Economic Update from the Federal Reserve Bank of Atlanta

Episode 5 September 22, 2022 01:17:55
Economic Update from the Federal Reserve Bank of Atlanta
Kassouf Podcast Network
Economic Update from the Federal Reserve Bank of Atlanta

Sep 22 2022 | 01:17:55


Hosted By

Tara Arrington

Show Notes

Anoop Mishra, vice president and regional executive of the Birmingham Branch of the Federal Reserve Bank of Atlanta, offered his expertise about the economy at Kassouf's Economic Update earlier this year. Today's episode is a recording of Anoop's insightful presentation. 

Anoop is is responsible for the branch's board of directors and the District's Agriculture Advisory Council. Mishra oversees the Birmingham Branch's economic and financial education program and provides regional input into the Atlanta Fed's monetary policy process. Prior to joining the Fed, Mishra founded and ran a business consulting practice. Previously, he had been a business executive in the employment screening industry for 14 years, first serving as chief operating officer of the Birmingham-based EDPM and later as chief executive officer of the Salt Lake City-based WorkforceQA. He also served as a manager in Accenture's strategy consulting practice in financial services as well as director of development for Operation New Birmingham, an urban economic development group.


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Episode Transcript

Speaker 1 00:00:06 This is the Kassouf podcast network where your trusted advisors are at your fingertips or in your earbuds at Kassouf. We are in accounting and advisory firm with a team of specialists in a variety of industries, everything from cyber security to healthcare consulting, to everything in between I'm Tara Arrington. And I'm your host as an ex journalist turned marketing professional, I'm the non-expert who will be chatting with our experts, giving you all the tips and tricks you need to help your business succeed. Speaker 2 00:00:39 Today's podcast episode is a recording from our summer economic update workshop, featuring a Anoop Mishra, a new works for the federal reserve bank of Atlanta. And he was so kind to spend time with our Kassouf team members and clients to give us an update on the economy and his projections for the future. Please enjoy today's recording. Thanks for listening. Speaker 3 00:01:01 Uh, this is really meant to be an economic update from the fed. Um, one thing I always begin these, uh, webinars with is just a clear statement that these are just my views, uh, that I'm expressing here. They don't necessarily belong to the federal open market committee or the Atlanta fed or the, the federal reserve, uh, system. Um, but what I am gonna try to do is that you're gonna see a lot of charts and graphs that I put on here. I know some of you may love that and think it's great and, and really just enjoy the day data. Others of you may just kind of want the punchline and what I'm gonna try to do as we go through the slides is it's less about what's on the slide and more for the narrative in terms of what we're hearing and that's what I'm gonna go through. Speaker 3 00:01:42 So let's just start with a broader overview as to where we are, um, really today from an economic standpoint. So, um, demand is still strong. There is still very much of a imbalance between high demand and supply constraints and restrictions. And this is true in most of the marketplace, uh, that we see most sectors, not all, um, employment is nearly back at pre pandemic levels. And we'll talk about this a little bit more, but we've seen really strong employment growth and the unemployment rate, which is, uh, only about 3, 6, 3 0.6%, which is essentially where we were, uh, back in February of 2020. And then it goes without saying that inflation is very elevated, and we'll talk more about what the inflationary conditions and pressures are, uh, as we move forward. And then, uh, finally, uh, as many of you probably saw about two weeks ago, the OMC, uh, did increase the fed funds rate, uh, by 75 basis points, uh, which is really the highest increase in the last, uh, almost 20 years. Speaker 3 00:02:50 Um, and in fact, I was gonna say it's, uh, probably close to the 30 years. It's been back in 1994 when we saw this type of increase last. And so we're gonna talk about fed policy as well as we move forward. So really I thought the, the easiest way to kind of think about economic outlook would be look at where we are in terms of marketplace demand, um, labor dynamics, where we are with inflation pressures and then finally fed policy and where we go from here. And as Michael had mentioned, um, I'm gonna put in some code words, uh, once in a while, um, that you can sort of track the first code word is economy. So, uh, if y'all could make a note of that, the first code word is economy. Speaker 3 00:03:38 So moving forward, um, one of the things that you will notice when we think about real GDP growth over the past several quarters, really, since the pandemic, after we saw a line of nearly 3.4%, uh, in 2020, in 2021 has been, was a blockbuster year in terms of growth culminating in nearly 7% GDP growth by the last quarter of last year. Um, this first quarter we saw the first negative growth since we've seen, uh, from the beginning of the pandemic at minus 1.5%. And, and again, this is sort of a, an estimate through quarter one. Um, we will probably be getting quarter two estimates sometime towards the end of July and, and seeing where we are. Speaker 3 00:04:31 So what is, what do we make up where demand is today? Um, I, I, I would say that in aggregate demand overall has been pretty strong and it continues to be resilient in fact, and in spite of, I think what a lot of what we hear, uh, in the media, however, it's not that simple of a story. It's not just a matter of demand is great. If we were to dissect how demand looks today. Um, we really need to think in terms of goods versus services and what it is that the marketplace is selling and buying. If you look at goods, which is represented by the red line, and you kind of look at the last two, two and a half years, you can see a huge upsurge, uh, during the pandemic, um, about 15% increase, uh, year over year, compared to where we were in 2019 levels. Speaker 3 00:05:22 This is not surprising when everything shut down, people started buying more things for the house, as opposed to buying services, nobody was going out, they weren't really going to restaurants. They weren't taking trips, they weren't traveling, they weren't staying in hotels. Uh, they weren't getting on airplanes. Uh, they were at home and as they transitioned to work from home, as well as being at home, they realized that they wanted to buy a new, a new furniture. They wanted to, uh, redo their deck. Um, they wanted things. And so we saw a huge upsurge in goods. What's interesting is relative to where we were, which was a very healthy place in the economy. Uh, pre pandemic, the, the purchase of goods has really surged, uh, over time. So it's not like we're just back to pre pandemic levels. We're we're way ahead of where we were in pre pandemic levels. Speaker 3 00:06:14 That's a different story from where we are with services. So we've seen an uptick in service, uh, growth, uh, and demand in the last, uh, uh, uh, three or four quarters. But as we've seen the uptick, if you kind of notice where the baseline is, and we baseline, uh, pre pandemic levels that in 2019, at a hundred, even with the uptick and surge in service spend, we are just now getting back to where we were at pre pandemic levels. And to some degree that's understandable because even within services, we've seen leisure services come back. So if you're taking a family vacation, uh, that is all come back. And then some, the one element that has really been a bit slower in coming back, although there's some positive momentum right now is business travel and business services. And again, this is something that we're seeing come back, but if we took a longer view of this, uh, service sector is really just getting back to where we were back in 2019 when the pandemic hit. Speaker 3 00:07:17 So there's a big, uh, difference that we see in terms of goods and services. One other thing that has happened for businesses as well as for individuals, consumers is the accumulation of, uh, wealth, um, or accumulation of assets. So this, this chart is showing us is what is the per capita, um, uh, accumulation of deposits currency, whether it's, uh, checkable deposits or money markets. So the, the green, uh, basically is telling us that we have seen nearly a 2.5 times increase in terms of per capita deposits that have been in place so massive, uh, accumulation, uh, much greater liquidity for households, as well as for businesses, which is not surprising because the two phenomena that we saw were we saw incomes go up, not only from wage increases, but more importantly from stimulus from P P payments from, uh, E IDL payments, economic impact, uh, tax credits, uh, actually two rounds of P three rounds of PPP. Speaker 3 00:08:26 So there's been a lot of stimulus that increased income. And at the same time, when