During a presentation at The Juice Box in Centralia hosted by the Economic Alliance of Lewis County on Wednesday afternoon, Dr. Bill Conerly gave a forecast of Lewis County’s economic outlook.
Conerly, who earned a doctorate in economics from Duke University, discussed the Lewis County economy as it relates to the national economy, putting it in a broader perspective.
“What happens in Centralia, Chehalis and all of Lewis County largely depends on what happens outside of Lewis County,” Conerly told the audience.
Conerly said there is a nationwide trend of metro areas growing faster than small cities and rural areas, with Lewis County growing “just a hair slower than the U.S. as a whole,” while the Seattle and Portland metropolitan areas have been growing faster. However, because of Lewis County’s location near growing metro areas, the county has fared better than other rural counties. Using the metaphor of fish in ponds, Conerly said it’s better to be a “small fish in a fast growing pond” than a “small fish in a slow growing pond.”
According to Conerly, Lewis County’s economy is correlated with the national economy, though not to the same extent as areas such as the Seattle or Portland metropolitan areas. Conerly said that weaker correlation means if the national economy goes into a recession, Lewis County can expect a relatively mild economic downturn, while the county can expect slower growth than the country during an economic boom. Conerly told the audience less severe economic swings than the nation as a whole are common in agricultural areas. However, Conerly also mentioned Interstate 5 as playing an important role for areas of Lewis County that are closer to the freeway.
“I think I-5 is really important for this economy,” Conerly said.
After discussing Lewis County’s relationship with the national economy, Conerly began speaking about broader nationwide economic trends. According to Conerly, the federal government is spending at a higher rate than it was prior to the COVID-19 pandemic. He said the money supply is above where it would have been if it followed its pre-COVID-19 trajectory. Partly because of the excess stimulus in the economy, inflation has been persistently higher than its pre-pandemic levels.
Also contributing to the hot state of the economy is the gap between the number of job openings and the number of unemployed people. Based on data Conerly presented to the audience, there are currently millions more open positions in the economy than there are unemployed people. Conerly said there are usually more unemployed people than there are open positions. Conerly argued effective monetary policy addressing inflation will be delayed because of the current tight labor market.
Conerly noted the Federal Reserve has been raising interest rates for over a year in an attempt to reduce inflation, though he said there’s generally a time lag of about two years when it comes to inflation reduction.
Conerly said rising interest rates can have an economic ripple effect, particularly impacting “interest rate sensitive” sectors of the economy. Conerly specifically mentioned real estate and home construction, vehicle sales, non-residential construction and business capital construction as sectors of the economy that are sensitive to interest rate increases. He said contractions in interest rate sensitive sectors can have ripple effects across the broader economy, as layoffs in those sectors result in reductions in consumer discretionary spending which in turn causes further layoffs elsewhere in the economy. However, while interest rate sensitive sectors of the economy will be the first to contract, Conerly said they will also be the first to rebound during an economic recovery.
Conerly said while the Federal Reserve’s efforts to reduce inflation by increasing interest rates results in economic contraction, it doesn’t want a severe recession to beat down inflation. Rather, Conerly believes the Federal Reserve will raise interest rates about another half point and then hold for a year.
However, while Conerly believes the Federal Reserve is seeking to avoid a severe recession, he does believe a “moderate” recession is likely in the near future. Conerly said his best guess for when a recession would start is early 2024, though he believes it could begin as early as the end of this year. Conerly also said it’s possible a recession is avoided altogether, though he believes that is unlikely. Conerly told the audience he recommends local business owners plan for their businesses to be impacted about half as badly as they were during the recession during 2008 and 2009. He also added that after economists say a recession has ended, that doesn’t mean the economy will have recovered, as Conerly said economists consider recessions to have ended once an economy has completed contracting rather than once an economy has returned to its pre-recession levels.
In addition to discussing interest rates, inflation and the possibility of a recession, Conerly also spoke about long-term trends in the labor market. He told the audience population growth is important to the economy, mentioning that in most years Lewis County has grown faster than the U.S. as a whole. However, he also warned there are issues with the broader population trends.
Conerly said among all groups in the labor market, it’s men in their 30s who aren’t working as much as they normally do. He also said with the aging of the baby boom generation, he expects the working age population of the U.S. to see its lowest levels of growth since the Civil War. In light of the country’s larger labor market trends, Conerly said employers need to have a better attitude about worker retention.
During a question and answer session following his presentation, Conerly was asked about the potential impact of artificial intelligence, which he said was going to become a bigger part of the world, though he argued there would be both positives and negatives to its growth.
“I think it’s going to be net-net a positive, but everything that’s net-net a positive has negatives,” Conerly said.
As Conerly finished speaking, he closed out by saying people should be optimistic about the American economy.
“The American economy is resilient, the American people are resilient and the American nation is resilient. And that’s your forecast,” Conerly said.