Current Economic Conditions & Challenges, and the Role of Labor Force in Future Growth - Designers Show #89

 

Elevate Your Chief Architect & Design Business Skills

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Virginia Beach, VA  |   February 2023

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Chief Experts Total Immersion Summit For Chief Architect Users

LEARN MORE ABOUT THE SUMMIT

just don't talk so loud okay here we are hey we're live all right um yeah we're we're all just just really picking it here today uh a few technical issues and a few things like that but we're getting it straightened out welcome to the designer show you guys this is Dan Bowman with Chief experts on with John and Robin and our special guest today is Ron Wertz so Ron I'm going to let you in a few minutes uh give everybody a little a heads up on on your background and what you do and kind of why we invited you here today I I'll say that um I was fortunate enough to attend an Ari event that Ron spoke at that I think it was uh spring last spring or this spring of this year correct and I absolutely loved what he had to say and it just like really hit home and it's like I asked him if he'd come on our show and well here he is today so welcome Ron and I see Renee has showed up today now as well hey Renee how are you okay so a couple of quick housekeeping things uh we've got uh uh surveyed that we want you to take any time so there's a I'll leave the things scroll on the bottom of the screen so you can take that survey and for those of you that are watching this after the show I don't know the link may or may not work so I mean if you're watching the recording so um if you want to try it after that yeah you might be able to add to the survey and you can check it out again a little bit later so um be nice to just keep getting your feedback on these questions that Ron's going to talk about today so if you're uh if you're on this page where you um see this stuff okay uh the link to that survey is also right here okay so you can click on that and it'll take you right to the survey and uh we appreciate if you'd fill in the answers and then we can Ron we'll discuss some of those things as we're going through the presentation uh just a couple of quick things the summit's filling up pretty quickly so you might you guys might want to uh check into that I wouldn't wait too long it's filling a lot faster than I thought it would I'm just thrilled this is going to be a really cool event so please check it out we do have a three-day course coming up in in Minnesota here in Bloomington uh second week of December 12th to the 14th so please check that out you can hit the register Now button and that'll take you to the page where you can learn all about that and then the uh Robin and Renee Renee was just on the lighting class yesterday at a ton of great information I learned a lot um because I've never been big into the rendering and the lighting in Chief so Renee thanks for being on the show yesterday that was really helpful so if you're interested the show's all we're done with the class now so it's all there for immediate access Robin had three days three shows have just fantastic information about how to do Lighting in kitchens and baths so Robin thanks for doing that um there was that was some of your best stuff ever so thank you so well done and uh so you guys can get it I did set it up so until November 22nd you can still get 50 bucks off the on-demand call course so 50 off lighting class would be the coupon code check it out I think you will really enjoy it so it really turned out well all right so let's jump back to our host uh Ron Ron I'm going to let you tell everybody about yourself and what you do so have at it please and uh then we'll get you can just jump in your presentation sounds great great thanks for the invite Dan thanks for the introduction I really appreciate the opportunity to come and talk with you as Dan mentioned uh we had the opportunity to meet back in May at anari event I do a lot of public speaking and it's really good to get in front of construction folks we pay a lot of attention to the construction sector it's a Bellwether that we think and so we pay a lot of attention we do a lot of tracking of it so I'm always happy to get in front of uh construction firms that can tell us a little bit about what they're seeing normally I'm uh I do so my job as Regional Outreach director I I am it's more art than science but I'm there trying to tell our president Neil keshkari what's happening in the real-time economy as I mentioned it's there's a lot of um a lot of interpretation but I do a lot of reach to businesses so you can help me inform Neil about what's happening in the economy normally when I get in front of a business office or a business audience excuse me I'm I usually am polling them in an interactive way during my presentations so I've had a little bit of technical difficulty because of my high Security Bank laptop didn't mesh very well with the platform here so I had to go to a personal computer Dan has done a Herculean effort to try to still get me some of that Insight from you might be a little bit clunkier than we all would prefer but I'd appreciate it if you could take that survey and Dan at the appropriate slide where I have it in my presentation he's going to pop up the survey results that are relevant in that to that particular question so hopefully we can do a little bit of information sharing because whenever I'm in front of a business audience I want to take information but I want to share the same information with you so you learn what I learned okay so let me let me get into my presentation here and Dan um it stopped me at any point because I'm kind of paying attention to my screen and not what's maybe going off on the side if there's something you need me to stop for just give me a little verbal cue please yeah you're good right now it's uh the disclaimer is on the screen okay great can you hide that little streamer thing on your screen just click that yeah maybe you should go over go over how to get to the survey and stuff real quick you bet again if you're if you're on the uh page uh where you're watching this on our website there's a red link that says take run survey or you could just type in the URL at the bottom of the screen I think you might have to use all caps you got to type it just the way it's showing there actually you don't have to use all caps you can okay you don't okay perfect thank you so uh yeah please take that survey and then as Ron goes through the presentation we'll just look at the answer it's really easy it's nothing it's not a big deal but it's just kind of getting where you guys are at right now if so seven or eight or nine questions something like that yeah so before I get into the actual presentation I have to give you my Bozo slide so basically um the views that I give you here are mine and not necessarily those are the Federal Reserve Bank of Minneapolis or the Federal Reserve System so case I say something that's inaccurate or foolish you have to blame the clown and not the circus so what am I going to talk about today so I'm going to give you kind of a snapshot of the current state of the economy now that's a bit that's a very big task in 30 minutes uh or so so I'm going to kind of try to hit the highlights generally speaking demand is slowing particularly for construction but we also see some underlying factors that really suggest some stamina maybe stamina that we frankly maybe didn't even expect at this stage we're seeing really kind of surprisingly strong job growth I'll talk a little bit more about that and I'll talk a little bit about the fact that it could be even stronger if we were able to find some more labor speaking of Labor we know that there are lots and lots of challenges out there especially for construction firms you know we're talking about inflation higher interest rates supply chain problems and then this Labor Force availability problem that I'm going to talk more about in terms of