Scott Colbert compared the U.S. economy to a Tom Cruise movie. Things start out exciting, then something tragic happens, putting Cruise’s character, whether it be a fighter pilot, bartender or sports agent, into purgatory — before he bounces back.
Colbert, chief economist for Commerce Bank and Trust, visited Naples this week from his home in St. Louis, where he works for one of the nation’s top 50 banks, one with $32 billion in assets, $25.3 billion in deposits and $74.8 billion in total trust assets. Colbert has a degree in nuclear engineering from the University of Cincinnati and a Masters of Business Administration from Xavier University.
“The economy basically runs on the same cycle,” Colbert said as compared to the plots of, for example, Top Gun or Top Gun: Maverick. “We’re in the middle of the movie somewhere, where Goose gets ejected. And Tom is very upset about the whole thing. Or Jon Hamm pulls him from his starting slot as a super fighter pilot. But yet he’ll fight his way back and continue on for the back half of the movie.”
President Donald Trump began his second term by implementing tariffs on foreign-imported steel. Colbert explained why.
“Regarding the tariffs, he’s trying to do three things,” Colbert said. “One, he’s using the implementation of tariffs to basically create leverage. Leverage in negotiating. We’ve already seen this with Venezuela. And this is the Mexico and Canada strategy. He wants to bring down immigration and end the drug flow. He’s interested in us purchasing less oil. And perhaps bringing in some of those auto assembly plants from Canada. So, he’s got leverage.
“Second, he would like to raise some revenue. There’s no doubt about that. And he’s going to do that. He really thinks that China is dumping steel on the market.
“The third thing he’s trying to do is implement some things he thinks needs to be done for national security and for economic security. That 10% across the board tariff is just a start. He doesn’t want us to depend upon our frenemies for certain items during economic crisis or during time of war.”
There will be negative side effects from those tariffs, Colbert predicted.
“This is a benefit to domestic steel producers,” Colbert said. “But China has the ability to basically produce about eight or nine times more total steel than the American industry, so this will no doubt raise the price of steel here. It will also give a protectionist type thing. We definitely have our own steel industry, and it will continue to run. That’s the downside of tariffs of course. Somebody’s going to have to pick up the cost.
“There’s no doubt that the downside of tariffs is inflation or higher expenses. Ultimately, the end user will pay some of that tax in the form of a higher price. The upside is clearly to reduce the amount of immigration. And reduce the drug flow.”
Good news, Colbert said, could be on the way to corporate America.
“With regard to corporate America, for those corporations who are going to bring jobs back and produce most of their goods and services here in this country, rather than bringing them from outside, he’s going to roll the tax rate probably from 25% to 15%, which is positive for the stock market,” Colbert said.
Colbert spoke the afternoon of Feb. 11 to a group of residents at the Club at Mediterra in North Naples. Commerce Trust President and CEO John K. Handy and Chief Investment Officer David Hagee also were on hand after visiting their Naples branch office.
Colbert planned on addressing another hot topic with regard to the economy: the federal deficit, which has climbed past $35 trillion.
“This is probably an Achilles’ heel of super America,” Colbert said. “It slowly and steadily becomes an albatross, hanging around our head. We spend, at the federal government level, $7 trillion dollars every year. But we only bring in $5 trillion. Our federal government is basically spending $7 dollars for every $5 it takes in. And you know if you’re a normal company, you can’t do this very long and expect to survive.”
Having flown to the region from St. Louis, Colbert used another analogy, that of his flight to Southwest Florida International Airport, when explaining the current state of the U.S. economic cycle.
“Where in the economic cycle are we?” Colbert said. “Where are we heading? And what’s the outlook for financial assets?
“The 2-minute version is this. Every economic cycle is somewhat the same. And generally, when you start the economic cycle, it’s very fast and generates some type of inflation. That’s clearly what happened. And the fed pushes back, and they raise interest rates. That’s the key moment there.
“Just so everybody knows, we haven’t even come in for a landing yet.”
A typical economy flies at about 550 knots, Colbert said.
“This economy is still flying 650 knots,” he said. “It hasn’t even approached Fort Myers’ airport yet. The plane has yet to even slow to a normal cruising speed. The economy grew 2.7% last year. We grew 2.9% the year before. So, the question of a soft landing is moot, because we haven’t even approached the airport yet.
“Our expectation of growth is positive. You have positive earnings growth, that’s usually not bad for the stock market. At least it keeps moving forward. The downside is this, with the higher inflation, we probably have higher interest rates longer than we normally might have. The great news is the fed has a lot of ammunition to provide interest rate relief if they get the inflation to roll over and come down.”
When the economy finally does slow down for the inevitable end of the current cycle, that’s when things get scary, Colbert said.
“That’s the dangerous time, right?” he said. “The plane doesn’t crash in the air. It crashes on the land. That’s what we’re trying to avoid. To make sure the touchdown is smooth. We’re about halfway through a normal economic recovery.”
