Ingram's November 2022

A: Companies have already adjusted and are generally making different moves. Many of the debt structures they considered a year ago are off the table now. They are more focused on servicing the debt they have. They’re just not positioning themselves the way they were a year ago. Q: What factors are driving decisions? A: Some of what we saw previously was refinancing transactions, repositioning to take advantage of rates before they went up, and some didn’t get it done in time. Some transactions were contemplated around acquisition activities, and rates may have impacted those. We’re certainly seeing that on the personal side; the changes in rates within the housing market have really brought that out. Our view is that—nationally—housing is already in a recession. That has a big impact on everything else, given how much of our economy is tied to home ownership. When people are getting new homes, they’re also getting new appliances; they’re remodeling— the follow-on spends fromhome purchases or refinances, when you take that capital out, it rolls over. There’s amultiplier effect.While the remodeling demand has persisted somewhat, the overall pressure on the housing market clearly is helping to cool things down. Q: The voting is done, even if the vote counting continues. In your view, will the resolution of the 2022 federal elections bring any stability to business considerations? If Congress, for example, is divided between the parties, can business leaders anticipate a fairly stable policy environment for the next couple of years? A: Well, if that holds up (GOP control of the House), KevinMcCarthy will have a heck of a lot harder time than Nancy Pelosi did as speaker; whatever your views of Pelosi, she was able to herd cats pretty well. Historically speaking, though, business has favored gridlock. There are some impacts to that. If the Democrats held on somehow, held the House, and increased their numbers in the Senate, there could have been some chance of resurrecting Build Back Better or another stimulus, but I think now, that’s going to be difficult, if not completely off the table. Q: What else might you anticipate?

A: There are several provisions within the 2017 tax cuts that are going to sunset. A divided Congress is going to make extending those difficult. Any changes in corporate rates and some of the things Democrats had been talking about are not likely now. A more challenging (and near-term) issue may be coming to an agreement to fund the government between now and the end of the year with a lame-duck session and razor-thin margins in Congress. Q: Do all of these disconnected elements affect the business landscape? Is the task of getting the economy back on trackmore challenging in this environment? A: It’s a challenge, but it’s manageable. The risk is that we can’t get inflation under control or some sort of liquidity or market event happens that prevents the Fed from getting inflation in check, and it persists longer at these levels. If we go through a mild recession and it has the effect of getting inflation in check, I feel it will bemanageable. Q: Anything else about a potential downturn this time that might deviate from past experiences in the cycle? A: Downturns vary by what causes them. Housing in 2008 was different. In the current cycle, the rise in inflation and the downturn have been caused in large part by the tight labor market, along with the issue of labor productivity. Add to that immigration policy and those related pieces of the puzzle, along with our aging demographics and all of what goes along with it, and we have a lot of challenges to solve. It’s not going to be easy. Q: How much of a downturn are economic fundamentals, and how much is the result of, for want of a better term, talking ourselves into a recession? A: I don’t know what President Esther George at the Fed would say, but I have always believed there’s an element of self-fulfilling prophecy with downturns and talking ourselves into a recession. I don’t know how much of that applies now; this recession is different, impacted by labor shortages, and was, as you know, exaggerated by the pandemic. That said, if we can talk ourselves into one, then why can’t we also talk ourselves back on track?

“There are several provisions within the 2017 tax cuts that are going to sunset. A divided Congress

is going to make extending those difficult.” — Stephen Penn, office managing partner, KPMG

the last fewweeks talking about howmuch of their personal wealth is sitting in cash, waiting until they feel like things have sort of hit bottom. But for the right opportunities, there is still interest and demand. To that earlier point around trip wires, whether it’s geopolitical risks, events in the UK, or some other unforeseen event in the U.S., there’s a risk that some market or liquidity event prevents the Fed fromexecuting, which creates a mini-crisis. If concern is the right word, it’s a concern of what you don’t yet know about. Q: Back to business moves for a moment—what guidance are your folks giving corporate clients regarding more effective debt management as interest rates continue to rise?

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I n g r a m ’ s

Kansas City’s Business Media

November 2022