All right, good morning everyone and thank you for NAFA just for providing us the opportunity here Just to introduce the keynote speaker Laura Ulrich here today Again, my name is Matt Llewellyn and I am with Tiffin Wealth. I really just like to take a moment here just to highlight how you can drive client engagement as well as prospect conversion with Tiffin Wealth So for those of you who may not be familiar with us, so Tiffin Wealth, we really help if wealth management firms do is bring more individuals into the world of advice through data collection as well as Algorithmic intelligence or what we describe as precision AI Our solutions really span from data science digital charitable giving personalized investment proposals And then lastly, I really like to focus on this last piece is personalized investment proposals Really more than ever today Today's clients they really expect their advisory experience to reflect their unique financial goals fears as well as values and that's really why we built a platform that helps advisors get to the heart of their clients financial needs and develop highly tailored investment proposals the Tiffin Wealth platform combines inputs including risk alignment financial planning and then also financial personality assessments What this is really meant to do is empower actionable customized investment recommendations at Tiffin Wealth we understand that advisor technology has and Been historically cost prohibited particularly for smaller firms and independent advisors That's why we are a proud partner of NAPFA and offer access to our platform as an additional member benefit For any NAPFA member whose firm manages under a hundred million you can actually gain free access to the platform if you're for if you're a member of Above or excuse me below a hundred billion And then as and then honestly here if you'd like to take advantage of the member benefit Please visit tiffinwealth.com slash NAPFA or stop by our booth So now to begin though if you've I'd like to introduce Laura Ulrich Super regional economist at the Charlotte branch of the Federal Reserve Bank of Richmond Previously, she was an associate dean for the undergraduate programs and a professor of economics at Winthrop University Laura earned a bachelor's degree in economics from the University of Georgia and a master's and a doctorate doctorate in economics from the University of Tennessee Prior to graduate school. She worked as a business consultant for Ernst and Young specializing in executive compensation term determined determination in 2014 she served as a Fulbright scholar teaching economics in Kosovo and has spent several time working on local economic development issues in Bolivia Laura's research interests include higher education school School finance reform local and state tax and expand expenditure analysis and the economic impact of local development Ulrich is a member of the Aspen Institute global leadership network via the South Carolina Liberty Fellowship She's also an active member of her community currently serving on the executive committee of the Charlotte regional business alliance and the board of the Catawba or the Catawba Regional Council of Governments She also serves on the board of family promise of York County the Rock Hill technology incubator the Caroline immigrant Alliance and the Winthrop Eagle Club Join me today here and welcome Lord to the stage Good morning Kristen told me that you guys actually do show up for eight o'clock meetings and I was so skeptical that I might be here alone But I'm super impressed. I'm Laura Ulrich as Matt mentioned I'm the senior regional economist actually cover My primary job is to cover the states of North Carolina and South Carolina for the Richmond Fed So essentially I'm an outreach economist of boots-on-the-ground economists talking with people out in communities people like yourselves people that run organizations anything from a Bank CEO to a banana pepper farmer to school superintendents to find out what's going on on the ground in real time in the economy That information is then used by our president in the FOMC Process. So today is actually the last day I can speak before the next meeting we go on what we call blackouts starting tomorrow So you guys are gonna get the last information that we put out publicly before before the next FOMC meeting And because I work for the Fed I always get to remind you that the views I'm going to express are mine alone and don't Represent an official position of the Federal Reserve Bank of Richmond or the Federal Reserve System All right. So where are we right now in the economy? This is such a dynamic confusing time In the US economy and in the global economy And so I'm going you're gonna see today that a lot of my themes are going to be Things actually look really good right now overall all the macro data looks strong It's stronger than we expected it to look. I want to say we I kind of mean economists broadly but but there are Speed bumps ahead. There are things we have to think about kind of going into 2024 and 2025 So I'll make sure to go through all of that but if you heard me do one of these talks back at the end of 2022 or even the very beginning of 2023 you would have heard me say that Most economic forecasting models were predicting growth to be flat in 2023 so there were some models that were predicting recession some weren't but overall people were just expecting kind of stagnant growth Those models were wrong First and second quarter GDP has come in higher than expected. So it came in above 2% And third quarter GDP, which we're out of the third quarter, right, but we don't have the data yet But the estimates out there are ranging somewhere between four and a half to five and a half percent That is very strong GDP growth for the US and I'll show you a graph that will show that That being said there are some sectors that have been hit Really hard by rising interest rates and so if I was talking to a big group of commercial real estate folks, which I do on regular occasion and I'm talking about how everything is great. They are looking at me like what what are you talking about? This is the worst time in my career potentially depending on what subsector they're in. So interest rate sensitive Business line sectors have been have been hit really hard by the FOMC's increase in interest rates So we are seeing some Economic indicators kind of slow down and I'll show you pictures of all of these things But we're seeing continued strong demand in others and strong reports in others Every time new data comes out earlier this week the new retail sales data came out It was stronger than expected the jobs report last week stronger than expected. It's like all these things keep coming in kind of above economists expectations And so there still are fears of recession out there, but they have settled a bit if you look at We don't have a public facing forecast But if you look at the organizations that do many less of them are now predicting recession any time in the very very near future and Consumer spending is really why so if you look at that the estimates of why GDP is expected to be so strong in the third Quarter, it's driven by consumer spending which makes up 70% of GDP and the net exports being