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Wednesday, May 22, 2024

Reader comments about the 2024 economy

Here are some of the comments we received from state business operators about the 2024 economy:

Today’s GDP report was better than expected. Fourth-quarter growth was strong at 3.3% annualized, capping a good year. At the same time inflation has slowed in 2023, with core PCE inflation, the Fed’s preferred inflation measure, right at their 2% objective for a second straight quarter. Consumer spending continues to increase at a steady pace, business investment growth is good, the housing market is no longer a drag, the trade deficit declined, and government spending is a positive. Inventories added to growth in the fourth quarter, although they will soon be a negative.

All of this means that the economy is starting 2024 in a good place. Growth is set to slow this year as high interest rates remain a drag, consumers will need to slow their spending growth to increase their savings, government spending growth is set to slow after a surge in 2023, the global economy is soft, and inventories are likely too high. But the U.S. economy is likely to avoid recession in 2024 as the economic fundamentals are solid.

The strong GDP release complicates the task for the Federal Reserve. After raising interest rates aggressively in 2022 and most of 2023, the Fed was hoping that the economy would grow at a pace of somewhat below 2%, what FOMC participants think is consistent with 2% inflation over the long run. Instead, growth accelerated in 2023, to well above the economy’s long-term potential.

But at the same time inflation is slowing rapidly toward the FOMC’s 2% objective. The Fed could see inflation moving toward this goal and decide to cut interest rates. But at the same time above-trend growth could reignite inflationary pressures in the economy. The FOMC is likely to take a wait-and-see approach and keep the fed funds rate, their key policy rate, in its current 5.25% to 5.50% range until it becomes clearer that growth is slowing. PNC expects the FOMC to start cutting the fed funds rate in mid-2024.”

 

“To the extent helpful, here are some trends we’re watching on the economic development front this year:

  • So far, there’s been no let-up in large-scale economic development opportunities (i.e. advanced manufacturing “mega projects”) that North Carolina is getting the chance to compete for.  Many of these opportunities cite federal policy (i.e. IRA, CHIPS Act) at least in part, if not as a major factor, behind their plans for new production capacity in the U.S., as these are projects involving vehicle electrification, EV batteries and battery materials, semiconductors, and clean energy technology/equipment.
  • That said, we’re anticipating a potential slowdown in deal flow – or at least a lengthening of decision timeframes – as the federal election nears, given that the two campaigns would involve very different policy directions on the economy, including government stimulus for critical industry sectors like EVs, clean energy, semiconductors, etc.  This slowdown in deal flow or slowing of decisions would be due to the usual uncertainty around policymaking landscape in 2025 and beyond, with companies wanting to see how control of the White House and Congress shake out.
  • With a few occasional exceptions, we have not yet seen any significant rebound in demand for traditional office deals involving companies looking in North Carolina to establish major new office presences – e.g. corporate HQs, technology centers, back-office operations, etc.  Recent decisions by companies to more forcefully require return-to-office might eventually bring back more demand for office projects, but for now, the shift to hybrid and remote office work still seems to be depressing the share of economic development projects involving new office investment.”

“Hiring is still an issue. We are still seeing a shortage of candidates with the background and/or work experience we desire for jobs that we are very willing to train for. Too many of the candidates have multiple job tenures of less than a year. Add to that a significant percentage who ghost us for interviews.  

  • Inflation – Sad to say, but we have almost become immune to routine cost increases.  
  • Our business is like many.  When the economy struggles, we feel it.  Higher interest rates and increased costs of housing (rental and purchased) have impacted the amount people have to spend.  For some reason, the Aerosmith song, “Living on the Edge” is going through my mind.  Go figure…..”

“Some business-related observations:

RTO is happening and overall it seems to not be a big deal. People need to collaborate, see each other, have water cooler conversations and interact. Company provided free lunches to help the situation.

The new normal with higher interest rates is being accepted, we see M&A activity picking back up.

Anecdotally, I see more CFOs looking for a new role than I see new roles available out there. The labor market has definitely tightened up.

Companies are looking for value in their professional fees paid, looking to make a change if they don’t see that perceived value.

Infrastructure needs to be a focus. Look at Morehead St. and Central Ave./ Plaza Midwood in CLT, as an example. The same roads as when I grew up here, but how many more multi-family units with 2 cars per unit are now built on these roads. We aren’t at gridlock, yet…

When/ How are younger professionals going to be able to buy a home? Home prices and the downpayment required are major headwinds.”

