Landing the Plane

A fun chat about the economy.

Happy Friday everyone. This is a Jackal I’ve talked about for a while, and is a conversation between myself and my good friend Adam Kail. We actually talked last Friday, but between a sick kiddo and regular life stuff, I did not get around to transcribing it until this week. So, you’re getting this Jackal and then a bonus one this weekend to make up for last Friday’s vacancy.

Pure Michigan, by Adam Kail.

As all my discussions with super smart people go: This conversation has been edited for length, clarity, and my own stupidity. I am in bold and italic font and Adam is in the regular font.

David: OK, so I wanna start out with who you are, and you disclosing anything you need to disclose about our relationship.

Adam: What do I need to disclose?

That my wife works for you. I think that’s a pretty big deal.

OK, my name is Adam Kail, and I am the founder and CEO at Harrison Gray Search, an executive search and recruiting firm. We have locations in Grand Rapids, Michigan and Denver, Colorado. I’ve also known David Podhaskie for a long time, longer than I can count really…since college. And his wife has been working with us for the past 13 months and is leading our Denver office.

The reason I’m calling you is because I wanna read you this headline, from October 17, 2022. This is a Bloomberg article by Josh Wingrove: “Forecast for U.S. recession within the year hits 100%, in blow to Biden.” Bloomberg economics sees near certainty an economic downturn will start…tightening conditions, inflation, and a hawkish Fed..and it says a U.S. recession is ‘effectively certain in the next 12 months’ in a new Bloomberg economics projection by Anna Wong and Eliza Winger.” But around this same time, I was talking with you - because we chat regularly - and you said, “I think [quarter three] 2023 is gonna be nuts for growth.

Yep. That’s what I said.

We did get a jobs report today, which was like steady-as-she-goes. Payrolls were up 150K, unemployment is 3.9%, and that’s factoring in the UAW strike going on.

Right. About to end though.

It’s about to end and will get factored into next month’s report. But you also had a GDP number of like 4.9%…nuts in the Q3. So, I wanna know how you knew it would happen. It’s so wild. Here’s the thing: I recently had a reevaluation of my relationship with polling over the past few years, because I used to be like, “These guys are always right,” and now they’re just continuously wrong. And now I’m doing the same thing with economics. The economists were saying a recession is 100% coming, and they were wrong and you were right. So, I wanted to know what you saw last year. A YEAR AGO.

So, where I have an advantage that economists don’t, they were looking at all the numbers traditionally had told them to be true and were saying, “Based on what has been the case forever, this is what’s gonna happen based on what these indicators tell us. So, I don’t have a good answer for you that says, “This is exactly what I saw.” I just knew what everyone I was talking to sounds like. And when I say, “Talking to,” I mean: I am on the ground floor, talking to hiring managers, to C-level individuals, to people who are forecasting their growth, and I’m talking to people that are hiring, and I just didn’t see a recession coming based on how aggressive the market was. With the exception of the tech market - which is like 3% of the workforce - I just didn’t see it.

Usually when a recession is coming, everybody is timid. Everybody’s scared. Maybe not scared, but they’re just more like, “I’m not gonna hire and I’m not gonna go aggressively after candidates.” And last year I saw companies making really strong offers, growing, because I know how people are getting hired. Is the job new, or is it a backfill? Most of the jobs were new. I’m talking to hiring managers about what they’re forecasting for next year, and what they see. And it was all very positive.

Right.

The other thing is, I know that inflation is a thing and there are all these things that factor into recessions, but I didn’t see the jobs numbers going down. And I didn’t see unemployment going up. Those two things are the backstops of a recession. It’s like dominoes: There are all these other things at play, but the last two are always unemployment and job growth. If those two things fall, then you have a recession and people don’t have jobs, and there are no jobs being created. See: 2008. I didn’t see those last two happening at all. But 2023 was a tough year for recruiters, in a way, but our clientele base has grown more than it’s grown in any other year, and we’re on pace to have our best year ever in 2023. So, it’s just a testament to the market and a testament to not buying into a narrative that I thought didn’t make any sense. And even though I’m not a humble person, as you know…

Hahaha.

…I’ve tried to not do a dance over this because, I just have a different perspective of the market. And I just didn’t see it.