strong And consumption has kind of defied what economists would have predicted with inflation as high as it has been But much of that is because of what has happened over the last three and a half almost four years And this includes the pace of job growth Which we'll talk about Some mid-sized metro areas, so I mentioned I cover North and South Carolina Raleigh, North Carolina, Charleston, North Carolina or Charlotte, North Carolina, Charleston, South Carolina Myrtle Beach, South Carolina have been growing extraordinarily rapidly Other mid-sized metros across the country. We're seeing similar things especially in the south But that growth is covering up some of the loss in employment and Population that we're seeing in more rural places in larger metro areas So in North Carolina, for example Employment growth has been through the roof, but half the counties in North Carolina are losing jobs Okay, so where your feet are planted really matters in terms of what's going on in the economy around you and Some of this is about geography But some of it also is about industry right what industries are outperforming or underperforming And then lastly and certainly really importantly inflation remains above the 2% target And the FOMC has raised rates at one of the fastest paces in history already But I think it's still unknown exactly what the rate path is going forward I wish I did know I wish I had a crystal ball knew what was gonna happen in a couple weeks, but I don't But I do know it's an extraordinarily fluid situation There's data coming in every day multiple times a day That's being examined by the folks participating in the FOMC process And so that story is going the data story is going to impact a lot of their decision-making But if you listen to what they're saying if you listen to the public statements that Jerome Powell Presidents are president Tom Barkin has been making other presidents in the Federal Reserve System They've been very clear that they are committed to getting inflation down to the 2% average target period and so The path ahead will be will be interesting inflation is moving in the right direction It's just kind of more what speed does that happen so let's start with GDP This is quarterly GDP. It's Annualized and on the right-hand side a couple things. I'll point out to you is you know you can see the GDP growth really in the last four quarters has been relatively strong For the US so ignore kind of the kovat and just after kovat numbers because those are just outrageous But if you look further back to the left You'll see that the the GDP numbers we've seen in the past Four quarters or so are kind of in line with what we would expect to see more and more stable normal times But then also imagine that for a third quarter There's a bar that's at five percent or five and a half percent or four and a half percent wherever it comes in And you can see that that will be a very strong Report if that does happen and will be far above those FOMC projections Let me explain what these are Every other meeting the participants of the Federal Open Markets Committee the Federal Open Markets Committee or the FOMC is the group that votes On interest rates and other monetary policy actions right so when you hear about The Fed has raised rates or the Fed has kept rates stable. That's the FOMC. That's that's voting on that The FOMC is made up of 19 individuals, so there's 12 regional Federal Reserve Bank presidents By the way who are not government employees I'm not a government employee the 12 banks are independent nonprofit banks that serve the banks in their region and The people and communities in their region And then there's seven Board of Governors the Board of Governors is led by Jerome Powell currently they are federal government employees They are Nominated by the president confirmed by the Senate And those 19 people sit at a table and have these FOMC meetings only 12 of them vote each time all seven Board of Governors Always get to vote the president of New York always gets to vote the other four votes rotate amongst presidents So our president Tom Barkin is not voting this year, but he will next year So not everybody votes But everybody does participate in the meeting everybody writes a report everybody gets to have their voice heard and at every other meeting they also Put out projections of what they think is going to happen in the economy in the near term and in the longer term So those are the projections you see on the right hand side The gray bar is from the top projection to the bottom projection of these 19 people the red diamond is the median Projection and the thing I'll point out to you is that the FOMC you'll see here is not projecting a recession in the next few years however Look at the bar for 2024. So that's the second bar for the gray bar to the left from the left You'll see it's much wider. The rest of them are very short It's like they all these 19 people kind of agree where growth will be Next year though that bar is much wider than it typically is which goes to show you some of the uncertainty that exists, right? There's somebody in that group that thinks that we're going to be very close to flat growth and others that think we're going to be Closer to 2% you'll see these projections again and they Trying to think no, they will not do projections this meeting. They'll do them again in the in the following one So this really shows this graph shows why we have not been in a recession During this kind of post COVID period we did have a very short COVID recession that you'll see highlighted in gray the light gray bars throughout the presentation are recessionary periods And really it's because consumption has been so strong. This is real consumption. So this holds Prices constant. So the way I describe this to people sometimes is if you think of a being at a grocery store This is like or at a target or something. This is how much is in your your buggy, right? How much is in your basket? and If you had told me five years ago that we were going to have We're gonna hit 9.1 percent inflation at the height last summer and we're gonna have the cumulative inflation We've had over this period of time and real consumption people were gonna put more in their cart. I Would have said that's impossible that that defies economics Let me show you why on a graph can't happen What I wouldn't have known You guys might remember that everybody in here is probably taking economics 101 But you might remember your professor saying ceteris paribus that's important in economics which means all else equal and in this case something was very much not equal and not Typical and that is the huge amount of stimulus that came into the economy during this period of time Now when I say stimulus people's brains automatically go to stimulus checks and the payments that went to low to moderate income Individuals during the pandemic and there were three of those But that actually is a small percentage of the total stimulus that came into the economy So many of your clients were were able to get money for their companies through PPP loans. You may have gotten them yourself There were people who are higher education institutions got money through hearth K through 12 got money through esra state and local