A mild recession is imminent. Lake Charles has had the poorest recovery from the COVID shutdown in the state. Nevertheless, there is reason for optimism, according to economic consultant Loren Scott.

“Economies take a hit and come back up,” Scott told business leaders at the Southwest Louisiana Entrepreneurial and Economic Development Center this week, and no other Louisiana Metropolitan Statistical Area (MSA) took the hit that Lake Charles did, a pandemic plus four weather disasters.

As of July, the Lake Charles MSA (all of Calcasieu and Cameron parishes), has recovered only 45 percent of its post-2019 losses. State and federal disaster assistance has been slow to come in. Plus, Lake Charles lost 6,000 jobs last year. After month-by-month employment data was analyzed and revised at the end of 2022 – and revisions are seldom this dramatic –  6,000 jobs disappeared, inexplicable but confirmed by matching lower school enrollment numbers. Displacement and migration made a difference.

Good news

Scott’s optimism for Southwest Louisiana depends heavily on the Final Investment Decision (FID) announcements of at least two, maybe three proposed LNG projects. If these projects “pull the trigger” that would mean an increase of around 7,200 jobs in the next two years for Calcasieu and Cameron.

“That’s what happens when you get LNG export terminals of this size,” he said, pointing to his chart of  companies seeking final investment decisions. At the top was Tellurian Driftwood with its proposed $16.8 billion export terminal, Venture Global’s Calcasieu Pass 2 with its $13.5 billion project and Energy Transfer with its $10.9 billion project. In the number four spot, based on total investment to build these projects, is Lake Charles Methanol, a project in the works for years. LC Methanol has renewed its lease at the Port of Lake Charles, according to Scott.

“The methanol market is hot,” Scott said. “That happened about five years ago when the International Maritime Organization made a ruling that ocean going ships that came into certain ports had to use fuels with less sulfur content.”

Southwest Louisiana’s economy will benefit from not only construction jobs added to build new LNG export terminals and a methanol plant. Chennault International Airport-based companies Northrop Grumman, Citadel and Landlocked look forward to adding employees in the coming year, and the Port of Lake Charles will soon begin  its largest capital project in its history.

The ‘R’ word

“Recession is imminent,” Scott said. “If we go back to June of 2022, inflation was rocking along at 9.1 percent, and we haven’t seen anything like that since 1980 through 1982, which means you have to bring in the Federal Reserve. One of the things they’re going to have to do is reduce the money supply. Inflation is too much money chasing too few goods and services to quote Milton Freeman, my hero.”

During the period of COVID recovery, the Feds pumped money into the economy. Now they’re using open market operations to take money out of the economy at a tune of $195 billion a month and interest rates have been increased 525 basis points. However, moves have not brought inflation down significantly. Raising interest rates make any credit purchases such as houses and cars more costly. Housing starts will fall and that will impact the sales of durable goods such as furniture and appliances.

“I see the Feds raising the interest rates at least one more time,” Scott said

Scott’s projections for 2024-2025 for the Louisiana economy are based on the U.S. experiencing a mild recession starting in late 2023 or early 2024, and lasting for about two quarters. The CPI in June had dropped all the way down from the high of 9.1 percent to three percent. However, the big drop is largely attributable to a 16.7 percent decline in the volatile energy prices. The core CPI, which is CPI minus food and energy, has remained stubbornly sticky at 4.8  percent. Food prices are still running 5.7 percent ahead of a year ago. These numbers are inconsistent with the Fed’s mandate to keep inflation at two percent or lower.

In his report, Scott also wrote, “there are some typically reliable signals of a recession on the horizon. The Index of Leading Economic Indicators has now declined for 15 straight months. A decline of three straight months in this metric usually signals a recession. The Institute for Supply Management’s Manufacturing Composite Index has now declined for nine straight months. The yield curve has been inverted for several months, another harbinger of a recession.”

Louisiana might be in a better position to weather this recession for a few reasons, he noted.  It depends less on the durable goods manufacturing market such as cars, appliances and furniture.  Its prominence in the LNG market coupled with the prices Europe is willing to pay for natural gas, improvements in oil and gas drilling that is resulting from increased production from fewer rigs and the Denbury pipeline that passes through this area, and could help in achieving carbon capture sequestration, thus blue and clean designations for efforts to reduce carbon its carbon footprint are good for the State.

One final thing could help Lake Charles through this forecasted mild recession. Hurricane and other weather disaster recovery money will continue to trickle in.

Loren Scott is founder and president of Loren C. Scott & Associates, a 35-year economic consultant firm, who has been interviewed on MSNBC, CNBC, Bloomberg TV and other media outlets. He has presented his findings in Lake Charles at least 28 times in the last 30 years and Tuesday’s presentation was sponsored by Horizon Bank, McNeese State University and Chamber SWLA & the Economic Development Alliance.