services shut down while good spending did go up, uh, it was not enough to offset, uh, a decline in services spending. So you really had a lot of that extra money sitting in banks, um, and, and sitting as deposits, not being used. The other thing that we saw was that when the PPP money was executed to various companies, uh, it was done. So with the idea that this might be a longer haul, well, the economy bounced back a little bit quicker, actually good bit quicker than most people had really anticipated. So again, we saw an accumulation of funds, uh, in people's accounts, uh, through the pandemic. Speaker 3 00:09:13 So consumer confidence was actually pretty high in 2021. That's not necessarily the case right now, if you look at what's happened to consumer confidence in the last six months, um, by really, um, most measures it's dropped considerably again, which should not be a surprise simply because this is a function, a psychologically of consumers worrying that we don't have more stimulus coming in, but we see high inflation rates where the cost of goods and services is going up. And there is a lot of concern. Um, a lot of speculation on what the economy's going to be doing. Um, portfolio stock portfolios, bond portfolios, uh, are, have taken a big hit recently. So consumer confidence is something that we're certainly watching, um, and has been, uh, suffering in recent months. This is important because even as businesses do well, the consumer represents two thirds of our economy. So if consumer spend takes a big hit, uh, that's the direction our economy's gonna go. If we see consumer confidence, uh, softening, but stem, continuing maybe at more moderated levels or at softer levels, uh, that might mean, uh, essentially a softer landing for the economy. So it's something we certainly wanna keep our eye on. Speaker 3 00:10:36 So we have a situation in which we have a lot of savings, uh, accumulated during the pandemic, but we're seeing inflation go up. The price of everything becomes higher. So now we're in a, a, a place where we need to think about dipping into savings and what is the consumer going to do, and how does the consumer respond? Well, one of the things that we have already started to see is a pretty massive decline in personal savings rate. Um, you know, honestly our savings rate here, uh, in aggregate in the us was never particularly high, particularly compared to a lot of countries. However, we did see, uh, the, the massive savings accumulation during the pandemic, and there's been a rapid decline. So part of what we are seeing in the economy is that while demand continues to be robust, even from a consumer standpoint, there is some softening that we're seeing, but one indicator that we are paying attention to is that while credit quality seems to remain good among consumers, you know, we're not seeing huge credit crunches, we're not seeing credit quality deteriorate, you know, from a banking standpoint, um, we are seeing that people aren't saving. Speaker 3 00:11:53 So whatever income is coming in is rapidly going out, uh, typically to be able to spend on, in, uh, on, on goods and services that have inflated in price. So when we look ahead earlier, we were talking about goods versus services and the dynamics that we are seeing right now, um, this, you know, we have a number of surveys at the Atlanta fed, uh, that we do and are a survey of business uncertainty. Um, one of the things that we wanted to do was disaggregate demand and think about, uh, how companies, how are panelists feel about sales growth, but not just overall sales growth, but really, uh, distinguish between goods and services producers. And you will see a clear difference in terms of level of confidence, um, or, uh, certainty in kind of where we're going, uh, in the economy from businesses. If you are a good producer, your level of uncertainty looking ahead has gone up because now you're looking at potential inventory issues. Speaker 3 00:13:03 You are looking at, uh, prices having risen and gotten higher, where customers are potentially pulling back on purchases or perhaps trading down for lower cost, uh, uh, uh, goods. So your level of uncertainty in terms of what to expect in the next year is significantly higher as represented by this red line, which is really gone up in the last few months. In contrast, if you look at the green line, which is looking at services, your level of uncertainty has come down a bit, you know, and, and part of, I think what you're seeing again, if you're a service producer, is you're looking at the economy and saying, well, yes, there is still money out there. Um, even though maybe there's not a lot of stimulus and people are opting in to make decisions, spending decisions in favor of taking trips or going out, uh, because of the long period of essentially hibernation, I think that people experienced in 2020 and into parts of 2021. So your level of uncertainty as a services producer has actually come down over the last few months and you can see, you know, the overall uncertainty level really splits the difference, but, but that distinction between goods and services is something that not only are we seeing a difference in current economic conditions in what's happened the last six months, but it's also helping to define how businesses are thinking about future sales growth. Speaker 3 00:14:34 One thing I did wanna mention, um, and before I, uh, go to the, the next section is, and then I, I didn't talk a lot about, um, the, the survey that we do at the Atlanta fed in partnership with, uh, Chicago, uh, business school, as well as with, with Stanford, but, you know, part of my role or big part of my role with the Birmingham office of the Atlanta fed is managing what we call our regional economic information network, or we call it rain for short. So we have a lot of economists at the Atlanta fed, um, and they do wonderful work. There's a lot of data that we look at more data that we can, you know, meaningfully process at the same time. Um, our regional economic information network, uh, a core part of that is me. And then, you know, my colleagues throughout our six state footprint going out and talking to business leaders and really asking them not what they've seen, but what they're expecting going forward. Speaker 3 00:15:35 And this is a combination of individual, uh, discussions, one on one discussions with business leaders, but it also involves doing a lot of sophisticated survey work to get a sense of inflation expectations, uh, business uncertainty what's out there. Um, so a lot of what I, a lot of the feedback that I will try to provide you in terms of the narrative, even though we're gonna be looking at data and the data does tend to be backward looking, I will try to incorporate in some data that's more forward looking, but on top of that, uh, I, I'll also try to, uh, qualify my comments or to add to my comments, things that we are seeing in terms of discussions with business owners. I know some of the folks that are on the, that are on the webinar here today are, are folks that I've had an opportunity to talk to at different times in terms of how, uh, they're seeing their particular business or their sector fair, uh, going forward. Speaker 3 00:16:30 So I wanted to let everybody know that the second keyword, uh, for this, uh, webinar is inflation. So if y'all can make a note that inflation is the second keyword. So let's take a look at labor and labor dynamics. You know, I started off the presentation mentioning that our unemployment rate was 3.6%, which was essentially at pre pandemic levels. And, and that's great by all accounts, the labor markets have, uh, really improved. Um, most of I would venture to say that a lot of you on the call, that's not necessarily a positive thing because, uh, labor markets have been incredibly tight. Uh, labor's been difficult to find. Um, and you know, when you find it, wage pressures have been there and we'll, we'll talk about both of those things. But one thing I did wanna clarify as we're looking at this is the unemployment rate and the green line is 3.6% again, which is, uh, terrific, almost back to where we were pre pandemic. Speaker 3 00:17:36 The one of the areas that we're not really back to where we were before, and probably a more, a better measure of understanding some of the labor tightness is our labor force participation rate. Um, many of you be familiar with the term. Some of you may not be all that unemployment rate is doing is it's measuring those people who do not have a job, but have been looking for a job in the last 30 days. So if you've been looking in the last 30 days and you don't have a job, then that's 3.6%. It's a small number. That's a great sign. The labor force participation rate, however, is a lot broader. And so what this includes are people that may not be looking for a job. Maybe they were employed in February of 2020, maybe they got laid off, they got furloughed, they left the labor market, and then they, they never came back. Speaker 3 00:18:27 And that's gonna be an important thing because if you didn't come back, if you're not looking to gain for meaningful