Are We Headed For Recession, And What Does That Mean For N.H.?

Aug 22, 2019

On the N.H. Economic News Roundup, we discuss the indicators that are raising warnings of a recession, from proposed tax cuts by President Trump, to continued tensions with China and other countries over tariffs, to swings in the stock market. How is all of this impacting New Hampshire, and what might it mean in the future? 

This program will air live at 9 a.m. on Thursday, August 21, and again at 7 p.m. Audio and transcript of the discussion will be available after the conclusion of the show. 

GUESTS:

  • Brian Gottlob - Principal of PolEcon Research, an economic research firm based in New Hampshire, and director of the N.H. Economic and Labor Market Information Bureau. 
  • Russ Thibeault - President of Applied Economic Research, an economic and real estate consulting firm in Laconia. 


Transcript:

This is a computer-generated transcript, and may contain errors. 

Laura Knoy:
From New Hampshire Public Radio, I'm Laura Knoy and this is The Exchange. Is the American economy growing for more than a decade now, suddenly at risk of stalling, even tipping into recession?

Laura Knoy:
Is this the calm before the storm? And are we in for a global recession?

Laura Knoy:
The stock market posted its biggest decline of the year as a key predictor of recession is now flashing for the first time since 2007.

Laura Knoy:
Today in The Exchange, it's our New Hampshire Economic News Roundup and we'll examine what's behind these recession fears. Also, how valid are they? We'll also ask what the difference is between a recession and a slowdown, which the Congressional Budget Office predicted this week. And we'll relate these national and international trends to our own economy here in the Granite State, of course. Let's hear from you. How concerned are you about a recession? Do you think the talk is just that talk? Or is it based on a reality that you see on the ground? What's your perception of how New Hampshire's economy is doing?

Laura Knoy:
Our guests are Russ Thibeault, president of Applied Economic Research and Economic and Real Estate Consulting firm based in Laconia. And Russ, always good to see you. Thank you for being here.

Russ Thibeault:
Super to be here. Thanks.

Laura Knoy:
Also with us, Brian Gottlob, longtime New Hampshire economist and recently appointed as the director of the state's economic and Labor Market Information Bureau. Brian, congratulations on your new position and thank you for being here.

Brian Gottlob:
Thank you, Laura. Great to be here.

Laura Knoy:
Well, Brian, I'll start with you. What's your reaction to all this chatter about recession?

Brian Gottlob:
Well, I think there's a lot to be concerned about, Laura. There are a number of indicators that are suggesting things are slowing down. But I have to say, from my perspective, some of the concern is a little bit overblown right now.

Brian Gottlob:
Overblown because well, I think there there's discussion as if a recession is imminent. And there's really nothing that I see that suggests on the near term horizon at least, that we're that we're likely to tip into a recession. And again, I've written about a number of issues that are concerning the world economy is slowing. We've got some issues internally in in this country related to business investment slowdown, a lot of uncertainty.

Brian Gottlob:
But again, none of those suggests to me that we're likely to tip into a recession in the near term. And when I see the near term, six months, nine months, maybe even a year,.

Laura Knoy:
I mean, a recession is a big word to I mean, we could also just have a slowing of growth.

Brian Gottlob:
Absolutely. Absolutely. And it's pretty clear that we are slowing. We're slowing for a number of reasons. Almost all of the indicators that I look at with one exception. Well, a couple of exceptions.

Brian Gottlob:
One, labor market is still pretty strong, although it is slowing largely because we just don't have enough people to hire. And wages are growing. So when wages are growing and income is growth is strong and consumers are feeling pretty good, it's very hard to suggest that a recession is imminent when we know that consumers make up over three quarters or about three quarters of the U.S. economy.

Laura Knoy:
Wow. OK. So how do you see it? Russ?

Russ Thibeault:
Well, every time I get ready for the show, Laura,I start with just random thoughts and notes and write them down. For this show. I have eleven pages of notes.

Laura Knoy:
Wow.

Russ Thibeault:
It's just such a confusing picture and I ended up kind of zeroing in on what I think of. And I think this is a Goldilocks economy in two respects. First, it's not too hot, not too cold.

Russ Thibeault:
We've got pretty very low unemployment, a 50 year low still. That's a good number. Inflation's under 2 percent. That's a good number. GDP is rising at a two point one percent. That's a good number. So it's sort of Goldilocks. You know, but there's a wolf with the tour and it's knocking. And that, Wolf, is coming in the form of tariffs that are mixed up. We're not sure what's happening with tariffs, interest rates and the inverted yield curve. A world economic slowdown.

Russ Thibeault:
And we kind of, I think in some respects running out of bullets. The normal way when you get nervous about an inflation, what you do is you lower interest rates, but they're already very low. There's not a lot of steam that can come out of dropping rates from, say, two and a half percent to 2 percent. That's not a big shift.

Russ Thibeault:
And then if you look at taxes, we've just had the biggest tax cut two years ago on record. So we don't have a lot of tools. If we are heading to a recession, we don't have a lot of tools to push back. We don't have many bullets to hit that Wolf, with.

Laura Knoy:
Well, I want to definitely talk to both of you about the tools, because there has been a lot of conversation about this. As you said, interest rates and tax cuts and other sort of levers that policymakers use to bolster the economy. But just to give both of you a little sympathy about how hard it is to really predict what's going on, our. Pretty soon, Christina Phillip pulled some clips of several economists trying to figure this out on TV just over the past week, let's hear.

News Sound:
We're not going into recession. We think that there's a good chance that the U.S. economy goes into a recession in the middle of next year. I think it's more likely that one incremental deterioration, things were going very well. Now they're going to go a little worse. I don't think it's worse than that.

