Richard Moody, chief economist for Regions Financial Corporation, provided a deep look at the various levers that are affecting the U.S. economy, during a luncheon meeting organized by the Pasco Economic Development Council Inc.
The gathering, held on Jan. 19 at Heritage Springs Country Club in Trinity, attracted a wide range of business executives, entrepreneurs, government leaders, elected officials and others.
Moody began his remarks by telling the crowd: “If I had to kind of pick a theme for the U.S. economy this year, maybe even the global economy, it would be rediscovering normal.
“Think about all that we’ve been through in the past three years. There’s been virtually nothing normal about the economy since February 2020, when the pandemic hit.
Not only the pandemic itself, but the policy response. The fiscal monetary policy created a lot of distortions in the economy. The policy measures have largely run their course. The distortions in the economy, not so much.
“That’s why we think this year may not necessarily be what we remember as normal, but at least more of a transition to normal,” he said.
Distortions in the market are seen in the labor market, the housing market, in consumer spending patterns and in inflation, he said.
Because of this, “We have a lot of business owners, representing a lot of different industry groups, who are telling me they don’t know what they should be doing,” he said.
“They don’t understand: ‘What’s a normal level of demand I should be planning for?’”
That lack of understanding is affecting how many people they hire and how many they keep and also is influencing capital expenditures, he said.
“I can guarantee you, when we get to the end of this year, the economy is not going to look like I think it will now. That’s just based on what we’ve been through the past three years. What I don’t know right now is why that’s going to be the case,” he said.
He expects the U.S. economy to have a challenging year, predicting a growth rate of just 1%. With such a thin margin, it’s hard to absorb external shocks, Moody said.
Unlike its counterparts in other shops, Regions Financial Corporation is not predicting a recession. Among those who are, Moody said, “virtually all of them, they describe it in the exact same manner: ‘short and shallow.’”
The chief economist talked about employment trends.
In terms of labor force participation, there are two large missing groups: people between 18 and 24, and people over 55, he said.
“We saw a significant exodus of older workers at the onset of the pandemic, most of them probably retired and are not coming back,” Moody said.
“So, the question is, when and to what extent will the younger people return to the labor force,” he said.
A third significant gap in the labor force is made up of married females, he said.
“Schools were shut down. Kids were learning at home. The provision of day care services really declined dramatically. Many of them were simply not allowed to operate.
“Females took on the primary responsibilities for filling those gaps. Overseeing at-home education, caring for children who otherwise would have been in day care.
“We’ve started to see female participation (in the work force) come back, but it’s still meaningfully lower than it was prior to the pandemic.”
The mismatch between labor force and available jobs has resulted in wage growth. The availability of more jobs also has spurred workers to change jobs, leading to higher pay.
Although tech layoffs have been in the headlines, Moody said that’s more indicative of the tech sector, rather than the broad economy.
Moody also discussed consumer spending, noting that the demands for goods “has been largely sated” and now consumers are spending more on services, such as travel, dining out, recreation and entertainment.
He expects spending on services also will level out.
When it comes to housing, Moody said “we think there’s still a lot of untapped demand out there for home purchases.”
He also noted that applications for mortgage loans have been “very responsive to declines in interest rates, even at these high rates that we’re seeing now, relative to what they were a year ago.”
Regarding inflation, Moody said, “what we are seeing is that inflation is decelerating and some of the leading indicators that we watch — whether it’s shipping costs, commodity prices, energy prices, even growth in labor costs — they tell us that inflation is going to continue coming down.”
He concluded his remarks much the way he started.
“There are a lot of things that we know that we should be worried about and we should be mindful of them, as we make our baseline forecast. But the one thing that keeps me up at night is: ‘What don’t I know, that I don’t know? The known, unknowns are fine. They don’t keep me up at night. It’s the unknown, unknowns that worry me. And, after the experience of the last three years, it would be foolish to just presume, ‘Don’t worry, we’ll get through this year.’”
Note: Next week, we’ll explore a closer look at Florida and Pasco County’s economics, based on a presentation from Zachary Smith, assistant professor of economics and finance at Saint Leo University.
Published February 01, 2023