governments got money hospitals got money Tons of stimulus coming into the economy that much of it ends up trickling down to personal income In addition to that we had the infrastructure act the inflation reduction act and the chips act passed was also which also Call is causing an influx of funds into the economy And so what has happened is when people pull back their spending that top blue line you see there in 2020 people pulled back because they were afraid this is a normal occurrence, right? You don't know what's going on. You pull back you stop spending as much plus there were certain things you couldn't spend money on, right? we had we were supposed to go to Europe with my kids on April 3rd of 2020 and I'll never forget like every day my like it was just like slowly Dissolving right like this is we're not gonna be able to go right so we couldn't spend that money all of a sudden So it's a consumption pulls back But it rebounded very quickly because Partially because of the stimulus that came into the economy and partially because some of this stimulus was designed specifically PPP loans Where you had to hold on to your employees to get get the money or not have to pay it back, right? And so not as many people lost their jobs as we might have predicted Below the dotted line is sir spending on services. The the red line at the bottom is spending on Goods and another thing you'll see is that spending on services got hurt worse than spending on goods and spending on goods Actually very soon after kovat hit really increased So people like myself that had saved money and we're gonna go on a trip to Europe couldn't spend money on that So instead they bought kayaks or you know Things like RVs my my pandemic some of y'all will have been in similar situation But I have three teenage boys currently and when the pandemic hit they were 10 13 16 in three different schools Of course, everybody is now home learning in the house with me because my husband still went to work every day Which was lovely for him And we out of an open floor plan house we've loved this open floor plan house this house is great these children come home and I'm like this is the worst place in America like I'm in the worst house America so I wanted doors I want doors I want to close myself off create an office I want doors you could not get doors anywhere so I ended up having to special order these doors guess what price I was willing to pay any price right so this is how really inflation really started was goods inflation people wanted things they wanted them now they paid for it so that's really where the price increases started now we're seeing it more on the services side and you can see it's probably it's likely because services have now caught back up but interestingly services have caught back up to where they were before kovat but goods are still elevated people are still spending money I do want to mention though credit card balances and and this is this is also going to be a lesson in something we're really looking at but also how we might use data differently than people might consume it in the media okay so this was a recent headline that credit card balances hit an all-time high that is true and it also hit a trillion dollars so this makes like a very good headline and you can see that credit card spend people paid down a lot of their debt credit card debt with those those payments that we talked about and with the money they had the excess savings that they had but since then it has picked back up but two other things have happened at the same time that are not shown in this graph which is inflation and then also incomes increasing right so a trillion dollars today is not what a trillion dollars was four years ago or three years ago because of inflation plus real incomes have really gone up so if I adjust this data for inflation and then also look at it as a percentage of income you'll see that actually we're still below where we were before kovat now it is rising so this is something we're looking at but where it's not it doesn't look as bad near as bad and so that darker blue line is the graph I just showed you a second ago and the lighter blue is credit card debt as a percentage of total personal income so definitely something we're looking at but not in a range we find especially concerning right now and part of this is because defaults are just now returning to pre kovat norms and the pre kovat norms were much lower than defaults had been before the Great Recession so people have been in general but after the Great Recession and kind of before kovat people did save more than they did before the Great Recession they were a little more fiscally responsible and part of that was because banking regulation changed and banks had to make people be more fiscally responsible in some ways but but they are they're not they're not where we would expect it to be if we were really headed into kind of an immediately bad situation one of the real positives too is that global supply chain has calmed down so if you think about how inflation happens it happens in two ways number one aggregate demand shifts out the demand for goods and services goes up which I just talked about absolutely happened post kovat or you have a supply shock so if you've ever read about the the inflation that occurred in the mid 70s that was really driven by an oil embargo and a supply shock in the oil markets during coded we unfortunately have both of these things we had demand going up for goods and services and at the same time supply took a big hit this was you know typically in the beginning this was driven because we you couldn't get things from overseas to United States anymore or the overseas factory specifically in China where they literally just shut down everything were completely shut down and so all of a sudden these just-in-time inventory systems that had served companies very well were a failure right these systems failed and so we saw massive supply shocks in certain industries there still exists some isolated supply chain issues so if you talk to a home builder and mentioned the word transformer they are then going to go into a very long discussion about how awful that is still and it is it's terrible but in general on average global supply chains have gotten much much better so it's now cheaper to get a ship from China to the United States than it was pre-coded this is very good news because the Federal Reserve most of the actions that the Fed takes that the FOMC takes are going to impact demand right the raising of interest rates is really done to impact the demand for goods and services by companies and by people supply isn't going to be impacted as much especially global supply issues so it's a really good sign for inflation that that has calmed down this is a new slide to my deck that I would never have included a few years ago because if you look even a year ago this would have been boring and now this is one of the most interesting things I think that's going on in the economy and I think this is a great example of how policy matters this the top line there is oh and there's kind of a weird typo at the top so ignore that but the top dark blue line is total construction spend in manufacturing okay the bottom line and I don't