employment, you will not be counted in that 3.6%. So that's why from a fed standpoint, and from an economic standpoint, the unemployment rate is just a small part of the labor picture. Probably the broader picture that we wanna look at is who could work, but is not in the labor force. So when we think about labor force participation, we're really talking about everybody in the us that's 16 or over. So they're able to work, uh, that's you know, not in, uh, prison, not a student, not in the military. So, so even if you're retired, you're technically part of the labor force of participation pool. So that number right now is at 62.3%, three pandemic. We were at 63.5%, uh, or 63.4. Uh, I believe which, you know, uh, a little over a point may not be a big difference, but you're talking about millions of jobs because the denominator of eligible, uh, people in the labor force is incredibly high. So, so as opposed to looking at the unemployment rate, which can sometimes lead to the impression that everything is back to where it was before labor force participation is telling us a bit of a different story. And that is, we still have a gap between people that were working, uh, that were in the labor force before the pandemic and people that are there right now. Speaker 3 00:20:00 Now we can, one of the things that we like to do is to, uh, slice and dice, uh, the data along a number of different criteria. Um, one of the ways that we tried to look at who's come back during, from the pandemic who's recovered, uh, in the post pandemic, um, uh, situation is looking at occupation types. And so we've really categorized occupation types by three. One is the knowledge economy, professional and managerial level occupations. Um, the second is what we call optics, which really includes office production, transportation materials, moving installation, uh, and construction, um, and, and sales. So these typically are mid-level wage of positions. Um, the, the professional services can, uh, usually correlate to higher wage, uh, level positions and the knowledge economy, uh, and then you have the service occupations, um, which typically do correlate to more of the entry level position. Speaker 3 00:20:59 So, you know, this could be a, um, server at a restaurant. So when we look at the, if we look at where we were in February of 2020, and we baseline that as being, uh, you know, a full labor market at a hundred, um, you can see that the, the, the lowest wage, the service occupations took the biggest and most disruptive hit, again, not surprising because when things shut down, uh, nobody was staying in hotels, people weren't going to restaurants, uh, people weren't engaged in service level activity. Um, and you can also see that the professional and management occupations, while they did take a hit was relatively muted. And these were the professions that typically people could simply switch to remote work. Um, you know, it was a mixed bag for those, if you were in construction or transportation on the one hand, you know, some were essential, uh, industries and were able to come back. Speaker 3 00:21:59 But on the other hand, uh, some of them still had social distancing, uh, capacity restrictions. Um, there was, uh, a reduction in demand. So again, you saw all, all of these sectors hit in different ways. The one thing that you will see is the professional services, as well as the, sort of the, the middle wage sector have almost all come back in terms of, uh, employment. Um, a lot of that has come back. In fact, the professional services has actually grown over the course of the last year or so. Um, the service occupations, while it's been on a positive trajectory in the last few months, and it's been relatively steadily increasing, we are still a good ways away from being where we were pre pandemic. So that is probably the biggest gap in terms of how much the labor markets have recovered one other area. Speaker 3 00:22:55 Again, as we sort of think about the impacts we saw to the labor markets during the pandemic was really thinking about, um, which demographic, if you think about men and women, and you think about, you know, those with kids and no kids, and what happened to employment loss. Um, what we did was we took a snapshot in time and we looked at where, you know, these different demographics were in February of 2020 before the pandemic. And then we took a snapshot of employment losses by may of last year. And, you know, the, the most telling is what you can see on here. The biggest disproportionate impact we saw was for females typically as part of dual income households that had kids under the age of six, which, um, is not surprising from the standpoint of, uh, when you had virtual school and you had childcare centers shut down, you had elder care. Speaker 3 00:23:53 Um, typically women tend, you know, tend to be in the economy, not only working, but the primary caregivers, as well as primarily responsible for some of the childcare and virtual schooling issues. So, you know, we had think about 1.7 million, leave the workforce by April of 2020, and while a lot of them have come back, uh, that was probably the biggest disproportionate loss in terms of the workforce that we saw just a year in to the pandemic. And we'll talk a little bit, again, a lot of that in the last six to nine months, we've seen a return, has childcare centers have opened back up as well as, uh, seeing schools, uh, essentially operating, uh, in person again with very little, uh, very little hybrid or very little, uh, virtual classes. And then the other factor I think that we are, have seen and continue to see is while wages were going up and people had accumulated a lot of savings and they had money in the bank, there was less pressure on, uh, uh, needing a dual income household as, uh, essentially stimuluses dried up. And as we've seen inflationary pressures cut real wages, then we are also seeing some pressure for, uh, dual income households, again for essentially, uh, second breadwinner to come back, uh, to be able to, uh, make some additional money. So in, in some sense, the inflationary pressure, you know, may have an impact on the labor markets to, to boost labor force participation, where we hadn't seen it before. Speaker 3 00:25:31 And I think we have our, uh, next code word, uh, which is update. So that is gonna be code word number three, if y'all could record that that's update. So we talked about the labor force participation in terms of, uh, women with small kids under the age of six, probably the biggest area where we have seen, uh, a change when we talk about the great resignation, you know, two thirds of those in the great resignation during the pandemic where ages 55 and up. So we have seen a lot of people that have retired early. Now, when you're talking about an age group over 55, you know, there's, first of all, you're gonna see a, a greater aging of the population. So that's what we call demographics. You know, as the population ages, there's a natural expectation that we're gonna see more people retire. So just seeing an increase in retirement age, in and of itself, doesn't necessarily tell us that people are dropping out of the labor markets beyond again, what you might expect. Speaker 3 00:26:33 But what we tried to do is was to dissect people that over the age of 55 that are leading because of demographics, meaning they're aging out, and that they probably would've left anyway, versus those that behaviorally have made the decision to leave the labor market. Um, and as you can see from the green really in the last couple of years, typically the behavioral decisions, um, account for a negligible, uh, piece of any kind of decision to, to retire. Mostly it is a demographic issue. Uh, in fact, I think if you look to the left of your graph, an interesting dynamic that you will note is during the financial crisis, you see that the behavioral conditions, as well as the demographics were all negative. And the reason for that is when the financial crisis hit, um, people that might normally have retired, looked at their 401ks, and they looked at their retirement savings and said, there's no way I can, uh, retire right now. Uh, my nest egg is gone. So you had an unnatural number of people, both from a demographic standpoint that should have retired as well as those that made the conscious decision to stay in the workforce. So that's why you see those numbers negative during the financial crisis. And you're seeing, uh, an annual change, meaning people leaving, uh, during this particular crisis. Speaker 3 00:27:54 So thinking about labor force participation by age and where we are today, you know, we talked about by occupation, who's come back and who is not. So again, if we baseline on by February, 2020, and we assume that to be a hundred, um, really, if you look at who's come back and who's not come back, um, the prime working age, uh, population, if you're between the ages of 25 to 54, that's almost back to a hundred. That is probably the most advanced in terms of being back to pre pandemic levels. Um, you know, we've seen the 16 to 24, the, the younger folks, uh, that's taken a dip, it's