News Sound:
I would argue that the next global downturn is already upon us.

News Sound:
We certainly don't see a recession, but we see it very difficult to invest in assets kind of at all time highs.

News Sound:
Most economists and business people are pretty good at telling you why the recession occurred after it occurred. But not one. It's going to occur.

Laura Knoy:
Ok. Yikes. So why is it so hard to figure out, Brian? It couldn't be clearer from those clips. What's happening?

Brian Gottlob:
I mean, if you can't discern, Laura, what's going to happen over the next year from that series of clips? I don't know. You know, you're just not getting the picture, the clear picture that it's presenting.

Brian Gottlob:
I think it's difficult because when we focus on an awful lot of indicators and anytime you look at anybody who looks at a lot of economic indicators, no matter whether the economy is strong or whether the economy is weak, you're going to see conflicting numbers.

Brian Gottlob:
You know, the real challenge, I think, in the economics profession is to take all of those numbers that some say are up and some say are down. And to try to make some sense out of it for policymakers, for decision makers. And it is a very difficult thing to do because we all have one or two indicators that we think are the most important. And if you focus on one or two, then it's easier to draw those conclusions when you look at them.

Brian Gottlob:
The the full realm of all of the different economic data that is out there, it becomes a much more muddled picture. Economists are noted it's probably the one issue that perplexes economist more than any other, accurately predicting a recession. And then there is nobody that's very good at it. Those who have been good at it make their name on it. If you think back to the Great Recession, there was a couple of economists that kind of called the Great Recession, and they made their reputation in their name because there was one or two who were accurately able to do that out of the entire profession by the way,.

Laura Knoy:
Course They might have just been lucky.

Russ Thibeault:
And its been said he predicted nine of the last three recessions. You know.

Laura Knoy:
Yeah, Exactly.

Russ Thibeault:
Now I go by what I called a soda shop index. That soda shop is a kind of cafe in Laconia. And if I go in there and eat my sandwich and nobody asked me about the economy, I know things are fine. I go in there now and it's like I get pestered. I can hardly get a mouthful without somebody asking what you know. So people are nervous. People are nervous in this economy. And, you know, on the one hand, you've got, for example, you have Trump saying the economy's fine, but we've got to fix it fast.

Russ Thibeault:
Yesterday, the Fed's notes of their July July meeting were released about how Federal Reserve half of the members on the rate setting committee said we should lower rates stimulate. This is the Fed now. They had the the the biggest army of economists in the world. Half of them said we need to lower rates. Half of them said we need to keep them the same. And the other half of the third half said, no, we need to raise them. So if it is a confusing picture right now and your clips highlighted that beautifully.

Laura Knoy:
Well, here's a question for you then, Russ. You know your soda shop, that's the name of it.

Laura Knoy:
The soda shop analogy is all this chatter of recession, creating a narrative that makes people that you meet at the soda shop nervous, even if the economic fundamentals themselves are pretty solid.

Russ Thibeault:
No, I don't think so. I think the concern is real.

Russ Thibeault:
It's legitimate when you have, for example, what we're going to impose a lot of tariffs on Mexico on on Thursday and then on Friday that we're not going to do any. We're going to impose a very broad tariffs on a very broad spectrum of Chinese imports. And then, no, we're going to wait till after Christmas. So there's just a lot of of up and down, you know, at the top of this economy. The president and the Fed, the two biggest entities out there that have the largest influence over our economy are confused.

Laura Knoy:
Well, here there have been mixed messages from the White House and businesses this week were saying, just tell us what it is and we'll we'll work with it. Let's hear a little bit from President Trump talking about tax cuts, indexing for inflation and interest rates. This is two days ago, this audio courtesy of Politico.

News Sound:
I'm not talking about doing anything at this moment, but indexing is something that a lot of people have liked for a long time. And it's something that would be very easy to do. And a lot of people have been talking about indexing for many years. And it's something that I am certainly thinking about. I can say that a majority of the people in the White House at. The level that does this kind of thing, they like indexing, so it is something I'm thinking about payroll taxes. I've been thinking about payroll taxes for a long time. Whether or not we do it now or not is it's not being done because of recession, because we are legitimately if we had a cut in interest rates by the Fed, if they would do their job properly and if they would do a meaningful cut because they raise too fast, you would see growth like you've not seen ever in this country.

Laura Knoy:
Okay. Again, that's the president speaking two days ago. I want to talk about interest rates in a minute. But first of all, Brian, just indexing. What is that?

Brian Gottlob:
Well, I think what the president is talking about there is the indexing of the tax tables for the personal income tax. One of the effects that occurs when prices rise in inflation occurs is that you earn more money, but you may not actually be wealthier.

Brian Gottlob:
And if the tax tables are indexed and you know that if they don't reflect the fact that you're not actually better off or earning, you may be earning more, but you're not wealthier as a result of of higher prices, then you wind up paying more effectively in taxes. So indexing is in a way a tax cut because.

Laura Knoy:
Yeah, people appreciate the fact that it's the tax code is reflecting the higher the costs that they're paying.

Brian Gottlob:
It's reflecting higher costs and more reflective of the individual of an individual or a household's wealth. So it does get talked about every once in a while. I don't know that it's been done when the last time it was done, but it is done periodically. We're not using the 1940s tax tables in order to, you know, to to figure out our our liabilities. It would be an easy way to offer a relatively minor cut in in what is, you know, taken out of households pockets.