know why that sorry the the legend didn't come through the bottom line is total construction spend in manufacturing that is specifically related to electronics computers and electrical things so this includes data centers and it includes all of the things that are being built around the EV electric vehicle industry there is this is if you talk to folks in this industry this increase in construction this increase in economic development announcements probably no matter where you live in the country there's been some sort of economic development announcement related to data centers and or electric vehicles tons of them in the Carolinas by the way tons huge mega site economic development like biggest big South Carolina and North Carolina in the past year have had the largest announcements in the history of the states in North Carolina it is an electron electric vehicle manufacturing plant in South Carolina it's an electrical vehicle battery recycling plant these things are coming to the United States some some is new industry some is coming from Asia and Europe and this is being driven by the CHIPS Act and the Inflation Reduction Act which both have significant incentives and built in them that really basically just take some of this renewable energy technology where the numbers just didn't quite work yet and now the numbers work and so you know people will say to me sometimes oh I bet you're hearing a lot of negativity in the construction industry because of what's going on in residential home construction I'm like no because they're they're doing some of this right so we do hear about continued strength in construction because of these numbers let's talk about employment this really follows what we talked about a consumption as long as people in firms are buying a lot of stuff then companies have to make a lot of stuff but that September jobs report that came in at three hundred thirty six thousand jobs that was a week ago I was blown away by that number I'll be honest I think the consist census estimate from economists was around a hundred and seventy five thousand jobs that people were expecting but not only did that come out but it also revised July and August to include an extra hundred and twenty thousand jobs so both July and August before the revisions last week were below two hundred thousand jobs let me kind of level set this for you we need to add about eighty to a hundred thousand jobs a month in the United States to keep up with population growth and to keep labor to like keep employment basically flat so anything above a hundred thousand jobs economists think of as being expansionary like the economy is expanding and kind of anything below eighty thousand I would think of it as a bit contractionary three hundred thirty six thousand jobs is a lot of jobs now I have had people in presentations recently asked me because there was a lot of these jobs are part-time jobs but no matter how you cut this thing this is a very big jobs announcement so my first thought when I saw this was wow like that is a huge number of jobs and is much larger than I thought it was going to be and then my second thought is this is great from an economic growth perspective but this makes inflation harder to get down because as long as people are adding this many jobs companies are adding this many jobs the pressure on wages is also higher right and when that happens it's harder to get inflation back down to that 2% target Jerome Powell has been pretty clear that his belief is these numbers have to come down for us to get to 2% I do not think they have to go negative though a negative would be kind of what we would expect during a recession I don't think that's a requirement I don't think it's necessary but I also think it's going to be hard to get inflation to 2% if we're adding 336,000 jobs every month so this is this is why I said kind of the theme of my talk is going to be all of this looks great but right there's the second part of it where it's like this is great but it might be harder to get inflation down if that's the case then what does the FOMC have to do to get these numbers to come down a little bit that's kind of the question mark I have in my head right now but let's look at a couple states because I do want to point out that there are about 10 states in the United States that are still not back to pre-COVID employment and if I ask a group like this what to what states name two states you think those are people immediately say New York and California and you are would be right New York and California are not back but neither is Louisiana and that's not one I've ever heard someone say but there are states like Louisiana that were not growing great before COVID where COVID really took some additional wind out of the sails and many of the states that are seeing these losses are either states that have huge metro areas which is part of what's going on in New York and California and are very expensive places to live where people have left and places where are that are difficult to locate due to either geography thinking Louisiana a lot of it is about the weather and risk in terms of hurricane type risk insurance rates all of that right there's it's typically going to be either about kind of the size of the metro area cost of living and industry composition or something more about just the state in and of itself so that that blue dotted line and I should have mentioned this here even though we're back to well above where we were before COVID in terms of total employment in the United States we're not back to where we would have been if COVID never happened like if if we assume the trajectory would have continued which is that lighter blue dotted line and certainly we're not in Louisiana but look at North Carolina so North Carolina had seen very strong employment growth post Great Recession and you can see that by kind of the beginning of last year North Carolina had our about three months into the year North Carolina was already back to the kind of pre-COVID trajectory but I want you to look at how that curve has turned up recently and actually right now while I'm talking at 830 the new numbers come out for North Carolina or for payroll employment for states so now it makes me curious what it is but but so we don't have the sector or we do have the September dating it but I haven't seen it but in August North Carolina made up 8% of all jobs added in the United States but they only make up 3% of the population so I point this out to say that the outcomes are are uneven across the United States so some of you may live in places if anybody in here from Raleigh North Carolina or the Raleigh area no nobody okay some of y'all might want to move there because there's a lot of jobs being added and they are very high income jobs the Apple project that is gone to Raleigh the average income is two hundred nineteen thousand dollars a year and it's thousands of jobs that is not a typical southeastern salary for an economic development project so when you're in some of these places you can feel this growth but there are other places I go to in my job where you feel the opposite and in our district there there are still three geographies that haven't recovered which are West Virginia Maryland and DC and so it