Right. I think it’s also worth noting that inflation has come down a lot over the past few months. We’re at 3.7%, so we’re getting closer to the Fed’s target…which is like 2%. I don’t know a lot about inflation and if it can go up, and I also don’t trust anyone about it. But the numbers are pretty clear. So, what are you hearing now from companies?

So, when tech started doing their layoffs last Summer and in the Spring of 2023, companies used those headlines as ways to get thinner and to cut some fat. Big companies will cut a thousand people and say, “We’re just trying to be careful,” but when you have Facebook, Twitter, AirBNB laying off a ton of people, other companies view that as normal. They don’t have to do it; they’re just doing it. So, layoffs have happened this year, but they happen every year. What I’m seeing for 2024 - again I’m not a fortune teller and I’m not as smart as the people writing these articles - I do see interest rates coming down, and I see inflation coming down even more, and I see things starting to really rip. Again, continuing to grow - barring anything unforeseen - I think it would be better than it is right now. And I think the economy is great, overall. Of course, some industries, like real estate, are really feeling it right now. But once interest rates come down, the housing market will go bonkers. Even if rates go down to 5 or 6%, that will unlock a huge piece of the economy, that is slower than normal right now.

It does seem like a lot of these guys missed what was happening. Or they might just be looking at traditional factors in a “normal” economy, and it’s a little bit abnormal. Like, a lot of people are working from home now, so that’s also changing the dynamic of downtown areas and downtown businesses. Do you think work from home is gonna be a permanent thing, or are people going back to offices, or will we do hybrid?

I think the majority of businesses will be hybrid. I do think a lot will try to go back full-time, or four days a week. I think two or three days from home are gonna be normal. I don’t think fully remote is gonna be a thing for most companies. Unless everybody goes back to work, fully in-office together, it’s gonna be really challenging to do that, because you’ll lose people.

Yeah, they would just move somewhere else.

Right. I think the other piece to that puzzle is that most of Gen Z has only been hybrid because they came into the workforce during COVID. Very few know a five-day, in office work situation. That trend is gonna continue. And when Gen Z is calling the shots, they’re not gonna be calling for five days a week in the office when they’ve never done it. We have clients that are fully, five days a week in office, and it’s really tough for us to recruit for them.

Right.

And to answer your question about down business economics: I saw headline the other day that said downtown businesses are starting to increase, which is exciting, because I think it’s a huge part of our economy. We want downtown markets to be successful. I don’t know if you saw this the other day, but the Flat Iron Building in New York. is being converted into apartments. I could see a ton of buildings going that way, which is gonna help downtown economies. Especially in a town like New York, where more apartment space is a good thing.

I was looking at data for Denver, and downtown Denver has more residents now than it had in 2019, which is crazy. In fact, I worked downtown recently out of Union Station, and I was a little afraid, because Union Station after COVID and during COVID…it got dicey. It was just becoming dangerous, and underneath Union Station was especially bad. But I went there and it is, like, pristine. Super nice. And there were a ton of people working in there too.

Why do you think that is?

So, I’m biased, but I would say we have a new mayor. (I did some work for the Campaign.) But I do think Mike Johnston is committed to cleaning up homelessness downtown and getting those people into homes. I don’t know if he will be successful with that or not, but I do think everything you read in the newspaper is a lagging indicator of what’s happening. Because, even a few months ago it was definitely slower. But now when I go downtown, I see people in their work attire, going back and forth to places. I went to a place to get lunch recently and the line was out the door. It felt like 2019 again. And I think we’ve sort of been in this post-COVID haze, where we were trying to adjust to a “new normal.” It’s just been hard to remember what pre-2019 or what pre-2020 was like.

You’ve also worked remote for a while, and now you have more people who are remote, and are living in Denver but working for a company in San Francisco. So, now they can go downtown and work in a place like you do, or in a coffee shop or a bar. And stuff is more open and people have more flexibility, so they can go downtown, have a lunch and work. That wasn’t happening in 2019 either. People were just working downtown, walking to lunch and going back to their offices.

Right.

That’s another piece of it. Even though it’s not the same, that’s still gonna help the economy more. Over time, as more companies are hybrid or remote, and more people are moving back to downtown markets, because - I don’t care what anybody says - Montana was fun…

Hahaha.

