By JAMES BELL
Hays Post
During the first months of 2022, economic news has painted a bleak future, fraught with ever-rising costs, rapidly growing inflation and a shaky supply chain.
But while it is easy to see the negative benchmarks as a sign of an economy quickly turning sour, one prominent Kansas economist recently said he sees many indications that economic strife in the U.S. is likely temporary and sees many positives in the area economy and beyond.
Jeremy Hill, director of the Center for Economic Development and Business Research, recently presented his economic outlook during the annual Eagle Radio sales conference in Hays earlier this month, which focused on areas of Kansas, Nebraska and Missouri that Eagle serves.
“In January, I released my forecasts when we had all that negative news,” Hill said. “All this negative news and I said, ‘No, I think we're going to be positive.’ ”
At the time, he was forecasting robust growth but is now more cautious while the Russian war against Ukraine continues to unfold.
But while the uncertainty surrounding the war creates unforeseeable situations on the global stage, many economic benchmarks in the area show reasons to remain optimistic.
One snapshot Hill presented is what he calls his Household Misery index, which is a way to measure how consumers feel about always present economic measures. He has tracked that number since returning to Kansas in 2009 and, while COVID created a large spike, it has since returned to nearly pre-pandemic levels.
A driver of the perceived satisfaction is in part due to higher home values.
“Home prices, also assets and wealth,” Hill said. “Wealth increased for households creating more wealth. Employment opportunities are better than it's ever been. You have all opportunity you want. The only thing slowing down household right now is inflation.”
But inflation is likely not as signifcant a negative factor for households as many perceive.
“This concept of inflation, it's just really hard to get when we've had a couple of decades of almost 2 percent growth very consistently, that we never went up,” Hill said, noting inflation has been fairly stable since the '80s.
To gauge inflation, energy costs and food must be removed, along with vehicle purchasing, in order to get a clear picture of inflationary factors outside of supply and demand issues.
“Remove both of those, inflation is actually closer to 3.2 to 3.5 percent,” Hill said. “So that's actually not high (or) higher inflation than it was before [COVID.]”
Prior to COVID, inflation in Kansas was higher than 3.5 percent, he said.
And the Federal Reserve had warned for months that this was expected and is now reacting to slow that rate.
“So, when you look at this, this is not that high of a market,” Hill said. “It’s higher than we were used to and the Federal Reserve is getting control, but it's not in a position where we get this headline number and it looks very scary. And yes, it's eating in people's pockets, right, and it's eating into businesses too, but I think this is temporary and something be managed.”
Energy
Prior to sanctions, Hill said about 8 percent of the U.S. oil supply was being imported from Russia.
“The issue here is this the markets trying to correct itself as a commodity,” Hill said. “We said our prices need to go up because we already know there's going to be limited supply and it's allocating that resource out. So, although people saw that jump in prices today as it will continue to go up probably, the market already corrected for its supply decrease. It's the market corrected.”
In more rural areas, food prices, along with the prices of many consumer goods, are rising due to increased energy costs.
“The market is going to correct on some of those,” Hill said.
Prior to the situation in Ukraine, he saw Nebraska and Kansas oil production already ramping up and will offset the loss of the imported oil, but it will take time to balance out supply and demand.
Employment
While a number of sectors of the U.S. economy continue to struggle with finding a sufficient workforce to keep up with current demand, Hill said, it’s not fewer people in the workforce causing the shortage. Instead, it's the result of a workforce that shifted during the pandemic with many choosing to move out of part-time jobs and shift toward better pay and more traditional 9-to-5 positions.
That movement has taken many of the workers who used to fill two or three part-time jobs out of that market, creating the perception of two people no longer being in the workforce, Hill said.
“From the business perspective, there's a ‘Where did everyone go?’ ” he said. “They just got that upward mobility. This is a great story. What's happened before COVID, this has accelerated it really fast, particularly when you put federal money into it.”
So as businesses went to hire quickly to fulfill their demand, workers benefited.
“This is actually good for the economy,” Hill said. “This new growth is increasing middle-income class, that's going to drive the economy going forward and all this upward mobility.”
And while the struggle to find labor, especially for those looking to fill entry-level positions in the service sector, has created headaches for business owners, Hill said this new balance is also likely to provide the next generation of Americans an experience missed by the millennial generation, as they participated in the labor market in a less significant way than others who came before.
“There's so much demand, you're going to see people going to high schools begging high school students to work at fast-food restaurants,” Hill said. “They just got an experience which is great labor markets, a great experience for them. They're learning how to deal with people, deal with conflict, deal with money, and management and time, they're really great lessons.”
Eventually, he said that underlying benefits to the economy will occur while the industry goes through a natural correction, but in the meantime, Kansas has already returned to pre-COVID employment levels.
Costs
While sourcing labor continues to drive operational costs, Hill said, labor shortages will continue, but increased productivity and finding new ways to retain employees, thereby shaving overall costs, should become more normal.
He said, however, employers have been reluctant to adjust to the current situation.
“If you want to be competitive, it's not necessarily always cash,” Hill said “They're moving to the employer who's actually going to build up their benefits. And, guess what? When you look at your labor, it's not just someone outside your door, your labor is actually the person that's in the entry-level position that has more opportunity than you thought about before.
“You have got to look at your labor market differently,” he continued. "Say this person came in, they did six months and they're pretty talented. Although they actually put training dollars to them, instead of waiting five years to move up to this next level, I've got training knowledge to them, they move up to the next level within a year and their productivity goes up.”
He said increasing productivity is the solution to inflation.
“If you get somebody who can produce more value per hour, you can pay them more per hour,” he said. "That increases company productivity and ultimately growth and profits."
Much of those productivity increases can be attributed to the necessity of finding technological solutions to employment problems as people worked from home during the pandemic.
“During COVID — we have all this technology, we have project management systems, client management systems and all this stuff — we were forced to finally use all that software,” Hill said.
By using that tech, businesses can offset rising wages.
And those rising wages and rebalancing can have positive effects on the overall area economy, as higher prices and higher wages balance out naturally in the free market.
Supply chain
Another major factor of economic strife in the area is supply chain issues.
Semiconductor shortages, especially, he pointed out have pushed products to not be available, or to be sold at a significantly higher price.
But he said those issues are also likely to alleviate themselves naturally over the next 12 months as economies worldwide balance.
Hill said as the world opened back up, consumer demand rose sharply, creating demand that wiped out available supplies. As increased shopping has continued, manufacturing has not caught up.
But manufacturers are also working to find ways around current product shortages.
Agriculture economies especially could benefit from increased demand as fuel, fertilizer and other associated prices rise.
“There are some losses there,” Hill said. “But the fuel costs as a mix is that much. The fertilizers and pesticides as a mix is a cost, but they're going to pass that all in food. So I'm not too concerned about biomaterials. The prices are going to stay high for a long time and then the weak, the weak commodities, are going to stay pretty high. So, it should be able to get a pretty good profit margin.”