energy trends, interest rates, and the trade policy currently in use,” continued Heil, resuming a more serious tone. “Then we’ll talk about regional economic dynamics and what keeps me up at night when it comes to transportation.”

He then provided a prediction. “What you’re going to see at the end of July is a very positive [GDP] report published, with estimates varying between 4 and a half and 5 percent of real growth for the U.S. in the second quarter of 2018,” he advised. “That’s a significant upward revision from what we expected earlier, and the reason for that is the tax change that was implemented. There was a lot of fiscal stimulus that came into the system and what is actually happening is it’s pulling forward a lot of the growth that we expected from 2019 and 2020. So now the activity levels that we expected to see then are now happening in 2018.”

According to Heil, the down side to this is that, while this is going to be a positive announcement, it’s going to be the peak of the mountain, with a downward slide from there.

“In 2019 and 2020, the economy is going to face much more significant headwinds,” he explained. “The reason for that is we’re going see higher interest rates. We’re going to see more significant inflation. And some of the fiscal stimulus that we’re seeing now is going to actually go away. And when you combine all of those together…you wouldn’t be surprised by a recession announcement.”

Next, Heil turned to a key sector for a partial explanation. Referring to the graphic below, Heil had a lot to say. “On the energy side, this graph looks at World Oil Prices. Oil is currently selling at about $80 a barrel. And there are two effects that are going to have a significant pull on energy markets moving forward into the next few years,” he predicted.

“One is, how quickly is Iranian crude going to disappear from the market?” asked Heil, rhetorically. That in part is going to play a role in how much energy prices are going to be driven up in the latter half of 2018. So that’s the red arrow point up – and we’re seeing that in the gasoline prices right now, in the spike there, and we see that in other components of the energy sector.”

“If you just take the very robust statement that came out on the consumer price index last week – 2.8% price inflation on the country overall, the inflation component of the CPA grew by more than 10% year over year,” he said, before preparing to transition to a new topic. “So a lot of the price inflation that were now seeing in the economy is actually driven by the energy price appreciation that is occurring. In the longer term, the question is all about how quickly U.S. shale production is going to come online. It’s already happening right now and some of that is going to determine how much prices may slide down again…”

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