Since becoming president of the Federal Reserve Bank of Richmond in 2018, Tom Barkin has consistently shown up in unusual places to gain the pulse of the economy in his five-state region.
This week, Barkin met with various regional business leaders in southeastern North Carolina while visiting UNC Pembroke in Robeson County. Chancellor Robin Cummings hosted Barkin at various gatherings, including the regular weekly meeting of the Lumberton Rotary Club.
It’s also an unusual time for the economy, given the major changes in trade policy and government operations proposed by the Trump Administration. Barkin opened his talk by noting that people relying on TV news for their information could reasonably conclude “everything is going to hell.”
Recent economic data doesn’t back that up, he said. Annual inflation that peaked at 7% a few years back is now in the 2.6% range. GDP growth remains solid and unemployment is 4.5% and not spiking.
Rather, Barkin compared the current economy to driving through a fog. One doesn’t put a foot on the gas, or screech on the brakes, because either move can be very dangerous with limited visibility. Instead, he says, many businesses are pulling over to the side of the road and taking a pause.
So far, that hasn’t caused major economic turmoil because the reports on jobs and consumer spending remain strong, Barkin says. The latter is particularly important to watch because about two-thirds of the economy is tied to how much people spend, overpowering the impact of business investment.
Barkin noted that consumer spending remained strong after the 1987 stock market crash, while falling sharply during the 2007-09 recession. The difference was the rapid decline in the job market during the latter period, he says.
So far, most job market problems center in northern Virginia because of the Trump Administration’s efforts to cut federal employment. Otherwise, the job market appears to be solid with little evidence of mass layoffs, he says.
On tariffs and immigration crackdowns, Barkin said the key issue is “not the direction of policy, it’s the destination.” Business owners are waiting for more clarity before making major investments, he adds.
The Fed official emphasized that he wasn’t suggesting everything is rosy.
Added tariffs have historically been inflationary, such as in 2018 when the initial new levies boosted prices by about 0.3 percentage points, which was barely noticed in the investment markets, Barkin says. But the recent tariffs announced by the president would be about 15 times more significant, if they are instituted, he says.
A key challenge facing the U.S. is having sufficient workers to meet employer needs. Tighter immigration policy and reduced reliance on offshore manufacturing appear to be certainties over the next few years. That will force the U.S. to expand the domestic workforce, even as that workforce is likely to grow at half of the pace compared with the 2010s, he says.
A larger workforce is achievable, especially with incentives encouraging older workers to stay on the job or to return to the labor force, Barkin says. He noted that 37% of Japanese who are 65 or older are still working, compared with 19% in the U.S.
Artificial intelligence will reduce jobs in some sectors, while adding them in others. “I’m not worried that there won’t be enough jobs,” he says.
But he is worried whether there will be enough workers in the childcare and healthcare industries, namely positions that can’t be filled by robots.
Separately, Barkin says his travels indicate that three key factors appear tied to rural Southern cities that are showing exceptional growth. First, exurban towns such as Clayton in Johnson County and Wilson in Wilson County are seeing significant new-home construction because of their proximity to a fast-growing area like Raleigh. Second, retirement destinations near mountains, lakes or beaches are seeing accelerated growth. Third, towns that land major factories show robust gains.
Smaller communities with healthy institutions, including local banks, colleges and hospitals, have much stronger chances to grow, he says. For example, he noted Harvard economist Raj Chetty’s research showing that younger students who don’t live near a medical doctor are much less likely to seek a medical degree.
Overall, Barkin says the Carolinas’ economy appears to be outperforming the other three states in the Richmond district. The Carolinas’ major metro areas, including Charlotte, the Triad and the Triangle, benefit from having land for expansion in all directions, rather than being limited by geography as is the case for many U.S. regions, he says.