started to come back a little bit, but it's, uh, still pretty far, pretty far behind, but where we've really seen kind of the biggest dip is, uh, looking at the 55 and over, um, now one interesting dynamic, uh, that you've probably that you're probably seeing right now, uh, looking at this chart is while it's been steadily, uh, down not really coming back up, there are a couple of things I wanted to note the first is that, um, part of why it's stable and it's not coming back up over time. Speaker 3 00:29:04 It it's unusual because when you do see retirements, when people normally retire at the age of 65 or so there, there is a, a substantive number of those retirees that come back into the workforce, uh, maybe for a second career, a part-time job, et cetera. But what we saw during COVID was there was essentially nobody coming back. So it wasn't just that the early retirement rate increased it's that the reentry rate for retirees back into the workforce almost went to zero. So people did not come back in. I mentioned that because at the very end of this blue line, you can see a bit of a tick up in the last few months. And, you know, one thing that might account for, uh, people over 55 coming back a little bit more into the workforce is the inflationary pressure that, uh, obviously disproportionately impacts people that might be retired and on fixed income. Speaker 3 00:30:01 So if you thought that you had a nest egg and the value of your nest egg has gone down 25%, and you're looking at the, your fixed income, your pension checks that's come in, and it doesn't take you as far because of gas and food prices. You may be more likely to go back in and say, well, let me work 20 hours a week somewhere, or let me go back. Um, do some part-time work, uh, somewhere. So that's a dynamic that we wanna keep an eye on in terms of, uh, labor force participation and whether it's coming back. Speaker 3 00:30:32 So one of the other questions regarding labor force, and we've certainly heard a lot of, uh, people talk about labor availability and, and challenges. Um, but there's also the wage pressure issue. And then kind of where we are in terms of wage pressures, one of the dynamics, and as, as you kind of look at the data here, one of the dynamics that you will see, uh, is that average hourly earnings really had spiked up in 2021. I mean, so it had really kind of gone up in, in 2020, but again, you have to understand that that was also a function of P PPP and some, some other, uh, stimulus, uh, payments that had kind of, uh, that had gone up. But if you look at 2021, um, some of the wages had gone up, so this is an annualized rate over sort of a six month, uh, period of time. Speaker 3 00:31:22 But we have actually seen, uh, that wage rate, wage growth decelerate it's still elevated. Um, but it has been decelerating in the last few months, um, consistent with, I think what we hear from a lot of businesses as they're looking into 2022. And as they're thinking about budgeting, uh, payroll for 20 23, 1 recurring message seems to be that, you know, while we've really increased compensation across the board, it's been a huge investment. And while we understand that inflationary pressures are there and that real wages may be going down, um, the math does not work and continuing to increase wages at the same rate as we had done before. So, so that's gonna be, uh, I, I think something that we want to keep an eye on is we are seeing signs of wage stabilization, as I think companies get to the point to where they say, you know, we've made a lot of moves, but at some level we think that people are coming back in the workforce. Um, inflation is gonna be a bigger issue than labor availability. Um, nine months ago, labor availability and labor quality was by far the biggest issue, inflation and labor have really swapped sides in terms of, uh, how important both of those are for businesses. Speaker 3 00:32:46 This is one interesting, um, area that I, I, I wanted to mention. And I think you would, uh, find this, uh, somewhat interesting. So we've talked a lot, particularly in professional services, we've talked a lot about remote work and the value of flexible work arrangements. One of the things, uh, that we've looked at, some studies that are trying to do, and this is through the survey of business uncertainty, the SBU survey, where we ask some, uh, we ask some special questions, trying to get, um, answers from various business executives. Um, there are a lot of numbers on here and they're statistical. So I'll just get right to the punchline without you having to really try to understand what these numbers mean. The basic question that we were wondering and asking about is for companies that have expanded remote work opportunities that have essentially said, Hey, we are gonna allow you to work remotely in a much greater degree than we had before the pandemic are those companies by allowing more remote work, being able to save on wages at all, in other words, are they going to, are they, are employees essentially making the trade off saying, you know what, I will take a little bit less money if you give me more flexible work arrangements. Speaker 3 00:34:01 And the finding that we have seen, which is not insignificant is that typically, uh, you will see about, you know, 1.6 to 2%, uh, uh, wage differential, meaning that, uh, remote work, the ability to do remote work or give employees the ability to do remote work is saving employers on average, about one point half to 2% in terms of wage growth or wage increases. So, and again, this is, it's pretty preliminary when we're looking at this data, some of this may continue to change, but it is interesting because a lot of companies have wondered if they can quantify what the value of flexible work arrangements are. And this is one attempt to try to, uh, uh, qualify what that is. You know, 1.6%, 2% may not sound very, may not sound like a lot, but if you kind of think pre pandemic, what a typical cost of living adjustment was, it was in the 2% range. So, you know, across the board, if a company feels like they don't lose productivity, but they can give employees what they need with flexible work arrangements. And at the same time, get an, even a slight boost to their bottom line. Um, that may be a, a desirable scenario, again, particularly an environment where we've seen wage pressures grow, and we've seen inflationary pressures for businesses grow as well. Speaker 3 00:37:01 So we've talked about demand, we've talked about labor a bit, um, and then we're gonna shift gears, uh, to inflation. And, um, as, as I mentioned before, uh, this is not, this is not something that we are worried about. That's something that's here and that we're dealing with in a pretty big way. And it's certainly had a big impact on set policy and how we're thinking about, um, uh, trying to, to manage inflation going forward, which we'll talk about towards the end of the, the presentation here, you know, before probably if we're, we're doing this webinar about a year ago, um, inflation really could be distilled to two basic areas, um, lumber and used cars. So if you were buying a used car, or if you were having to redo your deck, you felt inflation in a pretty acute way, but it was pretty limited to those two key items, uh, you know, last spring, even kind of going into the early summer, but by the time we got to may and June, we started seeing a shift. Speaker 3 00:38:05 We started seeing supply chains, uh, create upward pressure on a number of different raw materials on a number of different input costs where we are today. And then again, if you look at, if you think about our CPI or consumer price index, I mean, what's really, uh, amazing is that in the last nine months, we are now seeing that almost, uh, 70% of all goods, which is a huge, like a diverse array of goods and services, but nearly 70% of everything that would be in quote unquote, a CPI basket of goods and services has gone up by more than 5%, uh, again, which is pretty tremendous, especially given the fact that, you know, before the pandemic, um, for the last 10 to 12 years, uh, trying to see inflation anywhere over 2%, uh, or two or 3% was, uh, particularly CPI was a challenge. So seeing nearly 70% of goods and services over 5%, um, really hammers home, the idea that this is not relegated to a couple of goods because of containerships in the south Pacific. Speaker 3 00:39:19 Um, and it's not, uh, isolated to home prices. It is across an array of goods. You know, we talked about demand earlier and what a number of companies, you know, when we, when we think about the impact of inflation. So a core part of inflationary pressure is prices for the consumer. Um, so when you think about, uh, when companies grow, uh, their revenues, their revenues are just a function of one of two variables, uh, the number of transactions or the quantity sold, and then the price for quantity or the price per transaction. Typically, if you look at, you know, where we see growth, uh, over time, if you look at the pre pandemic, most sales growth, and most revenue growth is really gonna come from, uh, an increase in unit