A Deferral Of Blue Skies Ahead

Highly regarded macroeconomist Diane Swonk provided a keynote address at MFM’s recent annual conference. While just a few months ago the media industry was pivoting to a revamped, brighter future, storm clouds in the form of rapid inflation, a potential recession and the ongoing impact of food shortages and supply chain disruptions caused by the war in Ukraine appear to have at least temporarily derailed those plans.

“A meteor hit the earth: COVID and war.” This was one of a string of eye-opening and rather disturbing comments made by heralded macroeconomist Diane Swonk at the Media Financial Management Association’s annual conference, held May 23-25 in Tampa, Fla. If you weren’t able to make this event you missed out on 50 sessions that informed our nearly 500 attendees on topics ranging from the U.S. and world economy, the geopolitical outlook around the globe, post-pandemic labor and work issues, the state of the news industry, and the metaverse (and its components) that affect those in the business of media.

It was Swonk, who serves as chief economist at Grant Thornton, an auditing, tax and advisory firm in Chicago, who captivated us during her Tuesday morning keynote with rapid-fire predictions, premised on her peerless fact-based analysis of financial and geopolitical trends, on what’s in store for the economy and related issues.

MFM had chosen its conference theme as “Blue Skies Ahead” in mid-2021, back when it appeared the country — and the media industry — was rapidly recovering from the pandemic, as the economy was righting itself and the future was looking bright indeed. There was no way anyone could have predicted what was to happen over the coming 10 or 11 months.

In an almost eerie way, Swonk gave the audience a foretaste of the grim report released on June 7 by the World Bank, which warned that the ongoing war in Ukraine, supply chain chokeholds, the recent bout of covid-related lockdowns in China, global inflation, and steep rises in energy and food prices are taking an increasing toll on economies worldwide. Just the day before, a Bloomberg Economics article explained why there’s a 25% chance of a recession happening in 2022, but a 75% certainty of it happening in 2023.

Swonk began by reminding us that while it appears there’s been a resurrection of stagflation, which hit its apex in 1973, Federal Reserve Chair Jerome Powell seems bound and determined to disrupt inflation to avoid a repeat of nearly 50 years ago. Perhaps it’s related to how strongly the U.S. economy had been rebounding of late: Swonk said the “the three pillars of consumer, housing and business all accelerated and had their strongest year since 1984,” and the jobs market was experiencing a massive upturn, having added 1.7 million jobs in Q122 alone — as much as in an average year.

“And we saved — there was $2.5 trillion in excess saving, but it was quickly drained by inflation. We decided to go back into debt,” Swonk said, “but now 50% of Americans say they’re trying to curb their spending.” In the blink of an eye, the housing market has dropped below pre-pandemic levels. “The housing market is the canary in the coal mine — and we’re seeing the most rapid deterioration in affordability of homes wave in history.”


Thanks to the pandemic and the war, the entire global economy has been rattled, Swonk said, her words nearly mirroring the World Bank report. “140 nations downgraded, including China. China may lag us in growth in 2022.” Not surprisingly, the division between the developed and developing world is widening, and “countries are having to make awful choices. Sri Lanka has already defaulted on its debt,” she noted, warning: “There’s no Las Vegas in the global economy. What happens abroad washes up on America’s shores.”

Here, companies are bracing for continued inflationary increases and what that could mean to their bottom line. “Half of CFOs expect double-digit price increases and 30% think it will be high double-digit, Swonk commented.”

Add to that labor shortage and work issues: “Immigration has fallen since 2016, and there’s a mismatch in what we’re training our workers to do. Churn is costly and not going to go away,” she noted. Work from home has actually resulted in less productivity and greater strain on female workers, who are now feeling misrepresented and suffering a disproportionate amount of mental health issues. She added, “I’ve heard employers say ‘I need a good recession to get the workers I need.’ But there is no good recession.”

And then there’s the war in Ukraine — the other part of Swonk’s meteor. For all of its downsides — which act as one of the lead dominos in the spiral of dizzying rises in food and oil prices, a grain shortage that unevenly affects already-suffering regions like Sub-Saharan Africa, Russia’s frightening and growing dependence on China, and the possibility of additional world conflicts, Swonk sees a silver lining. “When Russia invaded Ukraine, it did something COVID failed to do: it united us against a common foe. It’s stunning to see Europe unifying against Russia. Right now I’m more worried about developing countries that have to decide between subsidizing food and servicing their debt.”

What’s ahead? Swonk didn’t provide a crystal-clear picture, but she did allude to some brightness in the future. The U.S. economy is still growing, albeit at a slower rate, and defense spending is roaring, unsurprisingly. Computer chip makers are getting back on track and starting to ease the massive demand that began during the pandemic. The job market continues to boom, with 11.6 million job openings in March — “55% above levels we’ve seen before.” The 2022 midterm elections may have more of an impact than in past years, as Swonk quipped, “inflation dictates politics.”

Indeed, it isn’t all storm clouds and rough seas, according to Swonk. There is still underlying strength in the U.S. economy — and the Fed’s efforts to tame inflation by increasing interest rates and tightening the money supply may actually allow an overheated economy to stabilize before another period of sustained growth. If the Fed can achieve the elusive goal of a “soft landing,” then a modest recession may not have a devastating on American consumers and businesses.

Moreover, MFM members I spoke with following Swonk’s remarks praised her for delivering the “cold hard facts” about where we are today and said that dealing with the pandemic for the past two years has actually helped them prepare for a potential recession. “We have a much better understanding of our priorities,” said one CFO. “We know what we can live with — and what we can live without.”

Joe Annotti is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. He can be reached at [email protected] and via the association’s LinkedIn, Facebook, Instagram and Twitter accounts.

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