“Workforce is the No. 1 issue for most companies, both large and small and in all sectors, but especially for small businesses in the trades.

We are having a lot of difficulty finding and keeping employees in our business.  We are willing to train young people in the mechanical and electrical knowledge that it takes to assemble, install, maintain and repair gas and diesel-fired generators for residential and small commercial uses.  First, it is hard enough to find a person who has the experience and interest in learning these skills, but keeping them is the harder part. Our turnover rate is horrible.  It is because they have issues that we just can’t live with – drugs, consistently late for work, always wanting personal time off over and above our vacation/sick policy, can’t get along with each other (causing morale issues for the good ones), etc.  Work is just NOT a priority.

As AI enters our world, people who can actually work on equipment to install and repair it will be the majority of needs; and I am concerned that this workforce, and probably other areas as well, will be a huge problem.  Workforce development training needs to be THE priority for school systems and communities.  And that training needs to include not just technical skills but the social skills as well.”

“You know what I will say: Employers are still having a hard time finding workers. Between not having enough NC population/residents to fill jobs, to high levels of choosing not to work, to increasing rates of retiring older workers, and high turnover among those who are employed, employers are hiring anyone they can find even if it fills the job for one day. Recruitment and hiring efforts are taking precedence over training if/when they can hire someone and show them how to do the tasks associated with the job.

At the same time, they are currently strategizing how to right-size their workforce along with increasing automation/robotics and using their reserves to pay for the new equipment. On top of that, employers are worried about how AI technologies will impact their automation strategies. Since AI is still new and evolving, employers are still navigating which direction to follow in that regard.”

 

“1. 2021 thru 2023 were record years.

You will find this true for all the brokerage services (Colliers, JLL, CBRE, CushWake, NAI, etc)

  1. Absorption of all classes of industrial space, from small/older manufacturing buildings to new big-box distribution, was accelerated, a combo of e-commerce and supply chain withdrawal from China. We sold or leased buildings to small/mid sized USA based businesses and to Fortune 500. Biz was great!
  2. Consistently across the state/region the No. 1 issue we kept hearing — finding employees from entry level to high skilled talent. 
  3. The main reasons behind the labor shortage were attitude changes due to COVID, retiring boomers and a housing shortage, in particular outside the main urban areas. 

For 2024 — the accelerated demand for industrial space has slowed but not stopped. Meanwhile facilities are announcing closings and there is an abundance of square footage for lease in the market. Prices are adjusting accordingly.  This bodes well for fighting inflation and keeping NC attractive for business. This will take some time to find equilibrium, we’re in the throes of it now. 

Finding/creating talented workers is being addressed and those efforts should bear fruit. This takes time too. 

The NC strong suit has always been a can-do collaborative attitude between the community college system and business. It is the front-line of our economy. 

The two outliers are housing and energy. Private money builds housing units in the urban areas, and the demand is just as keen in the secondary and select tertiary markets. 

Hard to recruit talent for jobs when there is no place for them to live.

And from now to 2030 the demand for electricity will significantly increase, just at a time when our supplier is “going green” – which costs significantly more than carbon based juice – and can be hard to replace at scale. These big projects vacuum juice, and it is just physics. Gotta make more to supply more. 

So 2024 – the Year of Adjustment” 

 

“From our perspective being involved in commercial and industrial construction and development we are seeing the following things.

Material pricing has leveled somewhat.

Supply chain issues have eased.

Our industrial business remains strong, we are seeing lots of interest in manufacturing projects which are a key part of our business. 

Office and distribution and multifamily markets have slowed down.

Labor constraints are easing as a result of the slowdowns in  construction.

Interest rates have put new speculative developments on hold.

No good solutions have been created to solve the vacant office problem.”

 

“I live in Wilmington, and there are signs of 2024 being the best year yet for commercial and residential developments breaking ground, plus business expansions and new restaurants.

In addition, you can see existing homes being repaired and remodeled everywhere.

It appears that the county and the nearby town governments are working overtime in order to keep up with the demand.

Vehicle traffic has increased and roads are being added and expanded.

We’re looking good.”

“Our company had a great increase in business during COVID due to the crazy increase in demand for RV parts, HVAC, filters, swimming pool parts etc.  And our telecom was always steady and strong but during COVID spiked up a lot and continued strong all through 2023.  The Infrastructure Package has helped to move fiber to the rural areas so the telecom demand for components should stay strong even though it slows off a little in the winter.  The RV, swimming pool and HVAC demand dropped back to normal levels so our sales for 2023 were a little lower.  We see a slow start to 2024, but think we will be a little above 2023 sales.  I think if it wasn’t an election year the economy would stay steady and strong, but for some reason companies and individuals have a knee jerk reaction and slow up before an election and then as soon as the election is over everything turns back on again so if the reason the economy slows down waiting to see who will win – why does everything pick back up immediately after the election no matter who wins.  We have raised wages a lot in the last several years – just had a wage increase in June and have another one for January.  I think we are at a good point now after the January raise.”