transactions. So if you looked at sort of 2020 people just buy more stuff, if you look at what's going on in the last year, and this is represented in orange, it's not a function of people buying more stuff, it's a function of the goods or the services costing more. Speaker 3 00:40:32 So it is the consumer spend really has been more, a function of increased prices than it has been, uh, just pure demand for more transactions or for more units. And that's a pretty big shift that we've seen in the last year, year and a half. And you've probably read, or some of you may have even experienced, you know, I've talked to a number of businesses where one of the things they've met is they said, Hey, you know, we had a, we had a record year in 2021, but if you break down the, if you break down the sales, if you break down revenue, uh, the actual good sold or the services sold was flat, maybe up slightly, but what really contributed to revenue was the higher prices, uh, because one of the, uh, results of the inflationary environment that we've been in, particularly with the increase in input costs, labor costs has been, that companies have found it relatively easy to pass through, uh, you know, higher costs that they're experiencing. Speaker 3 00:41:33 And I say, relatively, it's not across the board. Um, larger companies tend to have an easier time passing through prices and smaller companies. There are obviously a lot of other, you know, economic factors in terms of competition, et cetera. But by and large, we have seen a much greater propensity toward inability to pass through, uh, prices to the end consumer, to the end client. So a lot of the growth that we've seen has been on the pricing side. So this really raises a couple of questions. One, it really, uh, shows the, the inflationary nature of what we've been seeing in the last year. But the other question it raises is if, if actual transaction growth has been relatively flat, and we think that that companies have really benefited from increased prices, if that pricing power were to diminish over the course of the next year, um, you know, as consumers have less money to spend, they're already sort of dip, uh, reducing their savings rate, then what is it for 10 for, uh, for, for business growth or sales growth? Uh, is it gonna, uh, is it gonna come down? So that's certainly something that we want to, to be able to keep an eye on. Is does the fact that a lot of growth coming from pricing will that impact how businesses look at future growth? Speaker 3 00:42:50 Um, the next code word I wanna put in before continuing with inflation is America. And that's code word number five. Uh, the code word is America. And then just to clarify, I think, um, I think Michael mentioned this at the beginning, uh, but it is important to keep the code words in order. So we are coming back to the issue that we looked at very early on with demand, and that is what about inflation for core goods versus core services. So if you look at the inflationary rate in the last couple of years for core goods, um, you can see it really jumped up, uh, considerably in the last, uh, couple of years, um, core services, inflationary pressure has increased, you know, it's stabilized a bit. And I mean, to, to the degree that you can really think of, uh, you know, a month or so of data as being, uh, meaningful in any way, uh, you could even make the argument, uh, that, that core, uh, goods pricing has stabilized a bit. Speaker 3 00:43:48 Although I think that's really remains a, a TBD, um, from our vantage point. But if you think about where demand is going and where it might go in the next six months to a year, um, you think about, uh, consumer inflationary pressures. Uh, if you recall that while good's growth has been just, uh, on a, uh, just on a, a fiery path, um, at some point, if that slows down, the expectation may be that the, the inflationary pressures around good stabilizes while you might see for inflationary pressure for services, uh, continue a bit more. Um, so it, but it is important to note that when we do contrast goods and services, that we've seen really two different stories in terms of, uh, where some of the pressures have been. Speaker 3 00:44:38 Um, as I mentioned, we have our survey of business expectations. We also do a business inflation expectation survey, and I know a few of you that are on here. I, I noticed, I believe are on this panel, are, are on the B panel. Um, you know, we, we have about six, 700 or so CFOs across the country that each month we give them a, just a two or three minute online survey, and it's the same panelists. So we're, you know, hopefully seeing a detection in, in movement. It's the same panelists that we we ask. And then we basically ask them to give us an expect a change in the next 12 months, you know, what are you expecting to see? And, you know, as, as you can see, business inflation expectations has gone up dramatically in the last, uh, year and a half. Um, towards the very end again, this is we're, we're doing this monthly, and it's something that we want to keep an eye on. We have seen it stabilized just a little bit in the last couple of surveys. Um, so one of the things that we want to look at, uh, among other things is will business leaders will CFOs and then other, uh, business executives will they continue to believe and then see, uh, some level of stabilization of inflationary pressures over time. And again, this can encompass, this can be wages, this can be costs, and this can be ultimate consumer prices. Speaker 3 00:46:07 You know, at the, at the fed, there are a lot of inflationary pressures that we are seeing, um, that we frankly can't control. We talked a lot about, uh, I think early on about the imbalance between demand and supply, just basic economics will tell you that if you have an imbalance between, uh, demand and supply, that's where you see pricing increases, uh, come to the forefront, uh, to create some, some equilibrium. So one of the things that we want to do is we wanna see a rebalancing. We wanna see supply catch up to demand or demand catch up to supply. The reality though, is that as we talk to individuals and we talk to businesses there, aren't a lot of, there is not a lot of optimism for supply chain issues getting resolved, you know, in the near future, meaning in the next six months to a year. Speaker 3 00:46:59 Um, a lot of the folks that we talk to, um, throughout our six day footprint here, you know, have indicated that some of the supply chain issues, the inventory volatility, the, you know, whether it's shipping, whether it's freight, whether it's final mile delivery, um, you know, whether it's, uh, manufacturing, uh, whether it's, you know, zero tolerance, COVID lockdowns in China, uh, coming up, uh, disrupting, uh, operations. A lot of these dynamics are on the supply side, and there's not a lot of optimism that we're gonna see get better. So if we have this imbalance and we don't see a lot of improvement on the supply side, then it's really an issue of how do we tamper demand, uh, just a bit. Um, and from a fed standpoint, that's really, the only thing we can look at is the demand side. I, I, I mentioned this because, you know, there are a number of supply side shocks that we know it's really sort of beyond any, uh, one entity's control. Speaker 3 00:47:56 That's not a fiscal policy or a monetary policy issue. Um, you know, the Ukraine conflict and what it does for food prices, um, and what will it will continue to do for food input costs and food prices, as well as energy costs, uh, gas costs. That's where we're seeing a tremendous amount of inflationary pressure. Um, and the reality is, is there's not really any actions that the fed is going to take. Um, other people are gonna take that is gonna somehow, uh, get, uh, get oil prices back under control or somehow help sort of solve for food prices. So we know that in the short term, there are gonna be a number of things that the fed and even fiscal policy may not be able to really move the needle on in terms of short term inflation expectations doesn't make inflation in the short term, not real it's, um, certainly real it's here. Speaker 3 00:48:48 So from a fed standpoint, part of what we are thinking about is not just short term, uh, expectations and, and trying to temper demand and investment opportunity through increasing rates, we are particularly concerned about long term expectations. Um, you remember a couple of years ago, there was a lot of discussion about the yield curve inverting, and, you know, and part of the challenge was that as the fed was going up on the fed funds or the short term rates, the long term rates were generally pretty low. Well, the reason the long term rates, uh, were very low and I'm, I'm, I'm, I'm oversimplifying this by the way. But one of the reasons that the long-term rates have been low is because there was, uh, a very, very small inflation risk premium built in, um, it was just sort of imputed inflation rate was very small, cuz there wasn't any inflation. Speaker 3 00:49:40 So, you know, when we think about what we really want to be managing from an inflation standpoint, it's