the forecast I'm going to basically give you a picture from private economists that kind of give a half full half empty kind of picture going forward as we've been mentioning there's this interactive survey this is my ability to get some information from you about how things are going in the construction sector that I can tell president Kashkari about I'm in front of this audience they told me this about how things are going we really there's never a limit on what we are interested in learning from businesses like you so if you can take that survey I would appreciate it I'm gonna go pretty fast I'm going to give you lots of data I'm going to give you lots of charts don't Focus too much on any one chart because I'll be moving along but I'm going to be sharing this PowerPoint afterwards including some of the survey results so you can take a closer look at it afterwards and by if you guys have questions while we're going on just feel free to type them in and we'll if they're relevant to the topic by all means we will bring them up yep I'm happy to take questions as they come up okay so on to the data show so first let's take a real big 30 000 foot look I think most people are familiar with this term growth domestic product basically it is a measure of total output adjusted for input Nation so it is a very broad measure but we think it's a pretty decent one again if we're just trying to assess overall economic conditions so the things I would point you to we know that there's a pretty a pretty decent recovery after the big drop more recently this year in 2022 quarter one and quarter two were negative obviously not good news negative both for the U.S and for Minnesota I usually include Wisconsin in a lot of these charts uh in part because it gives us another state barometer to kind of compare and the other thing I'll note is that a lot of the charts that I do I index and what do I mean by that so I can't compare Minnesota and the U.S uh on a on an equal level so what I have to do basically is compare them and compare their rate of change so what I do is tie the first date to 100 and then all that the rest of the chart is is the rate of change over time okay that allows me to compare differently sized things to each other and what you see here is that Minnesota and Wisconsin have taken a slightly different pass but are kind of in the same same spot right now and both states are growing more slowly than the US overall the good news the the good recent news is that after two negative quarters the third quarter came out recently 2.6 percent growth I do expect some that to get revised I'm not sure up or down so I would generally say we're seeing modest growth probably regardless of where the where the revision goes we saw modest growth in the third quarter which is certainly better than the previous two and I would expect Minnesota and Wisconsin because they've generally followed the same pattern but a little bit a little bit below I would have I would expect when when State figures come out that Q3 was also positive at the state level in terms of unemployment I think people are pretty familiar it's a really tight labor market um yeah could you tip your mic up just a little bit absolutely is that better that's better thank you great so unemployment I think people are familiar with the fact that it's very low I don't know that they're familiar with the fact that it's about 50 lower or excuse me at third lower 1.1 full point lower than it was pre-pandemic so we're at about two percent we have the lowest unemployment in the nation right now that's very good news the one thing I do always want to remind audiences though is that it's not benefiting everybody so black and Native American unemployment still around six percent okay and especially as we talk more about Labor availability I think we have to start getting a little bit more serious about what we can do to really address some of those kind of systemic um disparities between races in terms of unemployment the other thing though despite the fact that we have such low unemployment we are still not back to pre a pre-pandemic total employment so there's still fewer people employed right now than there were before the pandemic um in general if you were to look at the overall trajectory of the last year and a half or so it's actually quite strong job growth I don't know if anyone's been reading the news they just released the state figure for October employment in Minnesota 17 000 more jobs that's a really big number um and so we're getting closer to to pre-pandemic employment but we're still not there and we had been taking kind of a much a much slower trajectory than the nation overall total construction employment you know there's I think generally good news here you know I I give the whole timeline back to 2005 just to offer a little bit of context on where we are in the construction market right now so everyone's familiar with what happened um in the Great Recession to construction you saw a much much bigger decline in total in total output and total employment uh both in the U.S and in Minnesota so really the bottom was about um uh 2010 and it's been climbing ever since on the right part of the chart you do see that dip in 2020 the U.S has taken a little bit slower trajectory to get back but they but it is also back to um to pre-pandemic levels a little bit above as is Minnesota the thing that's interesting to me is that we've only now gotten back to 2005 levels now I think we all could agree that that was probably hyper inflated to begin with in terms of what was going on in the construction Market in 2005. so so I I actually see this as a much more balanced kind of construction employment Market to begin with in terms of breaking that construction employment down I thought I'd just give a real quick picture of the different segments now this is how the government kind of splits out the four biggest areas of employment I don't necessarily know that I would split it out like this but from a data standpoint I thought this would be useful for you to see specialty trade I believe is about 65 percent of all employment as the government counts it and it's been seeing some reasonable reasonable growth residential since seen very significant growth during the pandemic I expect coming figures to start trending down more in that and then you have the other two that have that have seen maybe less of a bounce back than the other two sectors um and again I would probably expect to see some specialty trade also be affected by the related dip that we're seeing in in uh in housing so this is where um Dan if you can get one of the questions ready this is where I'm hoping I can get some input this would be the question that you would be taking for me if the technology was working right but I think Dan's going to show you what you all said on how recent business is going yeah so that link that's scrolling it on the screen please take a minute to type that in or the link is in the sidebar over here and uh please take this survey uh not very well I got six results so far so come on guys okay well and you know maybe what I will do is um rather than rather than pause on those if we don't have many um respondents actually I'll just maybe cycle through and then I can share those results in the PowerPoint itself and they'll be in the right spot in the presentation that you can have that context at least does that make sense that's fun yeah okay all right so then I'm also interested in Project backlog what I can tell you um is that this seems to be going down right now let me talk a little bit more about what's going on though in terms of a data from a data standpoint so we obviously collect a lot of data at the Minneapolis fed um I'm always trying to get as much information as I can to give me insights on different things one of the things we did is Dodge data and I've showed I'm showing you the most recent data that I have up to September in terms of value of construction starts and it's in three different categories that equal total