..it was! It was fun while COVID was going on. But now that everything is open and safe, Helena, Montana does not hold a candle to Denver, Colorado. Right? Middleton, Michigan doesn’t hold a candle to Grand Rapids.

Right, yeah.

It’s a mindset thing and it’s gonna take time for that to work its way back in based on how leases work.

Here’s the other thing. I don’t know what’s happening in every metro area…well, the FBI said crime was down overall from 2022.

They’re not defunded yet?

I do know in Denver in the first quarter of the year, crime was down a lot from the year before in 2023. And that has nothing to do with the mayor; he didn’t even take office until August. I think overall you’re seeing a decline in crime. Crime was definitely elevated post-COVID, but now that downtown areas are filling up with more bodies, there are more eyes and people are less likely to commit crimes with more eyes on them.

I know you’re saying this with actual data and that’s true, but there is this narrative that says the opposite. I have people in my life that read and consume really conservative media - and I’m gonna bring this back to the economy in a second - but they’re convinced that every downtown market, is really, really bad. And you’re gonna die if you go there. We have people who genuinely believe that, in my network. People I see every week.

Yeah.

Here’s the other piece, and I told you this a lot over the past few years, when all these articles were coming out about the economy, I was like, “What are you talking about? The economy is fantastic.” Is it perfect? No, but the only perfect economy was really the Clinton economy in the 1990s, and the Boomers are still living off that success. They’re still benefiting off of those financial gains! But there were all these articles, from Jamie Dimon saying there’s going to be a recession in the next 12 months to MSNBC saying the economy is bad, of course people are going to say the economy is bad. It really is a mindset thing. A person says, “I think things are OK, so I’m gonna go to dinner tonight.” And if people get scared, it starts this self-fulfilling prophecy. That’s all the economy is, albeit I’m dumbing it down.

I think it was in The Bulwark, somebody said this was a “vibes” economy. People feel like it should be bad.

Yeah.

I do think inflation puts a lot of pressure on people. It can be really hurtful to go to the grocery store and see something that used to be four dollars, and see it be six dollars. But I think the thing that happens with inflation is that people want there to be deflation, where things just get cheaper. But that’s not gonna happen. Inflation is always rising; it’s at 2% every year, and things are always going up in price. That’s the Catch-22: Your debt is worth less with inflation, but also things cost more.

I honestly wish all media companies would stop talking about this recession stuff that’s not happening, or not going to happen - in my opinion - because that itself would make the economy way stronger. When people talk about the economy it makes my head want to pop off. It’s frustrating because my livelihood is tied to the economy. A strong economy is a strong recruiting market. And I get it! I got to the grocery store and for a couple months, eggs were six-fifty, seven dollars. But at the same time, I also understood that several hundred thousand chickens had to be killed because of a swine flu outbreak, and you start to understand eventually prices would come back down.

Yeah. Also, I think Americans are in a little bit of a bubble. There was a post I saw recently on the economy, and the inflation rate was really high, and it was like, “Thanks Joe Biden.” But I went to the comments and there a bunch of people from Europe who were like, “Uh, our inflation rate here is 10%.” And it’s true! The U.S. has the lowest inflation rate in the G7! I don’t think most people know that. And we spent the most on COVID, I don’t think most liberals know that. The U.S. had a very generous benefit program during COVID, between Trump and Biden.

Yeah, we spent like three trillion.

But to me, I don’t know. This is another entire thing. This is really for economists who are smarter than I am, but this has been a narrative-busting sort of thing. There was a narrative that if you raise interest rates, you will eventually send the economy into a recession and that hasn’t happened. And then there was this notion in economics that if you spend more money, you’re gonna drive inflation. The U.S. spent a ton of money, and our inflation rate is lower than countries that spent less than us.

Right.

So, if that was true it doesn’t make sense, and it seems like inflation was related to major supply chain issues that happened from COVID.

1000% it is. The other thing too, that the Biden Administration has to do a better job of evangelizing is how skillfully they navigated these waters. They’re calling it a “soft landing,” even that is too harsh of a term. Maybe not, but what they were able to do with what they had, to basically land this plane where no one really feels a difference overall…and again, I know people go through hard times and who live paycheck to paycheck, that’s not what I’m talking about. I’m talking about significant changes that happen due to inflation. To keep the economy booming with these interest rates, is honestly pretty nuts. It should change the way people do things going forward.