Laura Knoy:
Ok. So there's the president two days ago talking about we like indexing, thinking up about payroll taxes. And then here he is yesterday talking again about interest rates and indexing. This audio is from The Wall Street Journal. And you'll hear the president seemed to reverse positions from earlier in the week.

News Sound:
I'm not looking to do indexing. I've studied indexing for a long time. I think it will be perceived that I do. It is somewhat elitist. I don't want to do that. I want taxes for the the middle class, the workers, the people that work so hard. That's what I'm looking. I think indexing is really probably better for the upper income groups. I'm not looking to do that. But if I wanted to do what I believe I could. But I'd need a letter from the attorney general. I'm not looking at a tax cut now. We don't need it. We have a strong economy, certainly a payroll tax cut. President Obama did that in order to artificially jack up the economy. President Obama had zero interest rates. I don't have zero interest. I have real interest rates. And despite that, I have a stronger economy.

Laura Knoy:
Ok, so there some policy reversals, if you could call it that, Russ. How do business people react to all these different mixed messages.

Russ Thibeault:
They react unfavorably.

Russ Thibeault:
What we're seeing is capital expenditures for new plants, for new equipment down sharply. And think back to the president's tax cut. The corporate tax rate dropped from, what, 35 percent to 20 percent. A huge tax cut for corporate America with the thought that with lower taxes are going to invest in America. They're going to build new plants and hire more people. They'll raise wages. And that tax cut was when the economy was doing very well. Normally, you don't do a tax cut in that environment. So what do we get? Instead, we're getting like a 1 percent growth in capital expenditures, which is down sharply.

Laura Knoy:
So although shortly after the tax cut, we did see a boost, though,.

Russ Thibeault:
There was spend a very temporary boost and a lot of it was stock buybacks and bonuses for corporate executives that didn't filter down. It didn't trickle down the way that it was thought it would do.

Russ Thibeault:
It didn't achieve the main thing it was designed to do, which is to increase business, private sector investment. And that's not been happening.

Russ Thibeault:
So some, you know, in getting again, getting ready for the show, I thought, you know, maybe maybe this boom that we've had, this nine year boom is is kind of fake.

Russ Thibeault:
Maybe it was artificially stimulated by these huge deficits, which, by the way, this year looked like it's going to be a trillion dollar deficit. And maybe it was it was artificially stimulated by extremely low interest rates before the downturn began. The Fed funds rate was five and a quarter percent. It was dropped to effectively zero. So borrowing money was almost free.

Russ Thibeault:
Go for it. Then we have this huge tax cut thinking that will really stimulate the economy. And here we are with GDP growth. OK, but. Slowing down the unemployment rate is fair. As I said, you know, a lot of the indicators right now snapshot look very good. But the wolf was out the door and we don't have many bullets to get rid of them,.

Laura Knoy:
Although that's what policymakers do.

Laura Knoy:
Right, guys? Brian, turn to you first. You know, they they don't say play with monetary policy, but they said interest rates at the Federal Reserve. They do. Taxes and spending and and so forth. So that's partly their job. So are you saying Russ were quick and then we'll go to Brian, too? Are you saying that the fundamentals haven't been good for a long time, but they've been sort of painted over with a pretty color by these policy tools?

Russ Thibeault:
Yeah, that's what I'm saying. I'm saying that the fundamentals haven't been as they've been artificially stimulated. They we've had a shot of adrenaline on adrenaline in the economy at a time when it probably would have done OK.

Russ Thibeault:
So here we are now with a world economy that is softening. And in the United States, we already have very low interest rates. We already have a huge deficit. What are we going to do if in fact and Brian is right, it's not clear there's going to be a recession.

Russ Thibeault:
But if in fact, we do move into a recession, we don't have many tools. It's kind of like the infection that is resistant to every antibiotic if something goes wrong. If we do move into a recession in the United States now, there's not much room to lower interest rate. I see what you're saying. And there's not much room to stimulate with more and more and more spending without really tripping into already were at the highest, highest rate of debt to GDP since World War Two.

Laura Knoy:
I see what you're saying. So. Sure. Go ahead and use the policy tools, low interest rates, deficit spending, tax cuts, whatever. But you're saying those have been used. So now there's not a lot of, you know, options left on the table. Go ahead, Brian love your thoughts there.

Brian Gottlob:
You know, one of the problems is, is that we don't really have a coherent economic policy. We have a lot of ad hoc individual policies and some of them work against one another. So we you know, we have interest rate is is one of the policies, but then we have a tariffs that, you know, interest rates are supposed to spark business investment. But then you have a tariff policy that makes individual businesses reluctant to invest because they don't know what the situation is going to be, what the markets are going to look like, what their cost structure is going to be like. So that operates in opposition to one another.

Brian Gottlob:
There is no coherency to the policy.

Laura Knoy:
The flip flops are right disturbing to business.

Brian Gottlob:
And they counteract one another. One policy is designed to have this effect in stimulating investment, but the other policy maybe not directly or you know, it's not the stated purpose of it, which the whole tariff policy which has the function of reducing investment. The other problem that I see in this, I think, is we have just come to rely on monetary policy way, way too much for growth. We're looking at monetary policy instead of the things that actually matter. And driving growth, labor force and productivity growth are the keys to long term economic growth and we are not directing policies at those.

Laura Knoy:
Very interesting. And we will pick up on that after a short break. Especially since a lot of people are talking about that Federal Reserve meeting in Jackson Hole, Wyoming, over the weekend. Lots of anticipation about what Fed Chairman Jerome Powell will say. We'll hear from you right after a short break.