total construction value and there's kind of good news and bad bad news construction spending does seem to be holding up despite Fair number of challenges um I think we have to acknowledge that inflation probably helps the overall spending Trend because every project is more expensive because of inflation I think that is held that has helped um buoy overall spending uh tracking a little bit um we all are we are if you look at the very right of the screen it does look like things are coming down that's not unusual I do a six month rolling average to get out some of the season personality in the data but not all of it so you tend to see a slight decline about now so that's not unusual I would say some of the other indicators that I'll talk about so I'm kind of interested slash worried about whether or not this might be a little bit more steeper decline than we've been seen in the last couple of years one of the areas that I think everyone's familiar with that had been seeing very significant growth over the last several years is housing the chart on the right is for single family and multi-family and there's kind of a I wouldn't say a good bad but there's kind of two ways to think about that chart there has been cleared pullback in the single family but even at this year we will still have built more than we did in the middle of the last decade so that's you know kind of a good thing bad thing we hope that doesn't last too long in terms of the Slowdown I think multi-family shows some signs of real strength in terms of some of my contacts suggests you know the fact that single-family building is uh falling back that actually is really going to be a good incentive for for developers to continue building multi-family because there'll be more they'll be more in demand so I'm interested in kind of watching those I think it's very clear to me that we were under build we were underbuilt by a fairly significant margin so I hold out hope that we can continue to see a lot of a lot more units uh in housing yeah I always ask that question how long can they keep building these massive apartment buildings I mean you know where you go it's just like they're everywhere the only thing I can tell you about that Dan is if you look at the Historical um historical figures um what 2010 represented was a real trough in long-term kinds of um uh building in terms of population growth and household formation so it looks like we've been increasing a lot but if you look at the if you look at the longer Trend over 30 or 40 years 2010 literally looks like the bottom fell out of it and we've been kind of chasing that tail ever since in terms of trying to get more Supply into the market I think all you have to do is look at at both Rental rent rates and new new home sale prices and existing home prices all of which have been inflated so that to me really is as good an indicator as any that we're not over building anything right now I always worry about how how everybody can afford all the stuff that's going on right the home prices I mean my son happens to be looking for an apartment in Minneapolis right now and and he's got a lot of sticker shock right now that's what I can tell you um so one of the other things that we do and some of you have maybe taken this survey uh because nari is now one of our partners and I appreciate that we do a construction survey twice a year to give us a better sense on what's happening in our six state region so for those that don't know we have a territory that runs from Western Wisconsin and up of Michigan Minnesota The Dakotas in Montana and we we're trying to always track that as best we can we have a survey out in that six state region survey actually closes today if anyone's interested in taking that survey I'd be happy to forward a link I should have thought about that before this and and had it in your in your box but um it closes today we're going to have about 300 respondents which I'm pretty happy about I'm going to give you just a sneak peek on some of the unofficial results that I have please I would ask that you not share as I haven't released these publicly so you're this is kind of a sneak peek just for this audience so generally see what I'm seeing right now in this survey that was just out literally still out right now is that revenues seem to have maintained somewhat kind of what some of the data that I showed you before is profits though have shrunk much more clearly not surprising given that we have inflation and there's just lots of other challenges in the economy right now firms seem to be eating into their project backlogs that's what seems to be keeping revenues up because uh backlogs in general they uh the survey respondents are saying that their project backlogs have shrunk more projects are also being canceled according to this survey and delays we've seen that really since the start of the pandemic that delays aren't necessarily getting any worse but they're just problematic across the board um new projects out for bid also was probably one of the things I'm gonna have to take a closer look at to make sure I'm I'm seeing the data right but it kind of looks like new projects uh survey respondents are saying there aren't as many projects out for bid as there was the same time last year the Outlook you know I don't want to call this the you know the glass half full but given all of the results that I've kind of glanced over so far I expected the Outlook to actually be more pessimistic than it is it's slightly net negative but it's actually um uh I don't want to call it resilient but it's a little bit better than I might have otherwise expected and in General on this residential housing respondents tend to be seeing a lot tougher conditions and they're kind of pulling the overall sentiment lower so let's talk about challenges so we that's kind of the picture right now of what some of the activity is I think everyone's familiar with what some of these challenges are this is this is actually from this November survey this is we we ask businesses what are the two greatest challenges your business your business faces and it has really been the top three for the last two years a material input cost inflation labor availability and supply chain disruptions um I'm going to talk a little bit more about uh about all three a little bit less about supply chain disruptions we have been hearing that those have been improving I have one of those one of the questions in that survey that Dan put up is on that I really would like your opinion on that there some seems to be some suggestion that maybe because of the Slowdown maybe because other factors the supply chain problem is improving somewhat but I'd love to get your input on all of the questions in that survey actually so let's take a look at a couple of the individual challenges and I think inflation is really the important one especially for this group you've been experiencing inflation for much longer and in in especially recently I think more steeply than other sectors so I just wanted to spend a little bit of time kind of giving you a thought giving you some input on how the FED thinks about inflation so the first thing I want to discuss is this is this idea of consumer price index versus the personal consumption expenditure why do I want to talk about that they're really two kind of they're two egg heady kinds of indexes about prices the reason I want to talk about these is the Consumer Price Index is the is the inflation uh index that you read about when you're on your phone uh reading about the news and the economy and so you see that line on on this chart is the very top line it's really high between eight and nine percent recently way higher than we would hope so that what the Consumer Price Index is is it's a standard basket of goods that is held constant month to month so it's got eggs it's got cheese it's got beef in it then we price it in November and then we go to December and we price exactly the same basket of goods so that gives us the measure on how prices have changed