The economy was the focus of the Greater Norwalk Chamber of Commerce’s Economic Outlook Breakfast on February 16, sponsored by Webster Bank and held at the Norwalk Inn.
The event’s keynote speaker was Jason Bram, Economic Research Advisor for City and Regional Studies at the Federal Reserve Bank of New York, who shared survey data from business owners in the bank’s area.
“We ask a series of very simple questions in these surveys,” Bram said. “For example: is this and that going up or down, how are the labor prices and so on. And one of the questions we ask is business operations.”
Bram noted that business owner sentiment has turned negative over the past six years, particularly at the start of the pandemic and the Russian invasion of Ukraine. Their views are rated on a scale from 1 for the most positive feelings to negative 1 for the other end of this spectrum.
“Well, a little bit of good news is that both of our polls in February reported an uptick in sentiment,” Bram said. “But it’s still below zero. So there are still more companies saying things seem to be getting worse than they are getting better.”
“It’s very important to know what people and businesses expect for inflation because it influences their decisions,” he added. “It can actually be a self-fulfilling prophecy, in the sense that if you think your prices are going to go up or you’re more likely to pay more for wages and other inputs, that’s going to set the conditions for that kind of inflation to spiral.”
The faster recovery of the service industry, where employees earn less per hour, offsets the net productivity gains in white-collar positions, which represent a smaller segment of the workforce.
“It’s not that these workers are less diligent or anything,” Bram said. “It’s just that productivity levels tend to be much lower. If you look at the revenue that people make per job and hour worked, it’s a lot lower in, for example, leisure and hospitality than it is in, for example, information or finance.”
Bram also pointed to the pandemic as a catalyst for major shifts in home trends and office use.
“I think the housing market has benefited from the pandemic over the long term,” Bram noted. “If people spend 30% more time working at home, they may not need 30% more space, but they want a little bit more space.”
According to Bram, Fairfield County apartments will remain a coveted commodity as those seeking more space continue to trickle out of town, while those still wanting the benefits of New York City begin their leases.
“But while we hear about the housing shortage, office is the complete opposite,” Bram said. “More and more people were already working remotely, and a few were doing flextime. I think the pandemic has accelerated what might have been the next 20 years, with more and more people working remotely, to about a month.”
Bram also predicted that the shift to remote work will eventually be “much higher than 8%” of all workers, with a figure of 16% seeming reasonably likely, noting that this would mean around 80% of workers would not have a major one Workplace transformation will be experienced in the long run.
Overall, Bram expected slow but steady improvement across much of the second district’s economy but warned of long-term challenges.
In the long term, however, guest speaker Tim Pierotti painted a bleak picture. Pierotti is Chief Investment Strategist at WealthVest, a financial services firm with offices in New York City.
“There are things that are beyond the Fed’s control,” Pierotti warned. “The levels of lower supply elasticity we’ve been seeing lately could be more prevalent due to challenges like demographics, deglobalization and climate change. It could result in a shift into an environment characterized by more volatile inflation compared to what has been going on for a few decades.”
Pierotti stressed that this was to some extent the result of the end of a period he called “the great moderation,” in which many factors helped keep inflation low. However, he pointed out that geopolitical tensions caused and created by conflicts over energy resources – including fossil fuels and commodities – and underinvestment by extraction companies, triggered by high inflation, are likely to only widen the gap between supply and demand.
“We’ve all enjoyed this disinflationary bull market of the last 40 years and we’ve all learned to hold on to our ropes and my argument is that you probably shouldn’t,” concluded Pierotti, urging participants to find new ways of approach to consider the markets and companies.
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