does it does matter where where your feet are planted in terms of the growth you're seeing around you so I think that also leads to confusion for people when they're like seeing on the news like they hear these great jobs numbers and they're like where I live things might not feel great right it might not look great and it's because of those uneven outcomes but another thing that I wanted to point out is there's been this massive shift in how people are working and where they're working I sometimes get people looking at me cross out a little bit when I'm saying we now have more people working like in than we've ever had there's more jobs than ever in the United States more people working and people are looking like but we still have all these labor shortages right like what's going on then why do we have these labor shortages and there's a few things that are happening but one of them is that people have shifted from jobs where you used to interact with them and see them things like leisure and hospitality things like education things like retail and they have shifted over to jobs like business and professional services where you're not going to see them out and about so if you look at leisure and hospitality we've lost a hundred eighty four thousand jobs but we've added 1.6 million in business and professional services so we have this tendency sometimes to think if we go to Starbucks every morning and we see the same barista and all of a sudden she wasn't there post-covid she you know it closed down when you went back she wasn't there to think oh she doesn't work anymore when in reality what the data tell us is there's a high probability that she's working in an Amazon warehouse or she's answering the phone for PNC Bank for a call center from her house or just doing something else and people have had the opportunity to move from very stressful difficult jobs like the ones I mentioned but also if you dig into some of these sectors nursing home employment is down social worker employment is down k-12 education is down right these things that are really hard jobs very stressful that typically don't pay great that's rational choice for these individuals right they were able to move to jobs that maybe are less stressful they might even be able to make more money than before can make the same money the problem though is that we need k-12 teachers we need bus drivers we need CNAs and nursing homes I asked my I was doing some research this is kind of my area of research and I was doing some research one day and my research assistant that works for me he's 24 and I told him I was like some of this data scares me like who's gonna take care of me when I'm old and he wrote me back he's like you might want to invest in this and it was like this robot that you know it was like a gif of this robot dancing like it might not be a bad idea but we need to the big question I think going forward in workforce is going to be how do we encourage people to go into some of these jobs that we really need that are gonna be difficult to innovate through AI or something else it's gonna be hard to innovate the job of a CNA in a nursing home right and so we've got to figure out how to get people into those jobs but the change out was quite rational for many of those people so I just wanted to give you a show you graphically and I know this is kind of hard for you to see probably from where you are but you'll get these slides too and you can see it this is our region and I just wanted to show you how this can look different in different places these are all the sectors and the employment change from February 2020 to August 2023 and you will see on the left hand side these are places that's that have had employment loss in these sectors and then on the right it's the states that have had employment gain and you know it is really interesting to see the differences so in education services West Virginia has lost over 20% of their employment in education you think about that that is a huge number right but in in South Carolina it's grown about 13% but one thing you'll notice is there's a lot of blue and gray and green dot or not green sorry blue lighter blue darker blue and gray dots on the left and more green and yellow and orange dots on the right and so that shows you kind of this differential growth between between states so labor force participation is a really important topic right now because of what is going on in workforce and I think going forward from here till as far as I can see into the future there's going to be a lot of concern over labor force participation and workforce outcomes and that is simply really because of the aging of the baby boomers and people living longer and having longer periods of retirement but I like to take this all the way back tonight to the late 1940s because I personally believe that we are in more of a post-world War two employment labor market than we are in any other time in history and the reason I say that is post-world War two there was a very strong demand for goods and services it was like the war is over let's go spend some money but there weren't that many workers veterans people came back from the war Some retired. Some used the GI Bill. Many used the GI Bill and went back to college. Some were disabled. And a lot of people died, right? And so we had fewer male workers that were available. And then women weren't really in the workforce in large numbers. What happened between the 1960s and the 1990s was two things. First, women did enter the labor force. So labor force participation rates overall went up about eight percentage points during that time. But female labor force participation rates went up 17 percent. So women entered the labor force. And also the baby boomer generation went from being a huge generation of children to a huge generation of working-age adults. And by the way, with the reputation of being very hard-working adults. So what many people don't realize is that this number had been falling since around 2000. Driven by a couple phenomenon, there is a lot of economic research out there on what was going on. But the basic gist was two things. The first was what we call the graying of America. So not only were the baby boomers aging at this point, but people were living much longer and having longer periods of retirement. The other thing that happened though is that there was a distinct change in labor force outcomes for certain demographic groups. And if you look after the Great Recession, you'll see that curve gets steeper in a negative way. And the reality is we have seen that younger male workers now work very differently than their fathers did. They work fewer hours. There's more of a preference for part-time work, which is why I think we're seeing a lot of part-time jobs being added in the economy. And when I say part-time work, I don't even mean like one part-time job. I mean multiple part-time jobs. We talk to workers as well, and we hear a lot about people now, younger people, instead of making as much money as they can make in a month, they try to work to a number. So it's like, I know I need to have $1,500 in a month. And so starting on the first of the month, I work as hard as I can to make $1,500. And then if I make that by the 18th of the