makes makes very good sense actually but the personal consumption expenditure is an index that the FED prefers because it's the CPI but allows for substitution and what do I mean by that so when you or I are out shopping see I'm out shopping for my eggs and cheese and beef but I've noticed that beef has gotten really expensive and it has been so I'm going to substitute chicken into my basket instead now chicken is a lot cheaper than beef so it's a so what CPE is excuse me pce is is a better household measure of inflation of real inflation because businesses substitute Goods all the time households substitute Goods all the time pay based on pricing and so we think that's a better measure of of household and business inflation kind of in the real world now what I will tell you is that it is also unacceptably High there's two measures here on this chart we have headliner total um and that's very inflated you know between six and seven percent and then we also have I also put on their pce core you might hear about this too with the Consumer Price Index about core inflation and basically that's everything minus food and energy because those two tend to be the most volatile so in terms of trying to get a better idea of maybe what what's happening outside of those two volatile areas we look at core even that one though is very much more elevated than we would hope now not all goods and services and other things in those measures are all created equal and I wanted to talk a little bit about where we're seeing more inflation versus less inflation so let me talk a little bit first about kind of how we got into this inflationary environment so I think everyone's familiar with the fact that when we got when we got locked down in the pandemic there was this big shift to Goods especially durable goods durable goods being those things that are expected to last 12 months or longer uh non-durable less than 12 less than 12 months so we started buying more TVs we started buying more couches for our house we started making our houses nicer because we were spending more time in them and we had this flood of demand into goods and what that what happened is we had a lot of shortages I think the shortages that you're still seeing today that we're still trying to work through and this was really compounded by the fact that we also because of covid's impact on labor we started having a compounding effect by from Supply chains not only in a supply chain delivery but also in a production sense so we really have been trying to do double time in trying to make up for this shortage of goods that's why we've seen prices Spike up so high especially in durable especially in durable goods now we are starting to see a slow rebalancing of that demand back to Services it's also why you're starting to see more inflation now in Services because we're starting to demand some of those some more of those particular items okay so inflation for services right now I would say is moderate but it's growing inflation for goods it's still very high but the good news is that it's at least stabilizing that's at least one of the things that the FED has been trying to do is at least start setting a better pattern so businesses and consumers knew what to expect going forward everyone knows in this audience the in terms of construction materials those have been going up there's a if you're not familiar Mortensen constructed as a couple of really nice indexes and here you can see how Minneapolis compares to the nation as a whole Minneapolis being a little bit better but still really bad and then over on the right just individual product markets also significantly high so if you went back roughly about a year ago it was just kind of straight up and since then there's been a little bit of flattening on some items still some volatility in others but all still very elevated so why exactly did the FED wait so long I know that's I'm sure some of you have that question I think it's a very valid question and a very valid critique of monetary policy so I'm going to explain kind of what some of the thinking has been in terms of why we decided to act when we did and I'm going to start with a quote that President Kashkari gave back in March of this year actually a couple of months before I I first met Dan and he said back then when inflation accelerated last year I argued it was too it was likely due to transitory factors which would soon pass and that hasn't happened okay I think part of the part of the Thinking by the Federal Reserve and I don't think we're alone in this thinking is that the van we expected the vaccine to have a very a very notable impact on labor and labor in the sense of relieving pressure on production and Supply chains and on wages which were starting to really grow and basically that didn't happen we also didn't expect for covid given the vaccine we didn't expect covet to be still a global disruptor we didn't expect to see the surges and we're still seeing surges now maybe not to this same extent here in the U.S but if you look at what what's happening in China as long as China is uh pursuing the policies that it is and having the lockdowns that it is Supply chains are going to be problematic at least to some degree you know I think the other thing covet isn't necessarily a health problem anymore um I don't want to minimize it either but I think from any from an economy standpoint it has become a workplace disrupter and as long as it is a workplace disrupter we're going to still have some issues with it the the Ukraine war was certainly unexpected especially in March of 2021 when the vaccines were coming out and that has really played Havoc with the most volatile parts of the of the um of the price indexes that we follow and then the other thing is that we frankly didn't expect consumer demand to um to stay as elevated as it has now yes we can talk about the effect of stimulus and other things but even after we would have expected those to kind of run out in budgets we've really seen continued elevated consumer demand that we didn't expect and there's some good news as it relates to that and that is a lot of it is um from rising disposable income we are seeing wages increase that's good for workers I'm sure there's a lot of people listening here that are business owners and it's not good for you and I think we have to acknowledge that it's a it's a good bad situation but in terms of inflation um it has it has really held the floor underneath prices that we didn't expect that is why we have done five rate increases for those that maybe aren't following very closely we started with five basis points um uh in March and then we've done successive increases and increasingly larger ones the last five fomc meetings what I want to tell this audience is that we do expect uh rates to rise further we don't know how much but we but the Federal Reserve is very committed to Bringing inflation down unfortunately we've been in a situation where we haven't yet seen significant impacts on labor markets now that's kind of a good bad thing if labor markets continue and wages continue to be very high that's itself a little bit of a problem but it's a better problem than seeing demand go down and employment go down that's kind of the double edge effect and we're trying to avoid that so far employment really has been quite strong so that's frankly something that we're hoping to see and we're hoping continues so here um this is normally where I would ask you about some inflation impacts I'm still very interested in getting those and I'll include them in my PowerPoint when I share I'm also as I mentioned interested in Supply chains so if you could give me some insights on those I would also appreciate it but right now I'm going to talk about labor market so this will kind of be the last general area I should be done in five or ten minutes or so to leave some time for questions and again if anyone has questions while I'm going here happy to stop and address those as I go so one of the things that has surprised us as I've