They are going to be looking at this period forever. It will be in textbooks. Our kids will be reading about this, assuming any of our kids go to school for economics. So actually, I’m assuming not, since I don’t do public math and I anticipate my daughter will inherit that. But yeah, this is gonna be the wildest period to look at in terms of economics.

100%. I think the other piece that we’ll never know, I also think there were several companies that increased their prices as they watched costs go up.

Oh yeah, I think that’s true.

Especially in the American economy. I know for a fact that there are companies that did that, they increased their prices without changing anything else. And they have the freedom to do that, but that’s just a part of it where prices keep going up, whereas they did it because they were able to do it. So props to them.

So, props to them.

But it goes back to the way it’s reported. If a media organization says, “We’re gonna get clicks if we write another piece about how the economy is bad,” that means maybe a hundred thousand people tonight aren’t going to dinner who would have gone to dinner, based on one headline. And I’m not joking.

That’s true.

They say, I read there’s a recession coming and we should tighten the belt for a few months. For instance, I googled Jamie Dimon before we started talking - because I haven’t thought about this guy because he’s been wrong so much - and I saw him saying the exact same thing over the past three years, and he said it again last month. Or September.

You’re right, it does affect people. I do think in terms of the media…it is super hard to be an economist and a journalist. Some people do it really well, I’m thinking Ben Cassellman or Neil Irwin. There are a few guys who do it really well. But most of the time, a reporter or someone is just listening to an economist and they’ve been wrong. There is one guy I follow - Justin Wolfers - and he has been right about the economy. Actually, I think he works at Michigan.

Of course he does.

He’s a professor at University of Michigan.

Go Blue.

Yeah, he’s been really on-point. And I go back to him often. Lots of people will read a jobs report and say it’s bad, but he’ll break it down and note that it also is colored by the autoworkers strike.

Well, I am overall glad the union won. But having said that, I bought a vehicle before the strike happened because my lease was up in March, and I thought, “I’m gonna buy a vehicle now because I don’t know what’s gonna happen with pricing because prices are gonna go up if the union wins.” But what you don’t think about, is that we work with several engineering and manufacturing companies that support the Big Three here in Michigan, and all those companies said, “We’re not hiring at all.” And it took like a month for it to catchup, and now they’re saying they’re stuck. And that affects me, because we had all these searches up for my engineering and manufacturing team based on the strike. But people don’t think about how it affects a lot of the economy.

It is crazy.

It trickles down to my recruiting business, and we didn’t have the October we would have had, because of this strike. People on my team aren’t gonna make commissions because a company that services Ford stopped making cars for a little bit, and you don’t think about how many people that affects. It’s not just the auto industry.

It shows you how superconnected economy is.

And that’s why I think I was so confident a year ago when I said that to you, because I just saw how busy we were and who our clients service, and how they were forecasting. So, when I see that kind of confidence, it makes me think things are going well.

Alright, I guess that’s a good place to end it.

This was fun.

Are you impressed with how much you know?

I am impressed with how much I know, it just takes someone like you to pull it out of me. I did want to ask you, as someone who gets paid to read, what do you think is gonna happen in the next year and a half?

I think we’ll probably see stuff that’s similar to what we saw in the jobs report. So, in the years of the Obama economy, it was in a recovery period for a really long time. And it didn’t really hit its stride until 2013ish. If you remember when Obama ran for reelection, he was like, “We’re making progress and we need to get better.” But it was overall a pretty slow economy, and I think we’ll probably move into something like that over the next couple years.

Right.

I don’t think the U.S. is factoring in that the rest of the world is on a much slower recovery pace than we are. For instance, in 2022, there were two negative quarters of growth for GDP. And a lot of people were like, “That’s a recession,” and I always thought that was a recession too. But Wolfers was like, “How can you say there was a recession when you have a jobs report that said we created 380K jobs?” And one of the reasons those GDP reports was down was because of a trade imbalance. So, I think as the rest of the world recovers and U.S. exports increase, we could be hitting a really good stride. We’re also pretty close to full employment. That’s my take.

Yeah, we are very close.

Yeah, boi. I’m gonna end it here.

End it here.

---

That’s it for the Jackal this week, but I am putting something together to come out over the weekend. That means you will hear from me two more times before Thanksgiving, with a few December issues and a big end-of-the-year piece.