Laura Knoy:
This is The Exchange I'm Laura Knoy today, it's our New Hampshire economic news roundup. And as we look at national and international trends and how they're being viewed and felt in the Granite State, we'd love to hear from you.

Laura Knoy:
How concerned are you about some of the talk about recession these days? Is it just media chatter? Is it based on what you see in your community? Give us your perception of how you think New Hampshire's economy is doing. Our economists are Russ Thibeault and Brian Gottlob. And gentlemen, let's go right to our listeners. And Jerry is calling from Dover. Hi, Jerry. You're on the air. Welcome.

Caller:
Hi, Laura. I have to comment. What the first one I haven't heard very much about it in any of the media in the past when the economy was good, although we didn't reduce the total amount in dollars of our deficit.

Caller:
At least it was reduced as a percentage of GDP. And in this administration, even though the economy is doing relatively well, we're increasing the deficit and the percentage of the GDP. I'm sorry, the GDP is also going up.

Caller:
We need to address this issue because when things turn around, the deficit is just going to balloon incredibly. The second comment that I have. This president seems to have zero understanding of very basic economic principles, and yet it seems like everything is a knee jerk reaction. For example, his comments within two days of indexing. It's just beyond. And I'll I'll take some of the replies to my comments. Like let.

Laura Knoy:
Thank you very well. Jerry, thank you very much. And I'm really glad you called because the Congressional Budget Office said just yesterday, I think that federal deficits are expected to swell to higher levels over the next decade than previously expected.

Laura Knoy:
The U.S. budget deficit is expected to hit 960 billion this year, an average after that one point two trillion per year over the next decade. Now, I've been looking at economic trends for a long time.

Laura Knoy:
And Brian, I remember when the debt was the trillion. No, not the deficit. That's supposed to be the smaller number because deficits accumulate to add up to debt. So I'm really glad Jerry called and I would love both of your thoughts, starting with you, Brian, on these new deficit projections from the CBO.

Brian Gottlob:
Yeah. One thing I want to mention about the caller. He is absolutely right in one respect. And that's we broke from probably 50 years or more of of economic policy, fiscal policy in this country. Typically, fiscal policy is countercyclical when the economy is very strong. We take in a little bit more in terms of revenues and we fill our coffers. And when the economy is weak, we spend that down and we've run higher deficits.

Laura Knoy:
We've pushed the gas pedal. So to speak.

Brian Gottlob:
So we reverse that. And we have a pro cyclical. We've had we had a relatively strong economy and we decided to add that stimulus. So he's right about that. That is very unusual that the issue of the debt is is critical. And I'm not sure everybody understood. Everybody understands why it's it's important for a number of reasons.

Brian Gottlob:
One is the whole generational equity issue leaving debt to future generations. The second is that it has macroeconomic effects. When we run deficits, we, you know, we reduce our savings rates, which has an impact on investment and ultimately long term productivity. And it has an impact on the size of the government.

Brian Gottlob:
Basically, what we're doing is we're allowing us ourselves to feel wealthier because we're borrowing. We're borrowing and spending more. So we feel wealthier today when in fact, at some later point we will feel less wealthy, your future generation will feel less wealthy. So, you know, those are three really important impacts of the deficit. And any one of them is enough to be concerned about the deficit. But when you are the debt and when you add them all together, it becomes really troubling. But I think most people focus on one or the other. But all three of them really have a substantial impact.

Laura Knoy:
Go ahead, Ross.

Russ Thibeault:
I think we've done a lousy job of of helping the average American understand the implications of the deficit, which has gone from 30 percent of GDP in 2010 to 80 percent today. And it's projected to go to over 100 percent the way we're going now.

Laura Knoy:
That's the deficit or the debt?

Russ Thibeault:
That's that's the debt. Excuse me, the debt. Thank you

Russ Thibeault:
And I think that the the thing that caught my eye, one thing that really caught my eye as far as the implication of this is going forward interest on that debt is going to become the largest part of the federal budget. That's going to squeeze out defense spending. It's going to squeeze out the social safety net. We're going to have to pay that back. And it's going to come in the form of either higher taxes or reduced spending for things like defense and social welfare programs. We've just done a lousy job because the debt is the debt is sort of this nebulous thing. You know, you're driving your car, you know, you don't feel that, you know, that's interesting. So you can't get away with it. As an elected official, you can have your cake and eat it, too. You spend a lot of money and not raise to, in fact, lower taxes. But it's a myth.

Laura Knoy:
So you have to you have to pay the interest back on that loan, so to speak. And that means you can't spend money on other stuff that you might care about.

Russ Thibeault:
It's going to be you know, we're gonna have to cut education spending in order to pay this interest for this. This, as I called it, fake boom that we've had over the last summer, at least somewhat fake.

Laura Knoy:
But no politician, Brian, likes to say no to tax cuts or no to spending on cool programs. I mean, this is a Republican and Democratic problem. These deficits are, you know, a bipartisan bill.

Brian Gottlob:
Exactly. It's a point that I made a bit earlier. It allows us to feel wealthier, like we have more to spend when in fact we don't really have more to spend. So we feel wealthier today at the expense of tomorrow. But I will say there is and this is particularly troubling. I think there is kind of a movement out there or a belief that as long as our income or GDP is growing faster than are the interest on our debt, the interest rate on our debt, that we can continue to sustain this.

Brian Gottlob:
And that's kind of a new thinking. It's it's old thinking, but being repackaged as new. So the debt really isn't troubling because our our GDP growth or our income growth is going to be higher than our than our interest rate on our debt. And therefore, we'll have no trouble servicing it. I think that's very wrong. But it is one of those discussions that you hear among policymakers in Washington. From my perspective, pretty troubling.