been talking about has been job growth well the reason is is that we've seen very very persistent job openings they have recovered well above what they were pre-pandemic um their levels from pre-pandemic so there's kind of two ways to think about the current Trend so if we only needed to get above 100 we're still well above that however we have seen recent very steep declines in job openings now it hasn't come through in terms of when I when I'm out asking are you hiring I am still hearing almost about the same percentage of firms that are hiring what I think might be happening is the happening is they may be peeling back a little bit on the number of people that they're looking for but generally speaking I still see the job openings circumstances as as really quite positive let me give you a little bit better idea of kind of the late give you a better summary of the whole labor market and some of its Dynamics if you're not familiar there's this survey by the Bureau of Labor uh Labor Statistics called the job openings and labor turnover survey or joules I'm going to go through each of these lines and kind of explain a different a different part of the labor market so hiring demand that's you all hiring still really strong that's the top line that I just showed you and you can see that recent decline okay actual hires that's the next line down the brown line is much flatter it's positive okay so we're still seeing job growth but it's much it's much flatter than job openings and that really is kind of the labor conundrum that's also the opportunity that's the missed opportunity in the economy as well in terms of growth the more in the most interesting line to me right now and something that we don't have a great handle on is voluntary quits that's the red line so it is it is systematically higher it's flattened out but at a rate and a level that is higher than it was pre-pandemic and by it doesn't look like it on this chart but if I were to show it only as its own line and kind of high and and give it a little bit more room to breathe you would see that this rate is significantly higher than it was pre-pandemic and then you have the last yes can you talk can you talk about that a little bit what's causing do you have an idea what's causing the voluntary quits I'm going to talk a little bit about that at the end um okay maybe what would be best let me save that for the end because I do have a slide on that uh fairly shortly and if I don't if there's anything that people want to follow up on maybe that I didn't address I'd be happy to continue talking about it because one of my favorite topics the CL the the short answer to that is we don't have a great idea so I'll give you some ideas but it's something we're still working on so layoffs and layoffs are low and generally stable that's mostly because we have so much trouble keeping work finding workers and keeping them to begin with that's why employers are probably more likely to keep a less productive employee than they would prefer they don't know what's on the other side of the job market as to whether or not they can replace that person generally speaking as I mentioned that's really a lot this shows you that there's missed economic growth opportunities so again labor conditions in the in our survey hiring demand is really continued to be robust roughly 40 percent of firms are looking for increa to increase their total head count there's a growing share looking to replace Rising turnover that's the quits thing wages have been increasing steadily let me show you a quick chart on that this is a this is surveys the construction survey going back to October 2020 I don't have the recent survey in here but what you can see is more firms are giving raises more firms are giving bigger raises and the most recent surveys suggests there might be some slight softening in in wage wage expectations uh for this most recent survey I would not call it a drop off by you know a big drop off but maybe a little bit of softening so I'm going to move on from that so other employer responses to to labor so aside from Raising wages I won't spend a lot of time on this but we are increasingly interested on what firms are doing to try to attract labor we know you're doing lots of different things what we're trying to figure out is how much Market penetration is any one thing and is it having an impact on drawing people in not only drawing them from other businesses but drawing them in if they weren't working in the first place because labor force participation is really important okay so why why is the labor market so tight real quickly on two things the labor force itself the size of the labor force that's the number that are employed or looking for work has really flattened out not only in Minnesota but Across the Nation if you look at Wisconsin even worse generally about 2 000 the popular the labor force really started to take a different trend line and mostly that's because we're seeing a slower population growth we have declining fertility there's also immigration and migration issues that are lower than they were in the 1990s we're also seeing lower labor force participation I'll talk a little bit again in the next chart but there's generally an aging population and some other factors that I'll talk about that that question kind of alluded to so labor force participation again if you go roughly about 2 000 it has been steadily declining in in all of the states and Across the Nation here the good news for Minnesota is it has an a higher than a much higher than average labor force participation in other words among the among the eligible people to work how many actually work so it sees a larger percentage especially than the us but even Wisconsin the problem is it's been going down and we've seen about a two percent drop just during the pandemic and that is not likely to return quickly why is that so here's here's where I said I would I would address this a little bit so we do know that we we expected some of the decline in labor force participation because of the baby boom generation as you get older you are more likely to retire and that has actually happened okay I think there has also been a pandemic reevaluation of work for example um what we have learned because of problems like like Child Care is I think there are a number of two income families that simply decided to be one income families and have a saner life in part because the supply of daycare has has shrunk slightly it has also gotten more expensive so I think more households were saying that extra income or even that first income maybe is not worth taking a 14 an hour job to Simply transfer it to child care and there are lots of other I think issues going on in terms of people seeing opportunity and leaving current jobs for what they think are better jobs so there we do also know that they're leaving the labor force at all ages the other thing we that we're trying to get a better hand line is we think entrepreneurship and gig work might be having some play here in terms of the number of workers that are available um the problem is I'm sorry before I go there the problem with this one is that we don't have very good measures of Entrepreneurship and especially gig work and the data that I I could share um also um you know with I could I could add on to this presentation if you wanted most of the measures that we have for Gig work do not suggest that it has exploded like it seems to like I think the popular impression of it is I would say we don't have great measures of it but the but the ones that we do don't suggest um we've always had the side hustles I don't know that we've had a proportionately or exponentially larger share of side houses than we used to in the past and then we know there are lots of work disincentives there are benefit Cliffs for thing for people that get government assistance that might prevent them from either um taking work without losing those benefits which is an obstacle that I think we need to spend some time thinking about in general