 

“First, I just want to tell you how much I enjoy reading your article every morning. Look forward to it with that morning coffee. While I am definitely no expert at anything other than NC BBQ (eating it that is), I will say 2024 will provide an interesting ride. You have the anticipation of the rates declining, election year and then the normal ebb and flow of things. Rates should help out with Commercial Loan activity albeit 2023 was not so bad, largely due to our area and the growth that the Carolinas are experiencing that is not necessarily happening across the US. We are truly blessed to be in this region. Commercial Office space will still be challenging, so trying to navigate that space will be challenging but plenty of development, both residential and commercial out there, again largely due to our growth in our area specifically.

Not sure there are any real nuggets for you there, there but all good BBQ has to have some good bark on it.”

“Despite what the economists are saying about the workforce shortage having stabilized, we’ve been hearing from manufacturers that they are still having issues finding workers and the challenges are very specific to a certain county or region, suggesting that it’s going to be difficult to find a solution that is ‘one size fits all.’  For example, one manufacturer told me that for the workers he needs, one community college has the students interested but no one to teach the class, so millions of dollars in equipment sit idle.  Another community college has instructors but no students interested in taking the classes.  Another manufacturer told us that in his area, the image of manufacturing remains a big problem and that it’s still difficult to make inroads to middle and high schools to change the perception, especially with the difficulty involved with getting field trips approved. We’ve discussed mobile options that go to schools, but it will need to be replicated statewide. 

Furthermore, manufacturers’ responses have varied too.  For every Toyota that’s incorporating low-cost daycare and on-site medical facilities, one economic developer told me proudly that in his county (western part of the state), almost all of the manufacturers have now implemented PTO for workers wanting to acquire new skills and for other uses instead of requiring time off without pay.  They are also changing drug test policies so that certain substances won’t disqualify otherwise eligible workers any longer and implementing programs within the company to provide mentors and HR assistance to help workers abusing substances to obtain the help they need. 

And we can’t overlook the impact of housing costs on an area’s workforce.  Another economic developer in the western part of the state told us that the manufacturing jobs exist in his area, but filling those jobs is incredibly difficult because the younger workers can’t afford to live close to where they work and based on geography, the commute isn’t sustainable over the long term.  Unfortunately, given the terrain of the area, new, more affordable housing cannot be constructed easily.

The main problem is that the workforce shortage is not going to improve any time soon with retirements increasing and births remaining below the replacement rate, so the state will need to become involved where it can while recognizing that solutions will need to be tailored for a variety of variables.

As far as supply chain, while economists also report that ‘ordinary’ supply chain shortages have mitigated dramatically and that the primary risks will be global in nature, our manufacturers face some key shortages and challenges: steel and foundries are a big problem and if the manufacturer is a defense contractor, it’s especially challenging.  We’ve seen several requests for EV-related components from manufacturers outside of NC as well as other government agencies.  And finally, we’ve had to provide documentation for a few federal agencies to attest that they attempted to locate a domestic supplier before they could obtain a Build America Buy America waiver.  We’ve also seen an increasing number of supplier opportunities for Build America Buy America-compliant manufacturers, but we have not been able to identify compliant manufacturers.  BABA remains confusing and not well understood.

Thanks for giving me the opportunity to provide a brain dump of all the things we’ve been hearing. “

 

“We work mostly with Professional Services Business with 20-200 desktops in RDU, GBO, CLT – just for context. 

We continue to see large demand for infrastructure upgrades / cloud migrations – no sign of business slowing of IT investments.

We also have seen a marked uptick in businesses looking for upgraded IT services specifically as it relates to security.

A noticeable slowing of staff churn – our onboarding/offboarding tickets aren’t near as frothy as they were last year so it seems the slow down in hires and general staff ‘stickyness’ in the news is true in our client’s case.

In summary, we don’t have any first-tier exposure to consumers and second-tier exposure is very limited – no signs of slowdown in businesses we work with.” 

Chris Roush
Chris Roush
Chris Roush is executive editor of Business North Carolina. He can be reached at croush@businessnc.com.

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