not necessarily just the short term inflation, again, some of the supply side shots that we can't control, we really worry about and are focused on thinking about long term inflation expectations. So this is, this is businesses when they're doing their five or 10 year CapEx plan. And they're thinking about what does our investment look like? Um, you know, and, and they're building out sort of performance. What is it that they're putting in as their cost to capital? What is it they're thinking about cost to living adjustments? Is it two or 3% or is it five or 6% or 7%? Um, if it ends up being five, six, 7%, that's much more difficult to manage and that's gonna be, you know, spell a lot of, lot more trouble in terms of bringing inflation under control than if we were talking about long term expectations, being a little bit more anchored. Speaker 3 00:50:36 So what this graph is really showing, and again, there's a lot that's going on here and it's not necessary to know what each and every line means. But the basic idea is that while our short term inflationary expectations are still really high. And I mean, again, last month we saw 8.4%, uh, year over or month over month, uh, annualized inflation. If we're looking at long term inflation expectations by a number of different measures, they're still a little bit more in line with what we would like to see. So if there's some good news, um, is that so far, we've not seen some of the short term inflationary spikes and concerns translate into real long term, um, expectations. And again, that's a positive and that's something through fed aggressive fed rate Heights, as well as again, managing inflation that we really wanna pay close attention to. Uh, the next keyword, uh, for, um, the, uh, CP credit I think is, uh, plan. And so, uh, plan is code word number six. Speaker 3 00:51:44 So that's how the fed is thinking about long term inflation rates. Uh, and then long term inflation expectations. We, we wanna manage it everywhere across the board, but we're particularly sensitive to, you know, how do companies bake in, uh, inflation into their long term planning process that's ultimately going to impact the way they price things as well as how they think about increasing wages, uh, year over year. Um, and then again, one has an impact on the other. So about three weeks ago, the fed had a meeting and as most of you saw, and as I referenced earlier, they did a 75 basis point increase. Um, the markets really up until the 11th hour, we're expecting a 50 basis point increase. Um, you know, the, the week before there had been some, uh, really troubling high inflation numbers that had come in, uh, that I, I think, uh, really caused the OMC, the federal open market committee to rethink that position and say, Hey, we need to be a bit more aggressive than, you know, even where we are to getting us where we need to, to go. Speaker 3 00:52:54 So we are now at about one point a half percent, uh, on the fed funds rate and, and keep in mind before March, we were at zero. So we've, you know, jumped 150 basis points in, uh, basically three meetings. And, and so we think, uh, and not just think, but, uh, we anticipate that there will be ongoing increases as chair Powell has indicated. Um, but it's important to note that over the long run and again, the long run obviously is not this year or next year, but over the long run, still a commitment to being, you know, having inflation at its 2% objective. Um, 2% seems like a really long time ago, but, uh, but again, for many years, uh, pre pandemic, uh, we were struggling from, uh, month to month, quarter to quarter to try to see any data that would even get us to 2%, uh, because we are consistently in the, the one and a half percent range sometimes even a little bit lower. Speaker 3 00:53:50 So where do we think interest rates may go? And, and this is, I'm talking about the fed funds rate. So this is the, uh, this is essentially the, the, the rate that the fed directly influences. And it's the borrowing rate for banks from the fed, but obviously influences other rates as well. So some of you who are familiar with the fed may know this as the dot plot for those of you, who've never seen this before. Um, it is a way of anonymously recording what the different members of the federal open market committee, which is comprised of chair Powell, a few of the other, um, uh, governors on the board of governors with the fed as well as the 12 reserve bank presidents. So our Atlanta fed president RAI Bosek and the other 11, uh, uh, federal reserve banks, their presidents. So, um, if you take all of those individuals, each one in June was asked to sort of note what they felt would be their target fed funds rate, um, in 20 22, 20 23, uh, et cetera. Speaker 3 00:54:52 And what this depicts is that in 2022, there is an expectation unanimously really, uh, among all of the F OMC participants that the fed funds rate will end up between three and 4%. And the midpoint is probably around about, you know, uh, three and a quarter to three and a half. Uh, I think that's where sort of people are, are falling in. Um, what does that mean? Well, it certainly doesn't mean that this is a lock and this is exactly what's going to happen. It just means that at this point in time, meaning, you know, a couple of weeks ago when they made the decision, um, based on what they were seeing and assuming that there weren't subs substantive, uh, huge changes in economic conditions, the expectation is that we're at one point half percent right now, and that through a series of ongoing, uh, rate hikes, we will be, you know, between three and three and a half percent, uh, likely, uh, for the fed funds rate. Speaker 3 00:55:52 So that's doubling the rate from, from where we are, uh, right now, now. And then if you kind of look at 2023, what's interesting is there is, uh, uh, a belief that we need to go a little bit higher, uh, as high as 4% or maybe three and three quarters to 4%, uh, in 2023, but then you'll see it, there's a lot more, uh, dispersion or diffusion, I guess, in terms of expectations for 2024, that is probably gonna end up coming down. But the longer term view is that we're gonna be back closer to the 2% level. Now, I, I mentioned that the, the target is 2%, but one of the things that the fed did with its inflation framework, uh, about three years ago is they said, instead of just targeting that we have to be at 2%, we really want over time for inflation to average about 2%, which means that if in a given year it's a little bit higher, that's fine because, you know, there was a period of time when for several years it was lower. Speaker 3 00:56:50 So the average is gonna be around 2%. So this is kind of the policy path that the fed is laid out is be more aggressive this year. We may need to, to go a little bit higher, really just to combat inflation. That's not, you know, 4% is not where, where the fed is. Projecting is gonna be the, sort of the natural interest rate by any means, but this is more to combat inflation. And then over time being able to get back to, uh, two, two and a half percent, uh, interest rate, uh, fed funds rate, uh, environment. And then finally, you know, one of the questions that, that I know I get and that we always sort of think about is, well, so how does that fed funds rate necessarily relate to, to the other rates that we care about and home mortgages have been in the news and, and it it's, uh, an interesting comparison to even kind of look at the fed funds rate. Speaker 3 00:57:39 Now, keep in mind the fed funds rate is, is represented on the left axis. So if you look at 2002 in the blue line is right below 2%, right. But it's the, the, uh, 30 year mortgage, uh, in the last 20 years is represented in orange. Uh, and again, you want to use the, the right axis. So back in 2002, the 30 year mortgage rate, when the fed funds rate was about 2% was, uh, closer to seven. And one of the things that you'll see is that the 30 year, you know, does move, uh, somewhat relative to, and it's certainly influenced by the fed funds rate, but it's not a one for one correlation. And this is true with a lot of the rates. There are, um, other factors that, uh, that come into play. So, you know, we know the 30 year mortgage right now is I, I think last time I saw maybe a couple of days ago was about 6%, 6.03 or something. Speaker 3 00:58:34 Um, so it's not just a one for one movement. And, you know, one interesting thing to note here on the right hand side is, and this is as of may, you can see that the fed funds rate had only gone up by March, or I, I, uh, I think it was, may have been by may, had only gone up to maybe about 75 basis points or so it had not gone up, but look, what happened to the 30 year mortgage? It had gone up a considerable amount because the other thing to note is that some of these other rates, like the mortgage rate, they're driven not by necessarily just a specific action that fed takes, but by the expectations of what the fed is gonna do. So sometimes you will see rates that have already baked in an expectation for more rate increases, even if those rate increases haven't happened yet. And