month, I'm done for the rest of the month. Very different, right? Very different. So some of this has been generational change. And some of it, quite frankly, and I know you guys see this with your clients, some of this has been the wealth transfer from baby boomers to their children. Some of these people that are doing that are doing that because somebody's paying their cell phone bill and gave them a big down payment on their house and bought them a nice car. And so we knew that this wealth transfer from baby boomers to millennials, typically, that's the typical path, was going to happen. But I think we thought, and when I say again, once again, like economists thought this would be more of something that would happen like through inheritances, but instead what we're seeing is a lot more, a lot more older adults paying for their younger adult children's living expenses. And so people are working differently because they can, but this isn't the case across all demographic groups. So I want to show you a bit of this. By the way, and I have this on the slide, but right now it's it's between 62 and 63 percent, but that BLS estimates are that this drops to 60.4 percent by 2032 because of the two things I just mentioned. So who's left the labor force? Let's look at this. So if you look at the top left, that is prime age workers. So that's 25 to 54 year olds. I really want you to pay attention to that because I'm going to show you where this growth is coming from and it may not be what we expect. It's definitely not what I expected. But you'll see on the upper right that over age 55 has really declined and it's likely to stay low. These individuals are not likely to reenter the labor force overall. And then also I want to point out that a lot of the decline we have seen and a lot of the decline in labor outcomes that I was just talking about with especially male workers typically comes from the no college, like graduate from high school but don't have a college degree segment of the population. And you can see that on the left that it had been declining. We had kind of this period of stability right before COVID that actually was driven by an increase in black male labor force participation rates if you look at the data. But it is not anywhere near recovered post COVID. So this for me to for me to narrow down this specifically by race and gender I can't get this data every month so that's why I have to go back to June. And then it's not seasonally adjusted so it's important to compare like one the same month over the period of time so that's why I'm comparing June 2019 to June 2023. But the top left here or the top chart table shows prime age labor force participation rates changes and you saw that had more than recovered but that recovery has come from female labor force participation rates. This actually was a surprise to me when I when I started seeing this pattern because the thing I hear about most when I'm out and about is how bad how big of an issue childcare is. I do believe childcare is a huge issue but it surprised me that it's been women that have been coming or that have been increasing in labor force participation rates. And that white male decline I was not surprised to see that because that's where we have been seeing some of the cons. Unfortunately if you look at white male outcomes for that no college group of individuals they show up as being if you look there's all sorts of data out there like like white males without a college degree have the highest rate of deaths of despair which sounds awful but that's opioid deaths, suicide, other types of terrible situations and and we're seeing we're seeing more issues in that group in terms of labor force than some of these others. But the reason why that is so concerning other than it just should be concerning from a cultural point of view is that white males make up a huge part of the labor force and so if they are decreasing that may that's a larger number of people that are declining. In terms of age 65 plus I also do a presentation on racial wealth gaps and I feel like this is my racial wealth gap presentation just coming to life because what we're seeing for those over age 65 is that white baby boomers have left the labor market in relatively large numbers. This is not a surprise because we know the white baby boomers are the richest demographic ever in terms of retirement earnings or retirement holdings at age of retirement and that is driven by two things. First they are known as being a very hard-working generation but also white households baby boomer households were more likely to have two working people the whole time or much of the their working age life and so they're really the first generation to have that right. Their parents it was more typical for the mom to stay at home and so they have a lot of retirement savings and so they've been able to leave the workforce but black male and female over age 65 actually their labor force participation rates are now higher than they were before COVID which is really interesting I think. This is probably driven by inflation just the fact that people if they don't have wealth to lean back on they they kind of have to or a pension that adjusts with inflation or things like that they have to have to go back to work. What about younger people? So the age 20 to 24 overall that age group has not recovered to pre-COVID norms. This is has not been a shock to me because of how COVID impacted this age group so if you think about this age group these kids were you know 17 to 21 when COVID hit and if you had children in that age group I had one at the time it was very difficult right a lot of the kind of the normal maturation that would go on during that period of time for young adults was not happening whether that was kids that were kind of late in high school or early in college but we do see especially black females and males and white males have had pretty substantial declines there and you can see like if you look at the gap between white female and white male between 2019 and 2023 I mean you can see that this gap is really changing right in 2019 the labor force participation rate for that age group there was what a 6.6 percentage point gap and now that's down to 3.7 so we are seeing some some kind of fundamental shifts here but teenagers are working in in larger numbers teenagers with the exception of black females are actually up quite a bit and this is likely because of wages they're able to make a lot more money now than they could a few years ago but this is a good sign for the future we know from economic research that the earlier you get into the labor force the more likely you are to stay in the labor force it's unlikely if you work really hard when you're a teenager to then decide when you're 20 or 24 that you're not going to work right so this is a very this is a very good sign so because of all the things I just mentioned there's a lot of pressure on the labor market and one of the interesting things we've seen is that job postings have been coming down jobs opening rate has been coming down although it did bounce a bit this past month but we haven't seen unemployment rates go up I will point out on the bottom I'm gonna talk more about that just thinking but I will point out on