Laura Knoy:
All right.

Laura Knoy:
Well, Gerri, thank you very much for raising that, because that is definitely in the news this week. And both of you, Mark in Epping wrote us.

Laura Knoy:
He says, A colleague recently went to the Newington Mall and counted eleven empty stores driving past a small strip mall in my own town this week. I noticed two out of the six spaces were empty. Is this an indicator of economic troubles? Mark, I was reading the Berlin Daily Sun this morning. And just because I like to look at local headlines and a citizens bank is closing down in Berlin and a small grocery store is closing down in Berlin. So, Mark, thank you for the note. And Russ, what do you think? Is this a sign of overall economic trouble or is this part of the sort of disruption in the retail sector that we're seeing?

Russ Thibeault:
I think it's a disruption in the retail sector. Retail spending actually has been kind of strong lately, but I think it's, first of all, a shift, of course, to online spending, which has grown a lot faster than brick and more spending in brick and mortar stores as they crawl. But by the same token, if you look at Home Depot this week announced that their growth rate is going to drop from over 3 percent to a little over 2 percent.

Russ Thibeault:
So a lot of retailers are saying, hey, this tariff thing is going to hit us. J.C. Penney. So prices are going up. And when retailers try to pass the prices of the tariffs on to consumers, consumers saying, no way, Jose. There was a quote, if I may, or an analysis done by researchers at JP Morgan that the trend, the 250 billion dollars worth of Chinese imports amount to a tax of about 600 dollars annually on an average American household. So that's sucking money out of the retail sector.

Russ Thibeault:
Right now, retail is doing well, but he brings up a good point, which is, is this sustainable? And it may well not be in the face of tariffs that are about to expand if Trump Post was saying, particularly after Christmas on essentially everything that we import.

Laura Knoy:
Yeah, that's interesting. And I saw that exact same analysis from JP Morgan that the tariffs imposed on China have already meant a tax of 600 dollars annually on the average American household. Again, that's from JP Morgan, which also says when the next wave of tariffs is fully in place in December, these researchers said anyway, the cost will rise to a thousand per household.

Laura Knoy:
Can you just remind us how that works. Brian, how a tariff means an extra 600 dollars on your average American household? Because that sounds like a lot of money. And then I've another question for you on that. But just remind us how that works, how a tariff. Well, you know, makes things more expensive for me.

Brian Gottlob:
Well, tariffs is basically it's a tax. It's paid on a material, a commodity or a finished product that is imported into our country. And it's paid by who's ever doing the importing. So if Wal-Mart is importing, as they do a number of goods from China, then they pay that import. They they pay that import tax, then they're not going to eat it and then pass it on to. No. I mean, in general, you know, they may try to eat it. It's up to individual companies how much of that they can do it. And, you know, I think at 10 percent tariff, you know, some companies probably eat some of it.

Brian Gottlob:
When you're talking about 25 percent tariffs and it becomes much harder to do that and that the tariffs have progressively impacted consumers more and more. It started out primarily on goods that were in. Hoarded by manufacturers or by companies that used whatever was being imported in the production of their goods and services. So it's kind of interesting to know it hidden a little bit.

Brian Gottlob:
I mean, you did feel it to some degree. So steel is there's a tariff on steel, so your washing machine becomes a little bit more costly. Now, what we're seeing, these next rounds are beginning to affect things like electronics. That's, you know, Apple, iPhones and computers, etc. And they're going to continue so that they will start affecting things like clothing, you know, more consumer goods that are directly going to be reflected in the prices on the shelf at retail stores.

Laura Knoy:
But isn't the argument then, OK, Apple, make your stuff in the USA. Okay. Apparel makers, you know, produce in the USA and then you'll have to deal with tariffs and then you won't need to pass on those costs to consumers. That's the fundamental argument there.

Brian Gottlob:
Yeah, but that will be reflected in prices as well. I mean, in a big way. A big reason why the manufacturing is occurring in those countries is that is that prices. Cost of producing them in other countries is lower. And there's no guarantee that those tariffs and that's in fact, what's happening. Tariffs on China. It doesn't mean that those companies that are producing in China are going to produce in the U.S. What are they doing? They're going to other low cost countries, Vietnam or Indonesia or some other countries in Asia.

Laura Knoy:
Yeah, I had read that that a couple of factories that you might have expected to come back or that policy makers had hoped would come back to the U.S., decide to go to Vietnam and. Really quick.

Russ Thibeault:
Yeah, real quick. It's not that easy. There's a chain of supply that has built up in China that you can't in the short term reproduce here. You can't always suddenly side. We're going to make iPhones. And in New Hampshire, all of the suppliers, the little parts here, the little parts of their little button, the screen, all of that.

Laura Knoy:
The contracts to, you know, will let you do this for the next three years. You can't just break that.

Russ Thibeault:
Well, yeah, that may be it, but it's just impossible to shift it in the short term, maybe over a 10 year period. You can do that.

Laura Knoy:
All right. Lots of listeners want to jump in with their views on how the economy is doing. And Russ and Brian, let's go to Nancy in Wolfeboro. Hi, Nancy. You're on the air. Thanks for calling in today.

Caller:
Hi. Thank you. So you asked about how the economy has been in our communities. And I just want to say that my daughter's two best friends have two parents who both work. And over the past year, both families have been homeless at some point. Well, I think this conversation is sort of missing the point about how this is affecting regular Americans and that they're struggling. And we're hearing that in the the truth, all the candidates and so forth. So I'd love you to think about it.