so that's just one note that I wanted to make, because sometimes, you know, what we tend to do is be additive and say, Hey, if the 30 year mortgage is at six, and we're gonna go up with the fed funds rate another 2%, then we need to add two to six. And, and, and again, they can certainly move in tandem. There's gonna be some relationship, but it's not as simple as, uh, looking at these as a one for one relationship. Speaker 3 00:59:48 So at this point, I am, uh, I'm gonna, I I'm essentially done with the presentation and, um, whether it's Michael or, or Russ point of you wanna help, I'm glad to answer questions, uh, for the next 10 or 15 minutes. Speaker 5 01:00:08 Yeah. Thanks ANU. Uh, I, I'm looking down in the chat and I don't, I don't really see, I don't really see any questions so far, I guess, I guess I'll ask, I'll ask, one's been on my mind. Um, I know that it seems like every time I read a different article, somebody has a little bit different take on it, um, about kind of where we are in, in the, in the cycle has inflation peaked. Uh, can, can you kind of expound on, on that and, and, and maybe what, what that peak would look like, and then I, I, I think you, you just did touch on, I, I think, you know, things settling back down into kind of where you guys would like to see it, but can you kind of tell us where, where you kind of think we, we might be in that, in that cycle? Speaker 3 01:00:53 Uh, sure. And as soon as I do that, I know I'm probably gonna be proven wrong with sort of the next, uh, part that comes out, but that's okay. I'm, we're certainly used to that, but I will say this because I think, you know, three weeks ago there, uh, when the CPI inflation report came out and it showed 8.4%, um, uh, for, for, for may, um, it was a bit shocking because I think the fed and I think a number of others really had expected, uh, and maybe it was not expectation. Maybe it was more hope had to hope that we would see a, a lower number and that we'd start to see some stabilization and that clearly did not happen, uh, there. So, you know, again, we don't necessarily know where inflation is. I, we hope that we've peaked, um, not necessarily sure what, what I would probably say based on, I think some of the data based on some of the things that we're seeing is over the course of the next few months, and it's harder to predict like, you know, a particular month, but over the course of the next few months, there is an expectation that we will see inflation stabilize. Speaker 3 01:01:56 It's gonna continue to be elevated. You know, we are probably, you know, thinking that inflation is, uh, just again from an Atlanta fed standpoint, um, we're thinking that in 2023, it's probably gonna be in the neighborhood of about three and a half, 4%, uh, so, uh, much lower than we where we are, but still certainly elevated relative to where we think we should be. Um, whether it happens slowly or whether it happens, you know, rapidly, I think remains to be seen. Uh, couple of things among others that we look at is look at goods and services, and then kind of say if demand is softening and if higher prices, uh, are you, you know, the saying, uh, the cure for higher prices is higher prices. So if higher prices are actually setting in and they're causing consumers not to buy as much, and then there's more discounting and promotions, and we're seeing some, uh, price stabilization, um, that would be one positive tailwind on the inflation picture. And the other one that we're already starting to see is wage inflation, stabilizing. Um, you know, again, by, by all indications from, I think what businesses are telling us and indicating that the level of wage increases the pace of wage increases that they implemented in 2021 and even early this year is not gonna continue on in the next year or two. Speaker 5 01:03:16 Gotcha. And I think you've, you've touched on the, thank you. And you've touched on this one, but I'm gonna throw it out there anyway, because, uh, because somebody's asked, but is it possible to have a soft landing or are we headed for a recession? Speaker 3 01:03:29 Yeah. So in fact, I, I would even argue, uh, some of it depends on what the definition of a soft landing is. So, um, and, and because even, even the definition of a recession can really vary, uh, you know, I mean, in technical terms, a recession is two consecutive quarters of, you know, negative GDP growth and, you know, Q1 was negative. Um, in theory, we could have negative GDP growth. We could have a recessionary environment and it in, in some degree be called the soft landing. And then I think really what, what we sort of think about from a soft landing standpoint is the severity and the duration of a downturn. So, you know, so a recession in and of itself is not, yeah, I think we refer to it sometimes as the R word, because part of what we paint it in our minds to be is the financial crisis. Speaker 3 01:04:20 That's kind of our last benchmark and the financial crisis was anything but short. And it was certainly incredibly disruptive. Uh, nobody wants to see that, and that is by any definition, not a soft landing, but it is possible to have a downturn. And that downturn even be classified as a recession if we think that, uh, as consumers, uh, by less. And again, there's some tailwinds that we have, but if they buy less, uh, and we do see, uh, a softening, but we don't think that the labor markets are gonna be hit nearly as drastically as they were during the financial crisis. So, you know, we wanna look at labor markets and see, Hey, are there just massive layoffs? Are there companies that are just turning off the spigot altogether? And the, the second thing that we wanna look at is, um, it's, it's not just sort of from a labor market standpoint, but the duration, um, do we think that it's, it would last, you know, year 2, 3, 4 years, um, or is this something that's relatively short order? Um, so the way that we're thinking about the soft land being could be, there is an expectation that there will be a downturn, but if we can keep the scope and the duration, as well as the severity limited in terms of impacts on labor, uh, labor force get inflation under control, uh, that would still be a, again, something that we consider favorable. Speaker 5 01:05:44 Great. Um, next question is what, what are the effects you're seeing on the market for corporate debt due to higher interest rates? Speaker 3 01:05:56 So, um, so I would actually say that, um, when we look at the, when we look at the markets and we try not to <laugh> to a, to a large degree, because the, the markets really factor in a number of different, um, variables, uh, you know, beyond monetary policy. Um, and, and in fact, the, the rates themselves are gonna be based on other factors, aside from just the, the fed funds, uh, rate, um, that, that we kind of look to, um, someone it's gonna be based on other global economies and where we think that, uh, money may want to, to land. Uh, do they want to be invested here in dollars or do they want to, uh, go globally? So from, from our vantage point, I think what we are most concerned with is looking at, um, uh, consumer demand and response and looking at some of the inflationary environment, uh, that we're, that we're seeing here. But I think there was another question on tax policy, maybe. Um, yes, Speaker 5 01:07:03 Yes. How does the fed consider tax policy and its projections and forecasts? Speaker 3 01:07:08 Yeah, so, um, typically we, you know, there's a, there's a distinction that we try to make well, that we do make between fiscal policy and monetary policy and tax policy does fall under fiscal policy. So to the degree, so what we, what we don't typically do is we don't do like CBO forecasting where we say, well, we think the, you know, this tax policy, which is a fiscal policy will have this impact and therefore it's gonna change our guidance. Um, what we do, the, what we do though, is we certainly look at what the impacts of that tax policy actually are. So, and again, this could be something as simple as whether sort of depreciation, you know, policy where you sort of speed, speed up, uh, depreciation benefits, you know, are we actually seeing that translate into purchasing more, um, you know, more trucks or more vehicles? And if we see those purchases happen, then we look at that from a demand standpoint from is that sort of forcing up, uh, prices to be higher if there's greater demand. So we look at the impacts of tax policy on GDP growth on labor markets, on pricing pressures to then help inform monetary policy. But what we won't, uh, do is score what we think the tax policy might do, and then try to adjust accordingly. Speaker 5 01:08:29 Gotcha. So next question. Uh, what are you hearing about future fuel prices, Speaker 3 01:08:39 Future, future, uh, fuel prices? Speaker 5 01:08:41 Yeah. You like gas prices. Speaker 3 01:08:44 Yeah. Um, well, I'm, I'm not even gonna try to answer, uh, that question. Gotcha. I, I really, it, it, it is. And then, and the reason I, I just, I mentioned that is, uh, because there is, you know, one of the things that the fed has done, I, I didn't really