we've done some survey work on the labor force that suggests there are just a lot of obstacles at the personal and household level that keep them from taking jobs we also know that employers have to share in some of the responsibility and maybe not presenting a job market that those people want to go into they may have low pay they may not have a great schedule other things we also hear about a lot of workers simply not getting responded to when they apply to jobs and then there's this this last bucket that I kind of um just generally put down to environment it's where job matching happens and that is things like affordable housing affordable daycare it's not necessarily the workers fault and certainly not the employer's fault that someone can't find affordable daycare but it is something that is an obstacle to that job actually being matched the labor matching with with the job opportunity so we're gonna have to spend I think a little bit uh we're gonna have to get our hands dirty on how we actually fix some of those obstacles Bill had a question um yes here there's seven million quits is that true um I haven't looked at that data that sounds a little bit high but not oh not overly um I I don't know exactly what that number is I'd be happy to look look into it okay lastly I just want and I do want your outlook again going back to the survey that Dan that Dan has made available I'm interested in your outlook because that's really important to us but what I'm going to finish with here is this is what um we get a a report called the Blue Chip Financial forecasts and what it is is it is a summary of 50 or 55 of the best economic shops in the country and they essentially aggregate all of those surveys and then put out a summary a consensus summary of what they all say and so the left chart shows if you look at the blue bars in the and in the shaded areas the forecast so they are expecting very small um uh GDP growth in the coming q1 and then a very slight negative growth in Q2 and Q3 and then from there an upward Trend in GDP so clearly not good news for the next couple of of quarters that's that that's what their forecast is but I would also say given the circumstances I think things could be significantly worse than that going over to the right the one that I find maybe a little bit more reassuring or at least hopeful maybe is a better word because it's a forecast so we don't know is that private private forecasters really expect what the FED is doing to get a hold of inflation so by the time we hit this time next year that we will have seen a significant decline in both the CPI index and the PC index and I think that ultimately is really going to lead to I think stability in the economy and kind of maybe I don't want to say return to normal because with the pandemic there is no such thing it's a new normal but I think that's hopefully good news if we actually go there so just some real final thoughts you know again from my standpoint I think growth it looks like it's likely to be modest at best I think we have to be we have to acknowledge that there's more potential to the downside right now construction and real estate is taking the brunt of higher interest rates right now and we want to acknowledge that as the FED we know that what we're doing is probably affecting your industry more than any the challenges even before all of even before the interest rate challenge we knew that there were there are many others and they're um and they're sticking with us longer than we hoped my message to you is that I do think labor is going to stick with us even even when we get on top of the inflation thing Supply chains start to Iron Out labor is going to continue to hang with us so I think our ability to rethink what work is and how we attract people is going to have to continue to evolve I do think there's some room for optimism though you know we are seeing really persistent job growth I think job growth that we really haven't expected to be as uh as robust as it has been and private markets are believing that inflation is going to get rained in so I'm really positive about that and in general I talk to a lot of businesses and the thing that I I have seen repeatedly throughout the last two and a half years is resilience there have been so many challenges in this economy and I continue to see businesses rise to that challenge and and and find a way around it find a way through it and for all of you listening um I wish you luck and I I appreciate the efforts that you do to keep people employed and to keep the economy going cool I appreciate the opportunity to come and present to this group I'm happy to take questions for as long as you have any yeah thanks that's that was really interesting um and if you can stop my share Dan that probably would be fine too sure I'm missing the button here oh there hang on okay yep I got it so all right we're just seeing the screen now so so you guys uh you got any questions that was great that was absolutely fabulous so you're being very a little bit more optimistic that we're not going to be heading into a recession I can't tell you that uh my that that's way above my pay grade um what I would tell you is is that we have um given the circumstances I'm pretty happy we're not happy that's the wrong word I think the circumstances have been very challenging and we look like um we we look like we could get on the other side of this in better condition than I might have otherwise expected but I don't want to say and again recession is a tough thing so let me go back to the very first slide that I presented um net growth was negative for two quarters that in itself doesn't mean we were in recession because recession as it's defined by the group that does it the National Bureau of economic research they tend to look at lots of other factors as well including employment and employment has remained very positive so technically we've never been we have not in this recent period been in uh been in uh recession now what I will tell you is that is a very common um and I think reasonable assessment that if GDP is going down that's recession I think that's fair what I generally tell people is if you're a republican that's that's a recession if you're a Democrat that's not a recession so it's really kind of what is your interpretation of how things are I think we can all be I think we can say for sure I think we probably agree conditions aren't great right now but conditions there I do think there are some underlying strengths that I hope stay with us and if they do maybe we can avoid recession but I I can't I really can't say that that is going to happen this is more of a statement than a question uh do you want to respond to that I'm sorry uh hang on here please no I don't know if you can't say that it sounds like I'm a builder I'm a this guy yep I'm up now I'm a builder land developer for the past 35 years I've never seen the market shut off so fast buyers will not buy when they've seen four percent rates and now seven plus the big deal is coming I I definitely hear that uh I can't I can't deny that the only thing I would say is I would kind of go back to the Chart um that I gave you on construction um employment and if you think about what happened in the in the Great Recession we have a long way to go before we hit those levels now that's not good news for those that are experiencing more pain acknowledge and and higher interest rates are clearly falling head first into the housing market absolutely um what I would say is I think part of it is a Readjustment uh to what expensive credit really is you know a lot of people in this room probably have had significantly higher mortgage rates than the seven percent I have is my very first one it was above seven percent I think some you know maybe from the 80s here you can remember a first mortgage at 18 so we remember when 12 was a great rate yeah right 11 yeah I think you were spoiled right now and I do think if if there's one thing that it that might happen is it might put I don't want to say