the bottom that the hires rate and the quits rate have come down some but the quits rate is still about where it was before kovat so people are still changing jobs but less so than they were a year ago but in economics we have in every economic textbook intermediate micro or or macro or labor economics book you would find the discussion of what we call the beverage curve the beverage curve shows the relationship between unemployment rates on the x-axis and jobs opening weights on the y-axis the idea is that there's an inverse relationship as the unemployment rate gets worse the economy softens there's less jobs available that comes down and that bottom group of dots you see there that is from pre great recession until before kovat the lighter blue dots you see on the top is post kovat this curve has looked very different than it normally does it just kind of jumped up in magnitude at first and then it started looking very funky but in 2023 it is that purple line it's vertical now this is very unusual what this means is that we have job postings going down by the unemployment rate is not changing that is likely because we have so many more job postings than we have unemployed people that even though those that jobs posting is rate is coming down there's still enough jobs for people to cycle through unemployment quickly there are some economists including one at our bank that I heard present earlier this week that believe that maybe this is a path to normalization of the beverage curve but there's a lot of questions out there yeah I just wanted to show you this to give you an example of kind of data that are not behaving as as they typically do in economics not surprising given everything I just said we were so we're short on labor supply high on jobs wages go up right now wages are down from peak a couple things I'll point out here wages are down from peak and you will see that dotted line which is high skill occupations during the whole post kovat period of time high school occupations were actually seeing lower wage growth than low skill occupations which is opposite of how it typically is you know when I was an economics professor I used to tell people you want to get a college degree to not only make more money when you're 22 years old but then to also get bigger raises than you would otherwise throughout your career because that is a typical relationship we've seen you can see that on the whole left-hand side of this chart but there was the inverse happened because the labor shortages were really happening more on the lower skill occupation side so we have seen that relationship kind of switch back to something more normal but inflation is now down below these levels and so we are now seeing that people are seeing real wage increases and real wages have remained flat or even a little bit negative depending on how you measure them for the average person the United States since the 1970s now for higher income individuals that's a very different curve but for kind of the average person they've seen no real change in wages since the 1970s so this is one of the first times we've had positive real wage growth in quite a while producer prices which are thought of as a leading indicator for for inflation are down which is great but CPI remains elevated this is all CPI and core CPI all we call it all items but it's headline CPI is what you'll see it called sometimes the Fed pays more attention to core CPI because that is more of what we can control in the monetary policy process and it's more stable you'll see that red dotted line is very more erratic more volatile a lot of changes in food and energy prices are really not about inflation they're about things that are going on in global commodity markets but this is the components of CPI the only thing I want to point out here is that much of the growth in recent months has been from rent and owner imputed rent this is sticky meaning it's harder to get those prices down because once you sign a year-long lease if your rent has gone up your landlord's not going to reduce that right you're then kind of locked in for six to twelve months typically twelve months and so what we've seen is PCE which is our primary measure of inflation that we use at the Federal Reserve that it has come down but it's still well above the 2% target and I really want you to look at these projections on the left on the right hand side once again these are the 19 FOMC participants and look how wide that estimate their estimates are for next year these are the most educated people on this topic like the way we inform this group of people to participate in these meetings it still shocks me how amazing the processes of informing our president even after being there for almost five years these people know this data in and out and there's still just a lot of uncertainty out there because of all of this stuff I talked about right they're raising rates but consumption is not responding like what happens next right so even they have a lot of uncertainty there but they don't expect to get to 2% until the end of 2026 so where do rates go from here I have no idea but I wish I did but I think historical context is really important for two reasons the first is that we have operated an economy at much higher rates than this before if you look and and if you went before 1982 you would see higher rates higher historical rates so we have had rates higher than this before but it's also important for a second reason how many people in here are 40 years old or younger okay none of the people who raised their hand care about that because the whole time they have been adults almost the entire time the federal funds rate has been zero and so money was very cheap so young people thought they were gonna buy a five-bedroom house with a two and a half percent mortgage rate and go get a car and pay 0% interest on it this is what they thought was gonna happen and because of price increases now they're gonna have to buy a two-bedroom townhome right and so it's not surprising that there's been a shock right rates have gone up very fast and there's an adjustment phase and it's because we had such low rates for so long these are this is the dot plot and I want to wrap up really quickly because I want to make some questions but this is the dot plot they also do this every other meeting all of you should look at the dot plot if you're looking at this like I've never seen that you should look at this every other meeting because this is where the people that vote on this policy are telling you what they think is gonna happen so I have here September 2022 in September 2023 and I just want to point out that a year ago none of the members thought we would be at the rates we're at now and that's because things have changed it's a fluid process it's actually I think a very good process the FOMC process but I also want you to look at 2025 on the right-hand side and see how spread out their expectations are somebody in that group thinks we're gonna be at interest rates higher than we are right now in 2025 we don't know whose dot is whose I don't know whose dot is Tom Barkin that I work for we don't know there's prognosticators that try to guess which one's Jerome Powell because that's the most important dot we don't