CSCMP's Supply Chain Quarterly
August 17, 2019
Forward Thinking

U.S. economy can push 3-percent growth next year if retailers cut stores, economist says

Ratajczak also says oil won't exceed $70 a barrel for next three years.

The U.S. economy will grow by around 2.2 percent in 2017 and might hit 3 percent in 2018 if retailers can continue to reduce inventory levels in their bloated store networks, a veteran economist said today.

Donald Ratajczak, emeritus professor at Georgia State University's J. Mack Robinson College of Business, also forecast oil prices going no higher than $70 a barrel between now and 2020 due to what will likely be an enormous and persistent supply overhang that will far exceed world oil demand. At this point, excess world oversupply totals about 4 million barrels a day, Ratajczak said. U.S. shale oil companies have become remarkably efficient and productive in their drilling methods, he said, noting that one rig can discover three active wells at one time.

Ratajczak said the U.S. economy is being held back by too much store inventory that he blamed on retailers still having too many stores. The solution is for retailers to close more stores to bring inventories into sync with declining store sales as more consumers opt to shop online, he said. However, such efforts are time consuming because they involve complex legal matters such as leases and debt covenants. By contrast, it is easier to reduce planned inventory in the pipeline simply by cancelling orders, Ratajczak said. At the manufacturing level, inventories are fairly well controlled, Ratajczak added.

He acknowledged that retailers are now taking the often-painful step of slimming down their store networks and thus eating into their inventories. Such efforts, if they continue, will help accelerate overall economic growth over the next two years, he said.

Ratajczak, who spoke at the SMC3 annual summer conference in Palm Beach, Fla., echoed comments made at a session yesterday by Satish Jindel, who heads his own consultancy. According to his firm's data, the U.S. has 24 square feet of retail space per capita, compared to 5 square feet in the U.K. and 4 square feet in France.

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