Laura Knoy:
Well, sure. And do you know a little bit about why your daughter's friends are homeless, despite the fact that both are working?

Caller:
Sure. They're both working very low wage. They're all working low wage jobs. And the rents are just soaring.

Laura Knoy:
This is something. Nancy, thank you so much. And this is something we've talked a lot about on other shows on The Exchange. Russ, I just want to give you an opportunity to remind people that even if you're working in New Hampshire, rent is very high. Housing costs are very high.

Russ Thibeault:
Yeah, rents are rents up phenomenally high and the vacancy rate is under 1 percent. So it's almost if you're lucky enough to find a place, you're going to have to pay a lot of money for it.

Russ Thibeault:
And I think that she raises the very big question. The elephant in the room, which is another aspect of this boom, is that it's been disproportionately skewed to the upper income categories, the upper wealth categories, stock markets up, what, 300 percent. Wages are up 3 percent a year, you know. So it's not been equitable. Boom this long. The longest boom on record now has not been equitable. It's not benefited everybody across the board.

Laura Knoy:
Well, thank you very much, Nancy, and good luck to your daughter's friends. And Christopher and Hudson wrote us with an alternative view. He says There seems to be a lot of growth around Manchester after years of new construction stagnation. Christopher says two new high tech hotels are under construction downtown. Former seers by the mall in New Hampshire's being repurposed as a Dick's Sporting Goods. The tractors are rolling on Goss Mill Plaza in Bedford again, and the signs are up for the new B.A. Systems location at the location, the former Blue Cross Blue Shield. That's right. I remember talking about that B.A. expansion on another economic roundup. Christmas says I guess it's still about location, location, location. Christopher, thank you so much. Because, Bryan, you know, in my little world here in Concord, I see lots of economic activity.

Brian Gottlob:
Right. I you know, New Hampshire is in a good place overall. When you look at the aggregate numbers, you know, job growth is strong. There's a good amount of construction activity. But it. Is rather localized. I mean, you know, it's concentrated mostly on the seacoast and in the Manchester. And to a degree. Down south toward Nashua areas.

Brian Gottlob:
So those areas are absorbing a disproportionate amount of both individuals who are moving to New Hampshire, which has been picking up, but also investment in business investment. So B.A. Systems choosing Manchester. You know, we see what's happening in the mill yard in Manchester is very positive. Pease Air Force Base has been terrific. My community, Dover, has seen just the extraordinary boom in building. So while you look at the aggregate numbers, it is looking very positive. But it is rather localized.

Laura Knoy:
A lot of that local activity, though, has to it has to spread out, Brian, that we know all the activity in Concord and Dover, at Dartmouth, in Manchester, Nashua and Hanover and you know, the other places.

Brian Gottlob:
It does. It does spread. So it's not just in the communities, but regionally. There is an impact. You know, I look a lot at demographics. And one of the most troubling things that I that I've seen in a while is that over the most recent decades, six of the 10 counties in New Hampshire have had more people die than born, you know. So that means if they aren't attracting individuals into those regions, if they're not if they're not seeing in migration, then their population is going to decline and ultimately their economy will decline. And there are some communities that have been able to do that. Some counties that have been able to do that. Belknap County has seen enough in migration to keep from population loss, but not all of them. So, again, it does point to kind of a regionalization or localization of the strength of the New Hampshire economy.

Laura Knoy:
Very interesting. And Chris, thank you very much for that e-mail. We'll take more of your calls and e-mails after a short break. We want to hear your perceptions of the New Hampshire economy. Your thoughts when you hear news headlines and economists talking about the possibility of recession. Others saying no way.

Laura Knoy:
This is The Exchange, I'm Laura Knoy. Tomorrow on our show, the weekly New Hampshire news roundup. Your chance to catch up on all the state news you might have missed this week. That's Friday morning, live at 9:00 this hour. It's our New Hampshire economic news roundup. And we've been looking at interest rates, what the Federal Reserve might do. Also, debt, deficits, job growth and all the talk of recession recently. Let's go right back to our listeners. Charlie's calling from Laconia, your hometown, Russ. Charlie, good morning. Go ahead. You're on the air. Welcome.

Caller:
Good morning. Good morning. I just want to comment on the remarks about all the companies looking. You know, they moved overseas for lower labor costs and then they will maybe go into looking at from trying to tell other companies or countries. I recall when when when these companies started moving out of the country, I don't recall our prices dropping because they said, oh, look, we're saving all you all this money and it's costing us less money to make products. So we're saving we're passing that savings, aren't you? You know, to me, the only people that have benefited is from. It's that it's not a bad thing, I guess, by the company owners or the stockholders or somebody, but certainly not the consumer. And, you know, when they talk about the cost of steel because of the tariffs and stuff, I don't think it's just as you touched on this earlier, get your steel right here in the United States. There are plenty of mills making steel around here. And, you know, I just the whole the whole thing is just smoke and mirrors to me.

Caller:
That's what I've always looked at the time.

Laura Knoy:
Really glad you called. And you make me think we need to do just a whole refresh show on tariffs and trade, how it all works.

Laura Knoy:
But this is a great point, Russ, that if companies move their factories overseas to save money. Charlie's saying I haven't seen I haven't seen those savings.

Laura Knoy:
It kind of reminds me when the cost of jet fuel or just gasoline in general goes down. Airline tickets don't really seem to drop. So I love your thoughts on Charlie's point.

Russ Thibeault:
Well, I think that, you know, you look at the iPhone, which is made in China, then the new ones, I think are over a thousand dollars for a telephone. You know, it's like, whoa, wait a minute. I thought I thought this was more than intelligence, but still. Yeah. Yeah, I get your point. Yeah. A little more than a phone.