touch on this, but if you look at the feds, if, if you look at the feds approach to how we measure inflation, um, we actually use a measure called, uh, core PCE. So it's core personal consumption expenditures. What the core means is that again, pre pandemic, and then even hear the pandemic. We looked at inflation where we stripped out, uh, commodities like food and gas. Now people often say, well, why in the world would you ever like, not look at food and gas when you're thinking about inflation, especially today's environment, that is at the very core of inflation, ironically, but part of why we stripped that out is because from our experience, when we think about business cycles and economic indicators, food and gas historically have not been very good indicators, they tend to be volatile. Speaker 3 01:09:49 They are much more susceptible to other influences beyond sort of the control or beyond the influence of a typical business cycle. And that's why, you know, when, when you're thinking about what happens with the war on the Ukraine, you know, what happens in the next month? What does OPEC do? I mean, those are gonna be sort of the greater, uh, drivers of where gas, oil, and gas prices are gonna be. Um, and, and again, I, I certainly wouldn't have any, uh, any more insights even to sort of speculate than, you know, maybe, uh, somebody in the energy sector would. Speaker 5 01:10:23 So next, next question is, uh, will you talk about the feds approach to digital currency, us central bank, digital currency, and that's, they just wanna know what the Speaker 3 01:10:36 Sure. Um, no, this, so the great question in terms of, uh, digital currency. So, um, one, one thing I do wanna clarify, and I think that the person that asked this question, you know, has a sense of this, but just to kind of make sure, um, when we say digital currency, this is not crypto. So, you know, there is, uh, digital currency tends to be a much sort of broader, uh, base of kind of what we're talking about than just sort of cryptocurrency, uh, for instance. So the fed, uh, several months ago released to paper and I, I think chair, chair, Powell sort of spoken to this, it is something that we are looking at. Um, I mean, honestly, I would tell you just my opinion. Um, I, I think we're certainly moving in the direction of having some type of digital currency in place. Speaker 3 01:11:20 Um, but again, the digital currency that we're sort of thinking about, it's got, it's got a lot of value, uh, some, some things that are not being done in the marketplace right now, um, you know, one of the, sort of the value points of digital currency is simply a real time access to monies, as opposed to the, the current system that we have in place, where you, you write a check or you wire money, and it takes time for it to get to the settling banks account. And, and so even sort of the, the frictions associated with currency, uh, with current movements of money, um, is pretty high. So thinking about digital currency, the fed is, uh, considering it, they're looking at it. I, I, I do have a feeling that it will move forward. Um, but in terms of what the timetable is gonna be like, uh, that's, that's certainly, I, I, I don't know that I, I will say one other thing as you read. Speaker 3 01:12:11 I mean, there's an article in the journal this morning, as you read more examples of, you know, some of the security issues and some of the solvency issues in crypto. Um, I think it's just reinforced the idea that if the fed takes some action with digital currency, um, the importance of safety and security of that currency has got to take primacy. I mean, when you're at the central bank and anything that you're doing, and, and particularly when you have thousands of banks, as opposed to, you know, other countries that may only have just a few, um, it's gonna be a slower, uh, more deliberate process to develop any type of alternative to, you know, the cash that we have right now. Speaker 5 01:12:50 Gotcha. So next, next question is, um, you, you mentioned that two groups, uh, on the labor force statistics have rebounded, some, this person wants to know, you know, how is it that it's everywhere you go that there's a help needed sign still <laugh> Speaker 3 01:13:07 Yeah. So this is a really good question. And, um, there's some other more complicated dynamics behind what's going on with the labor, uh, market. So, one thing I will mention is that, so the two groups that have rebounded I mentioned are the prime age, uh, 25 to 54, and as, as well as, uh, the 16 through 24, although, and again, you may not remember the chart 16 to 24 was still lagging a little bit. We weren't quite there. Uh, we were, and, and I would also, uh, the other thing that I would keep in mind is if, if you remember the chart before, when we looked by occupation, um, you know, the, the one that was hardest hit was in the service industry, kind of the lower wage, uh, entry level, um, uh, positions. And those were still like the hardest hit. So those have not recovered. Speaker 3 01:13:56 However, one additional complication I'll kind of throw in here, um, because the labor markets are, are pretty complicated in dis respect. It is one of the dynamics that you're seeing that often don't get reflected in the labor statistics is if you are working, if you're working 30 hours a week and you are considered employed. So if you're, you are, you know, you check the box on labor force participation, you are participating in the labor market. So if you were a restaurant and you had 10 people, or you 20 people work for you before the pandemic, and you have all 20 people working for you, post pandemic, um, and you would say, Hey, we're back to where we were before. So our labor force participation is a hundred percent. However, if 10 of those 20 people have cut their hours from 30 to 20 hours, you have lost a hundred hours of, uh, of work, but they're still considered part of the labor force participation rate. Speaker 3 01:14:57 So they still check the box that they're working they're back, but they've cut their hours. So one of the dynamics that we've seen in the labor markets is even if you are productively employed, and your name is counted in the labor force participation, um, and there have been a number of scenarios, particularly in the service economy where we've seen people say, you know what, I wanna work fewer hours, maybe because I'm making more per hour, maybe because I just need to pay my bills. And I don't need a lot more of that. You know, there have been some studies, initial studies that showed that, uh, like gen Z, um, tends to respond to wages. Uh, they tend to be less sensitive to, to wages than prior generations. So you can have a circumstance where you go into a restaurant, you can still have everybody employed, but they're working fewer hours. And so, so from the employer standpoint, they need two or three more people to make up for the a hundred hours that have been lost, even though technically they've not lost any of their people. So the, the difference in our work can make an impact on the labor markets, but not necessarily show up in the numbers themselves. Speaker 5 01:16:05 I don't see any other questions. I I'd like to ask you a follow up to that one before we, before we break. I mean, do, do you think that that trend will, will subside as the, um, as the government money dries up as, you know, the, the, or, or do you think people will continue to work less? Speaker 3 01:16:23 It's a great question, Michael. The thing is the, the government stimulus money has been dry for actually for some time. Um, and, and, you know, I mean, now we had some of the tax credits expire maybe a few months ago, but, uh, you know, the bulk of the PPP payments, the economic impact payments, the unemployment expanded unemployment, all of that really brought off early part of 2021. Um, it's hard to know how much of this is gonna rebound a little bit. You know, I mentioned the 55 plus age group, you know, maybe you'll see a little bit more of a rebound, uh, you know, from there, as in, as inflations increased, maybe you'll see more people enter in, but, you know, I, everything that I hear, I think that there is a bit more of a structural shift in the labor markets, uh, that we are gonna get used to. Speaker 3 01:17:06 It doesn't have to be, you know, tremendous, but, you know, the idea of people working fewer hours, being more contract work, um, going from 40 to sort of 30, I think that's pretty consistent with some of the more long term projections that we've seen. And some of the data that's kind of shown that as a, the composition of the workforce has changed the needs and their willingness to work more hours has also changed as well. So it would not surprise me if these were some dynamics, particularly few hours, uh, that, that are gonna be longer term dynamics, uh, not just, you know, something that is gonna boomerang back, uh, you know, in, in a few months. Sure, sure. So I, I wanted, uh, I really wanted to thank, thank you and thank everybody from UHU for the opportunity to, to share this.

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