Supply chain disruptions, labor shortages, and the inflation rate are the three big challenges still facing the U.S. economy, according to Kennesaw State University economist Roger Tutterow.
Tutterow, who spoke at the Sandy Springs Chamber’s Feb. 21 signature luncheon, is the Henssler Financial Endowed Chair and Director of the Econometric Center and Professor of Economics.
“What we’re saying is, right now, the odds are essentially two chances in three that you will get some form of recession before the end of this year. Now friends, let’s not panic. It sounds worse than it actually needs to be,” he said.
Tutterow said he’s willing to tolerate a mild recession if that’s what it takes to bring inflation down.
Supply chain disruptions hit economy
The first economic challenge he described as supply chain disturbances.
“I have never in my professional life gone through what we went through in 2020, 2021 in terms of the pandemic shutting down the economy,” he said.
Tutterow said logistics and trucking companies have told him over the past year that they have exceptional demand for their services, but they can’t get the drivers or equipment they need. That has led to rising shipping rates.
Tight labor markets are here to stay
The second big challenge is the labor shortage.
“I’m willing to bet everyone in this room has tried to hire in the last three to four years and had trouble finding the right candidate. They may have had trouble retaining their workers,” he said.
Every human resource department says the ability to attract and retain workers is their number one challenge.
During the first two months of the pandemic 14.4% of U.S. employment was wiped out in two months, he said. It took two years of growth to make up for the damage done in the pandemic, he said.
The Labor Department reported that there are 11 million available jobs nationwide. The nation has lost one percent of its active labor force or 2.6 million people. Some of them are likely part of the “Great Resignation,” Tutterow said.
“But here’s the real takeaway. If you’re worried about labor markets, tight labor markets are here to stay,” he said.
Gas prices hurt consumer confidence, affect inflation
The inflation rate is the next challenge.
“The high inflation is continuing to weigh upon consumer psyche and eventually on business profitability,” he said.
The University of Michigan’s Index of Consumer Sentiment, a monthly gauge of how households feel about the economy, started falling in late 2021 and by June 2022 it had plummeted.
“It hit the lowest level in the 70-year history of this earth. Let that sink in,” Tutterow said.
The national media looks at the Omicron and Delta variants of COVID as the problem. Economists say they are wrong.
“It’s about gas prices,” he said.
Metro Atlanta is a major logistics transportation hub with a major airline hub, which makes it more vulnerable to higher gas prices than the national average, Tutterow said.
Lack of new homes, building material costs, mortgage rates hurt home sales
Another big inflation story is the cost of building materials.
“We’re in this amazing, vibrant success story in the city of Sandy Springs. And we see construction all around and it’s happening all around the 28 county metro as well,” he said.
Builders and general contractors saw softwood lumber prices go up 150 percent just before the pandemic’s peak last year, with iron and steel products up 90 to 100 percent, Tutterow said.
Building material prices today are about 30% higher than before the pandemic.
Despite credit being cheap by historical standards, realtors and builders recognize that elevated mortgage rates are having an adverse effect on home sales.
“I think the fundamental problem is we’re not building enough houses. We underbuilt detached single-family housing from 2007 to 2015. We had low inventory of housing going into the pandemic. So we’ve just pulled in our horns on new home construction even more,” he said.
Home prices went up 40% in two and a half years. The same house at the same price would have a 45 percent higher monthly payment, he said.
“I’m not predicting a fundamental meltdown in the housing market. But we do need to see some correction in valuations,” he said.
The biggest issue around economic development is housing affordability. To recruit people or companies to move to Georgia, they need somewhere to work and to live.
Office construction nationwide never turned down, Tutterow said. But 10 years from now the argument won’t be about which governor or which mayor had it right or mandatory shutdowns. The discussion will be about the voluntary behavioral changes in 2020 on how we work, how we shop, how we interact, he said.
Human resources departments will tell you when they’re negotiating particularly with young talent, they’re more likely to lose that person over them not being able to work remotely than they are over job responsibilities and wage. Hybrid and remote work is here to stay, he said.