Barb’s Recap from the Advisory Council to 9th District Federal Reserve
October 2024
As many of you know, I was appointed to the Advisory Council of the 9th District Federal Reserve Bank in January 2024. The council’s role is to advise the bank’s officers and economists on regional economic conditions. The council is made up of 10 individuals representing the 6 states that make up the 9th district. We meet twice annually, April and October.
I attended our October meeting last week. Our topics were the labor and hiring markets and the economic activity and outlook. The council members bring comments and information on those topics based on our market and industry. What I do is reach out to my network to hear what they are experiencing and share the stories. In turn, I want to share with you some of the information I received and will target just that of our industry.
Labor markets – While this industry is still tight, other states and industries are seeing the market loosen up a bit. Regarding construction, we discussed the generational differences in the workforce and the impact on attracting younger people to the industry. Generation Z is motivated by work-life balance. They are less likely to want to work overtime, drive longer distances to job sites, and endure seasonal layoffs. These are challenges that will need to be addressed, including owners being less aggressive with expectations and schedules.
Business markets – All members agreed that business is still a bit cautious due to the interest rates. Regarding the built industry, we are told that deals in the pipeline are still hard to get to work financially with the interest rates. The uncertainty is still a significant hurdle for developers and commercial investors. IIJA money (Infrastructure Investment and Jobs Act) has been extremely beneficial for infrastructure construction, referendum dollars have benefited the education sector, yet commercial and housing is underwhelming.
Our lunch with President Kashkari brought not only great dialogue but was extremely educational. I learned that while consumer perception that inflation is terrible, it isn’t. Current inflation is at 2.4% down from 2.5% in August and the lowest since 2021. This is trending in the right direction after two years of the worst economic crisis in a generation. The Feds inflation target is 2%. Prices are still 21% more expensive since the pandemic induced recession began in February 2020. The high prices are driving the consumer’s negative perceptions. While we have seen significant decreases in gasoline, energy and automobile prices, food costs are continuing to rise. The discussion takeaway is that pricing will likely not decrease – especially not to pre-pandemic levels. Historically the increase of 18-24% has happened over a decade in time. This increase happened in 4 years due to an unforeseen global event and incomes could not keep up.
Regarding interest rates, we discussed the uncertainty and how that is affecting the construction project pipeline. President Kashkari noted that interest rates are always on a continuum. While there was a .5% decrease this year, and projected additional decreases coming, the overall factors that affect that rate must be analyzed continuously and many external factors affect the changes including weather incidents, wars, the 100-year pandemic, and more. When we asked about the decreases in the rate, he said we may not see a 3.5% interest rate normal again and the new normal on the continuum may be 5 or 6%. Developers may not be able to make the deals in the pipeline work with the new rates and will have to redesign or walk away.
I know this is a bit long and not a light read. One of the purposes of my blog is to keep members informed of what I am learning and doing. The takeaway is that I bring to the council the current state of our industry and businesses based on what I learn from you all. Keep sharing your successes and concerns with me so I can continue to be your voice at the table. Thank you to those members that helped me in gathering data before this meeting.
— B