a lid but I think we might start seeing home prices moderate a little bit because we have to start figuring in finance costs more more directly when rates are a little bit higher so I don't want to say that's a I don't I will not tell you that higher rates are a good thing what I would say is that the cost of credit still is historically speaking relatively uh it's not cheap but it's closer to what cheap was all right just to interject my own experience in in my area please I've had uh California yeah in California in the you know 40 year old bracket where people have been saving up to buy homes for the last five years and they don't have cash and the cash buyers are taking the inventory now that the interest rates raised we just have a little Gap in the market the cash buyers are going to pull back and some of these first-time home buyers are going to start stepping forward is is my take on it so I appreciate the experience I am curious you said you're in California yeah uh I am curious are you seeing are you hearing any word on more investor uh basically investors plowing back into the single family Market um you know basically especially if prices go up or I'm sorry especially if price is kind of flat and maybe go down um do you expect more investor um involvement there I would tell you that my cell phone says yes thank you I appreciate that 50 offers a week wow foreign any other questions you know let's uh let's take a minute we'll run through the uh the slides real quick uh I mean it's only there's 11 answers but still interesting um recent business how's General business activity uh been been doing I did this quick um so much higher so again you know it's positive on the on the top uh how's your current project backlog um I talked to someone else yesterday that they're booked out till 2025. um that's kind of a rarity but well I I can say Dan what I have seen is a lot of lumpiness is what I would call it it doesn't seem like everybody's experienced seems like there's a lot of different experiences in the market I can't I haven't been able to look at the data close enough to see where that lumpiness might be hardest but um that's interesting and until they sign the contract that's you know it's not really it's real but it's not right given that he's out there to 25 right right you know and this is you know this affects designers dramatically because we're the first to come into the project so that's kind of a big deal um what's the biggest challenge uh this sort of should be a word cloud but it didn't work in this account um Supply understanding current market interest rates quality sub supply chain uh backlog a bail video trades recession labor shortage so I would have expected a few more labor shortages but a lot of people on this call might be individual business owners that don't have employees so it's hard to say um but for for sure all the contractors I talked to that's always the number one thing that that they they mention I can't find enough good help um inflation General directions and material and pricing um somewhat better you know so that's very interesting yeah I mean I've for anyone on the call what what have you been seeing um decreases in if things are getting a little bit better if I understood that right what what's what is getting better what materials foreign faster it used to be that the high-end appliances were taking oh my gosh you know 15 months to get um but they're starting to deliver faster I just had um a whole Sub-Zero Wolf package deliver about four months faster than they originally estimated so I think some of the manufacturing is starting to catch up a little bit um plumbing parts I do kitchen and bath designing um so I'm not seeing such a shortage but I do have friends who are still doing interior design furnishings and stuff and still finding slow labor getting um uh Furniture is still taking a little bit longer yeah yeah but I see we still are having a serious uh labor shortage yeah really a big labor shortage so pre-pandemic you know eight nine dollars a sheet was pretty common even less than that sometimes uh during the pandemic forty dollars so that's what this you know Local Company here um just that's just one thing I like to look at it's kind of sure anyway but uh yeah it's all over the board I mean I talked to the Appliance people and they're still talking about you know if you're going to order a you know a range or something like that that parts that they needed to finish that are still not done so they're you know six months nine months a year out on some of those kinds of things but they said it's getting better but yeah still an issue Supply chains um that's what we're just talking about about the same so that hasn't changed much um the labor been labor shortage been getting better or worse okay it's like yeah I don't see anybody jumping up now saying it's wonderful um and that you said the money question I'm interested in that one for sure you set a really good comment I made some notes on that it's just uh uh the way we hire people needs to evolve into a little bit better or different way than it's been done in the past so how do you attract the right people for your business and the key word being attract uh that's what I think a lot of people really need to start taking a hard look at and I think the uh my impression of the construction industry is it's it's a it's a sectoral issue and it's an individual business issue um you know you do I everyone here knows that you know long-term trends in terms of people attracted to the construction sector has been has has gone down slowly and I think the industry's really really started paying attention to that you know uh five six eight years ago and hopefully some of that momentum is starting to maybe shift you know our overall impressions of what you know what a construct a career in construction can be but it's going to have to continue that I think to really start addressing what our I mean as you all are familiar with the the pandemic didn't create the labor shortage in construction it was there well before that yeah um and my and and I think the hope is that it can it can trans it can transition because there are so many good careers for lots of people and and hopefully you know also address you know some of the some of the um you know system systemic issues we have in terms of getting people into good jobs and career jobs versus just jobs yeah yeah I I had a continuing ed class uh back in the late 90s and the instructor told us that they put a survey out there of um different professions different jobs you could do of a list of a hundred the bottom was being a cowboy and the next one up was working in construction [Laughter] yeah all right I'd rather be a cowboy yeah yeah all right so uh you know optimistic optimism about half and half um so that's probably to be expected and was that the last one yeah that was the last that is the last one yes I appreciate you sharing those Dan yeah cool and I'm going to keep the survey going so if you're watching the recording keep the I'm going to keep that link up for a while uh please fill it in and um I will let you guys know I'll probably send an email out here or something for a few weeks and and just let you know the results so I think it's really interesting this is a great questions I appreciate that I appreciate you getting this especially given the technical difficulties we're having Dan I appreciate you getting this up in very short notice no problem my pleasure so cool anybody got anything else you want to add I have a few questions um I think you kind of met kind of answered this for me but um first off what are those that aren't working that are out not you know the job market is was high what are they doing to survive and meet their goals and the other question along with that was how are people like us that are working for ourselves counted in your data um two good questions and I will hopefully be able to to um address both of them uh in turn I'll I'll take the last one first in terms of people