know but there is considerable uncertainty about what's going to happen and then the last thing I'll point out is that that longer run view that has stayed pretty much the same throughout the entire COVID period until last meeting where all of a sudden there's a few dots that are going up a little bit this longer run view is kind of what is the neutral rate what is the federal funds rate it's long been thought to be two and a half percent if you're trying to achieve 2% inflation but there's a few people whose dots are moving up so this is something to watch too is this longer run view and this is made public every time the the Fed meets it's made public I think the same day they meet so where do we go from here grow for 2023 is really strong but there are all these speed bumps right if they let the government shut down that's gonna be one for sure the global geopolitical issues is a huge one right now I think the question is what does the Fed have to do to get consumption and the jobs market to respond to their actions will it happen naturally are they gonna have to raise rates we'll see and then how are we going to be able to get a softer softest landing I think it's entirely possible to do that but it doesn't typically happen that's not what typically happens so typically when the Fed raises rates like this there is a recession it might be a mild one but there is a recession so we'll see so I will stop there and have a few minutes for questions I think there's mic runners if people have questions let's see one right here Historical norm prior to the Great Recession was not 2% for decades so why 2% are so that the answer to that question is very very complicated why they arrived at 2% but after much work they decided that to get the kind of growth they want in the United States given kind of current conditions that 2% inflation was the place to be I get asked a lot if I think that that target will go up right now if you ask any of the FOMC participants they will say and I've heard them be asked this our target is 2% we are getting inflation to 2% I also think over time there'll be more discussion about that simply because I think with labor being as short as it's going to be there's going to be wage pressure that is going to be higher than it was before all of this and so I think there'll be discussion about whether 2% is the the right target it will be interesting to see when I first started the Fed in 2019 the problem was we could not get inflation to 2% by the way we were below the target it was like how can we possibly get it to 2% and then not the problem anymore so it'll be interesting to see see that I'm very eager to hear that discussion myself other questions it's gonna be you know I think inflation is coming down what is going to be interesting to see is there's a lot of talk from economists about kind of that last mile like to get it from maybe 3% to 2% is that harder there's no doubt that that money stimulates the economy which moves things in the opposite direction from what the Fed is trying to do we'll see we'll see now I think what's going to be interesting is the research that will come out eventually on whether or not some of this I mean you look at that construction spending stuff that makes me think maybe the chip sack was I mean maybe this is like the thing we've been waiting on I don't know in terms of economic development and growth but there's gonna be a lot of economic research that looks at whether or not all that stimulus it all that stimulus is what prevented us from going into a bad recession but it also caused inflation and and so was it worth it and it's also was gonna make it where it's harder to get inflation down I don't know there's gonna be research that shows that and I I think it's gonna be a very important question to know what how do you respond in times of crisis because the the politicians just want to get things done as fast as they can right get money out there which I understand but economists would structure all that very differently right so it'll be interesting a lot of the data post COVID has been atypical so is the Taylor rule still a tool in the toolkit or is a little more intuition and hunch-based I wouldn't say it's intuition and hunch I would say just like some of the other things like the beverage curve or other things I would say what it has done is it's elevated the importance of the outreach economists I'm saying this as outreach economists so people like me are more important no but in all seriousness because models use historical data so if the historical data aren't predicting current data it becomes difficult that's why it's important to have people on the ground that are talking to people and and observing what's actually going on in real time so we can see that that CPI data for example and and rents are staying elevated but there's a lag in that data too so it's important for us to talk to landlords and say what's going on today with your rents are you able to increase rents are they going down what's happening we also learned that after the Great Recession in all seriousness the Fed really changed the way they did some of the FOMC process after the Great Recession because some of the models were surprised about what happened with the Great Recession but the people that were on the ground were like oh no we saw people being over levered becoming ever leveraged and some of these other things so so I wouldn't say it's hunch and intuition it's more that we have we have probably quadrupled our outreach efforts since COVID started we're very busy which is a good thing we need to we need to be busy probably one more question as an outreach economist and by the way I think that is the coolest job and you're going out to some of these like rural counties that you mentioned in North Carolina where the numbers aren't looking so great are they all just hoping to get a data center or what are you doing about the problems of inequality that they have great question so one of the things they're really hoping for is that the the infrastructure bill the money for broadband really comes through and is is allocated where it needs to be allocated because in a lot of rural parts of the country really that's one of their biggest economic development issues right is how can you get a data center if you don't have internet access right so that's the thing I hear about the most there is like we've got to get the infrastructure or even sewer systems right we've got to get the infrastructure to be able to even compete for basic economic development wins and so the infrastructure bill is is a really big deal to a lot of those communities and also I would say there's a lot of talk there on education how do you hang on to the people that you have how do you do a better job of educating the folks that are gonna stay but I will say there's a lot of communities out there that that are struggling quite a bit with answering those questions lots of good efforts going on but the numbers aren't necessarily moving in the right direction quite yet thank you guys so much for the opportunity to be here

Laura Ulrich

US economy

GDP

employment rates

labor force participation

inflation

government shutdown

labor shortages

COVID-19

data-driven decision-making