Russ Thibeault:
The point is, though, I think is that it's one of the problems with economics is you don't have a controlled thing like give a placebo to these people in real pill pills to those people. We don't know how much a shirt would cost if it were made in America instead of China or Bangladesh. That in other words, I think I pay about the same amount for a shirt today as I did when I was in high school, which was in the 60s.

Russ Thibeault:
So I think that it's true, Charlie, that to a great degree we haven't realized all of the savings, but it's a little hard to measure it because we're not sure how much that shirt would cost if it was made. And I recall my wife wanted to buy boots made in America and she ended up buying a pair of boots made in America. They weren't L.L. Bean, although those are made in America and they were expensive and they were ugly. You know. So I think that to some degree, the savings have sort of hidden by the fact that things would be a lot more expensive had they always been made in America. But we don't know.

Laura Knoy:
And I that's why I really appreciate the point. Yeah. Brian, companies are saying we're moving overseas to save money. So Charlie's saying, OK, where's the savings?

Brian Gottlob:
But one of the things that we also Russell's point about the counterfactual not being able to measure the counterfactual is absolutely appropriate.

Laura Knoy:
You can't have one iPhone factory in Michigan and one iPhone factory in China and then compare the two.

Brian Gottlob:
The other thing is, is that you have to think you have to factor in what product improvements are and how that might be reflected in price increases. Were the iPhone not manufactured in China? How much more can today's iPhone do than an iPhone? Fifteen years ago or ten years ago, prices certainly have risen. I guess the question is, is what would prices be if those were manufactured here in the U.S. with the same level of product improvement, the same level of innovation, the same quality. And that's, again, a counterfactual. But sometimes prices rise. But the quality, you know, the characteristics of the product changed pretty dramatically. And so you're actually getting a whole lot more think of TV's, you know, TV prices have actually come down, but not only have they come down in a lot of ways. But think of what you can do with them if you can figure it out.

Laura Knoy:
But that's another show.

Russ Thibeault:
Oh, my God. Yeah.

Brian Gottlob:
So. So, you know.

Brian Gottlob:
So there it's. It's a much more complicated. Yeah. Prices don't generally decline and sometimes they stay about the same or they rise a little bit, but the innovation in the quality of the product and what it can do rises much more dramatically.

Laura Knoy:
So, Charlie, I really appreciate the point. And Russ, go ahead.

Laura Knoy:
And then I just was going to say, in defense of Charlie and Brian and myself, some of the savings have accrued to corporate America and their balance sheet. Well, they and that's I'm heavily as a consumer.

Laura Knoy:
Yeah. And that's Brian's point. TV's have gotten cheaper.

Russ Thibeault:
Yeah. So it's a little hard to split.

Russ Thibeault:
Split them, split the relative improvement in things between the corporate savings and the consumer side.

Laura Knoy:
And you're saying, well, You seem to make the point earlier, Russ, that clothing costs are still relatively low in this country. Yeah. Yeah. All right. Well, let's take another look at trade, because it's interesting. And let's go next to Manchester, where is on the line. Hi, Matthew. You're on the air. Welcome. Thanks for calling in.

Caller:
Hi. Thanks for taking my call. I have a question we were hearing about terrorists and the costs of terrorists is there can. Can your guest recommend any lifestyle changes, strategy or techniques that the consumer can take to avoid paying terror?

Laura Knoy:
Wow. Matthew, what a great question. And I thought of that. Brian, when you were talking about, you know, steel tariffs, for example, raising the cost of washing machines, and I was thinking, oh, I can't need a new fridge, but maybe I'll hold onto my clunker for now.

Laura Knoy:
I love your question, Matthew. Can you guys answer that? Is it? How do you avoid paying?

Brian Gottlob:
Well, you know, increasingly it's gonna be impossible because more goods are going to be going to have a tariff placed on them. I think one of the immediate response is that that is are offered or is offered is that, well, just buy a product that's made in the U.S. and you avoid the tariffs. But you know what? When the tariffs on washing machines that were made that were made overseas were put in place. What happened? Well, the price of imported washing machines went up, but you know what? The price of domestically made washing machines also went went up. So that gets at the whole corporate issue.

Brian Gottlob:
They may not have gone up as much, but they still went up. They were able to extract a rent from consumers, just simply from the fact that a tariff was placed on an imported machine that made the prices go up faster there. So they were still able to raise their prices, just not maybe as much, or in some cases they did raise as much. But that complicates the whole issue, because I do think a lot of people think just if you just buy something that is not subject to a tariff, you will necessarily be able to avoid that that cost. But that's not necessarily the case. And, you know, that's a corporate America kind of issue and gets at one of the previous callers.

Laura Knoy:
Sure. So if the competition from Korea or Japan. Raises its water rates, prices are raised because of the tariff, then the Made in America group says, why not? It happen. I'll keep mine like five dollars lower.

Brian Gottlob:
It happened with steel. Same thing with steel. Steel prices went up domestically, made steel prices went up when there was imported import tariffs placed on it.

Laura Knoy:
All right, Matthew, thank you for the call. Russ.

Russ Thibeault:
I was just going to say to that something I don't know if we touched on it fully. I agree with with Brian that.

Russ Thibeault:
But one of the things that we really haven't talked about that much is that.

