Allegheny’s Center for Business and Economics kicked off its spring semester’s lunchtime learning lecture series on at 12:15 p.m. Thursday, Jan. 16,. in Quigley Hall Auditorium by welcoming Trustee John Kutz, ’83, to give a presentation titled “Anatomy of a Recession.”
The presentation was centered on three main questions: How close could we be to the next recession? Will growth hold steady, weaken or pick up by the end of the year? What factors are most important to watch to help keep people on track?
Shannon Putnam, ’20, began the lunchtime learning lecture by introducing Kutz.
“While at Allegheny, (Kutz) was a double major in economics and German, and a member of Delta Tau Delta,” Putnam said. “After his graduation from Allegheny, (Kutz) received his MBA from the (Joseph M.) Katz Graduate School of Business at the University of Pittsburgh.”
Putnam said one of Kutz’s favorite memories of Allegheny is the relationships he built with professors at the school.
“Additionally, one of (Kutz’s) proudest moments with Allegheny is his son, Tim, ’18, carrying on his family’s Allegheny legacy and finding success after graduation,” Putnam said.
Like his father, Tim Kutz was a double major in economics and German, and a member of Delta Tau Delta.
Kutz began in the investment industry in 1998, and spent nearly 18 years as managing director of retirement plan services at Victory Capital Management before serving the Ohio Valley region as sales director for Legg Mason.
Kutz began his presentation by asking students and faculty in the audience to raise their hands if they knew his son.
“I am very proud of him,” Kutz said, “(Tim) is killing it, and that is what happens when you have a great liberal arts education from Allegheny College.”
Kutz’s presentation focused on capital markets and reviewed where the United States economy stands, relative to a possible recession.
However, Kutz first introduced the audience to Legg Mason’s program, Anatomy of a Recession.
“(Anatomy of a Recession) is a program we update on a monthly basis to the extent that the variables that we will cover that tend to foreshadow economic change,” Kutz said.
Kutz first asked audience members if they knew the definition of “recession,” before explaining that recession is two consecutive quarters of GDP decline.
“We are trying to do whatever we can in this economy to avoid a recession,” Kutz said. “This is why we created (Anatomy of a Recession).”
Kutz continued by defining the vocabulary terms, “market crash” and “pullback.”
“A market crash is defined as a decline in the market by more than 20%, and it is a duration of more than a year,” Kutz said.
Kutz said that the U.S. has experienced six market crashes since the 1960s. All, except for one, of these market crashes resulted in a recession.
Declines in the market that are fewer than 20% and last less than a year are considered pullbacks, according to Kutz.
“Market crashes are nearly three times more likely to result in a recession,” Kutz said. “Market crashes and recessions go hand-in-hand.”
Kutz explained that the U.S. is in the 11th year of a full market coming out of the financial crisis. Kutz also mentioned that the recovery from the financial crisis of the early 2000s has been shallow compared to other recession recoveries the U.S. has had since World War II.
“As a result, businesses and consumers don’t feel good about this recovery,” Kutz said. “There is a myth that because (the U.S.) is so long into this economic cycle — this is what you are hearing on television — it has to come to an end, and that is not the case whatsoever.”
Countries such as Canada and Japan have experienced much longer economic cycles, according to Kutz.
“Time is not a reason for an economic expansion to stop,” Kutz said.
Kutz also discussed what is referred to as the recession-risk dashboard, which is comprised of four main pillars.
The first of these four pillars is financial indicators.
“(Financial indicators) tend to be the first to weaken when our economy starts to go into a downturn,” Kutz said.
In addition to financial indicators, the pillars also include inflation variables and the consumer sector. Finally, the fourth pillar is business activity.
Using a stoplight analogy, Kutz described the U.S. economy in terms of red, yellow and green. Kutz labeled the current U.S. economy as yellow, meaning cautionary. Red is used to mark a recessionary economy, and green an expansionary.
“(The recession-risk dashboard) was designed to give investors and consultants ample time to act,” Kutz said. “(The economy) doesn’t flip overnight from green to yellow to red. There is a time horizon that should allow people to do things within their portfolio to take the risk out of their portfolio.”