who are working for themselves there's a couple of different databases one called non-employers and Sole propriet and a different one sole Proprietors so they are counted the problem is is we don't we don't necessarily have great measures and and near-term measures of the either of those because you got to go into IRS data and IRS it doesn't like to share a lot of data so we don't have a good current picture of either of those we know that during the actually during the economy we do have pretty good measures of uh new business interests like people that take out new employer identification numbers those are those got really elevated and now are added fundamentally higher level than they were pre-pandemic we do think that's part of what's going on we we just don't have a great way of really assessing it in terms of the people in terms of like who was working when labor force participation was really high at least if I understand your question where have they gone now because participation is lower part of it is retired part of it is retirement so it went High when we had women it really started going much higher in the 70s and 80s as women started to enter the labor force in much greater numbers so in the 90s we kind of hit Peak because baby boomers also were that bubble going through the system and now as they get older we've seen what we expected at least some decline in that but we have seen more decline than retirements would suggest and that frankly it's one of the it's one of the um problem areas that we don't have good answers on in part because we don't have ways of measuring or talking consistently to people who aren't working um you know we have really good ability to track firms because there's this trade there's transaction there uh yeah whether it be you know income reporting um or other things we generally have a very good um pulse on what what is happening at the at the business level um when it comes to workers if you choose if you are looking for work we only have very little information on you and if you're not looking for work at all you are a black box to us and that's one of the things that we're trying to get a better assessment on census is doing some interesting survey work around this we're starting to get information but in new survey tools you tend to see a lot of volatility because we're trying to figure out what are the questions to ask how do we find how do we get into people's inboxes and actually have them reply so we don't in my estimation that's one of the things that we have to do a better job of figuring out if you're not working what will it take you to get working again what is it that you are interested in do you need to have um you know do you need to have better pay does it need to be more flexible does it does it does it we don't have a great assessment in my opinion on what exactly that means and what it's going to take cool yeah that's good information uh one more question what do you think the hurricane or let's just say natural disasters in general um it's going to do the effect material supply oh I mean I think anytime you have a surge in demand for things that's going to create problems for everybody else who is already in in the material need to business and so I don't think that's going to be that's only going to exacerbate the problem I think um I I yeah I don't know how else we could I don't know how else you could think about it you know again it's when it when when whole towns are literally obliterated you can just imagine everyone knows what goes into one house much less a hundred thousand new you know additional houses so it's just gonna it's gonna you know the pig just got bigger without without ever leaving the python basically so I have a question regarding um you know the tech stock the tech uh layoffs that are happening how do you think that's going to affect us you know that's a really interesting question um you know I what I don't hear is a lot of nervousness among employers I think there are some exceptions um and the tech World being one of them I don't know I don't know enough about we don't have enough insight to the tech industry um to know whether or not this was expected um I don't I don't really generally see a lot of nervousness among other employers mostly because like the there seems to be more fall-on effects from things like construction so if construction were to really plummet by you know magnitudes of order that really has a bigger Ripple in my opinion whereas you know if 10 000 people get get laid off from Twitter I'm not sure what the ripple effect is on that aside from maybe other tech companies feeling like this is a wave they want to try to get ahead of um I think you have seen some fall on you know some follow-up announcements I don't know if they're related who wouldn't be surprised um but um generally I would go back to the numbers that I saw yesterday out of Minnesota 17 000 jobs that's I believe that is the biggest we've seen in a couple of years on a monthly basis so we key I'm not gonna lie to you I keep expecting a shoe to drop when it comes to job growth and we just really haven't seen there have been a couple of low months but there hasn't been any persistently low months um and we every now and then we get a surprise now again the 17 000 easily could get revised to you know 13 12 13 the methodology behind it is not perfect so there are revisions but I generally trust the direction of of estimates and you know I we just continue to see numbers that are very encouraging to me even acknowledging some what I think are Market shaking kinds of announcements by really big firms like Twitter meta things like that so so bottom line I think companies need to stay diligent with their marketing and the their approaches as they used to hire people we don't need to run for the Hills right now uh I think we're okay there right so just keep pushing forward and uh yeah cool I have one more question yeah um what's a good place or good resources for a Layman like me to go and find information like you presented to us for my region my state what are good resources for that sure first I would say you could go Minneapolis fed dot org so our website uh we have what we call Regional economic indicators page that gives you that you can basically click in your it's we have a six day region we have measures where you can see for things like uh employment GDP other measures that you might be interested job openings that's a resource I think and a quick resource for people that are interested otherwise State labor market offices so the Department of Employment and economic development for Minnesota a wonderful probably one of the best labor market offices among states that I that I follow and that I get information from those would be the first two that I would talk and then Bureau Labor Statistics which is the federal level also offers a wealth of of data for anyone interested in kind of digging in a little with a little bit more detail on what's Happening I would assume every state has a website like this right like the Minnesota Fed so if you type exactly right fred.org you find out information about your state so I've always found too that um I haven't done it for a long time but um census reports yep I found always very fascinating very interesting uh for looking up you know statistics and and I was I was just going to say Dan you know I uh when I share this PowerPoint my email address will be on at the end anyone ever has some information interest I'm always happy to help folks out that are in the you know that are in the industry and want better information cool all right I think we're done about three minutes ago so I really appreciate the opportunity to chat with everyone today great questions um and I again I appreciate your uh tolerance for some technical difficulties today thanks Ron I'm going to end the broadcast you can stand around if you want so um thanks everyone we'll see you next week and uh or next time and we've got some uh cool guests coming up so just hang with us