Russ Thibeault:
The tariff situation, apart from the actual situation as it exists now and may exist in December or whatever, it is sort of a deer in the headlights impact on corporate America. They're saying, I don't know. Maybe I'll build that new steel plant in Pennsylvania. But then again, he may stop those tariffs and I'll I'll be competing again with cheap Chinese imports or Vietnamese imports. So there's sort of a freeze effect on capital spending when you have erratic tariff policy or dramatic change in tariff policy as we are experiencing now. So it gets harder to maybe justify building a plant in America, ironically, because you're just not sure as the CEO. OK, that's gonna cost me a billion dollars. Should I really do this? Maybe not.

Laura Knoy:
Policy uncertainty is harmful to that long term business decision making. You know, you spend a lot of money.

Russ Thibeault:
Predictable environment, if you're gonna be shelling out a billion dollars here and a billion dollars there for plants.

Laura Knoy:
Sure.

Brian Gottlob:
That's an absolutely terrific point. One of the weaknesses of our current economy is business investment. The tariff issue is playing right into that and it's exacerbating the slowdown in in business investment for the reasons that that Russ mentioned. So, you know, it's a it's a counter. It's counteracting what are the supposed benefits of the terrorists policy. It's actually producing investment rather than encouraging investment in the country.

Laura Knoy:
Let's take another call. This is Jan calling in. Hi. Jan, you're on the air. Welcome.

Caller:
Hi. Thank you. I pulled over to this side of the road. This is such an important subject.

Caller:
I don't feel like an item made in a foreign country and an item made in America. You can't compare the two. It's not a zero sum game. The profits that come from a foreign made item, the money from those go to the corporation as has been covered here. But an American worker, even a union American worker who makes it a better wage. That money goes right back into our economy. They don't buy a Lear jet. They don't buy a home in the south of France. They go out and they buy a second car or braces for their kids, or they can get a job because they can afford daycare. It drives our whole economy and it's the middle class and the worker that is always short changed. So we buy local. We buy American made when we can. If I have to pay a little bit more for it, I do, because I know that money's going to go right back into the economy. I've owned five of my own companies and I spent the last 10 years working for a major airline and could not have done it without my union.

Laura Knoy:
Go ahead.

Caller:
It's it's important to have our workers make money in America. I worked in the 70s and I made as much in the 70s as a young person in the city of Chicago as I did when I started for an airline. The wages have not kept pace. We need to pay our workers at least 15 dollars an hour.

Caller:
We need to get some money back into the middle class?

Laura Knoy:
Well, this is a really important point. And we've been talking about, you know, the impact of tariffs on corporate America's bottom line. Also on the consumers. But she's absolutely right. I'm glad you pulled over. Jan Russ, what do you think? You know, even if you paid three dollars more for that shirt made by an American, that American is spending that money in his or her community.

Russ Thibeault:
Absolutely right. And it's right across the board whether you're buying a manufactured goods or whether you're buying a book in downtown Concord versus on Amazon. And I get to say I'm guilty of going to Amazon because of the convenience. But there's no question that the whole buy local, whether you define local as America or whether you define it as Main Street Concord, there is a much bigger economic impact in spending that same dollar one way versus another way. And she's right.

Laura Knoy:
Thank you so much for calling in, Jan and gentlemen. I read an e-mail earlier. I think it is from Chris who said, hey, things look pretty good in Manchester. We talked about, you know, definitely some of the growth spots here in New Hampshire. New Hampshire's unemployment rate is still incredibly low. I'm guessing you guys would say that's partly a demographic issue because it's just not enough people to fill those jobs. But here's another perspective from Ben in Hudson. He says, It's actually very obvious that the U.S. economy is faltering and edging toward a depression rather than a recession. Ben says anyone familiar with the 2008 crisis understands that the underlying instabilities were not dealt with. Rather, the bubble was blown up further by the Fed to prevent its eventual burst.

Laura Knoy:
Ben says through corporate stock buybacks, Wall Street's overvalued stocks were made so expensive that no one wants to buy them. And then the only direction for them to go is down. The money for buybacks, he says, takes away from new jobs and wage increases to pad the pockets of investors. Ben says the real economy and the financial economy becoming became disconnected years ago. And this must change if we're ever going to achieve sustainable growth. Ben, thank you so much. Kind of reminds me, Brian, of what you said earlier in this show that, you know, we've been using financial tools to prop up the economy. But you said, you know, growth is really about people working, people showing up, people innovating stuff, people being productive.

Brian Gottlob:
Right. He makes a good point. Concerned about the disconnect between financial markets and asset values in this. And the real underlying strength of the economy, when that gets out of whack, it is you know, that is a time when you should be worrying about about a recession. You know, just think back to our most recent recession. What happened? Well, it was the housing market and asset values in housing that got out of whack, overvalued, kind of disconnected between, you know, their true value and what was happening in the underlying economy and eventually that that burst.

Brian Gottlob:
You know, there's some concern about that with the stock market as potentially, you know, an asset imbalance. And that, by the way, low interest rates could drive up asset values higher. So that contributes to it. Low interest rates makes stocks. Yeah. Exactly. All assets. All all assets more valuable. I don't see as many of those concerns as some people. The one area that I have a maybe a little bit more concern about is there's a lot of corporate debt out there. You know, it's it's very high. It's at its highest level.

Brian Gottlob:
And some people say, well, you know, GDP growth is strong enough that that's not a problem. But when you look at the distribution of that debt, much more of it is going to lower grade debt and companies that are kind of a little bit more shaky. And so when interest if interest rates rise, the economy turns down. I kind of wonder if we don't have some zombie companies that aren't going to make it. When things do turn down. So that's the one area that I'm more concerned about. I don't see a lot of excess in the economy in the in the financial world. Yes, stocks are probably overvalued. But I I'm more concerned with what's what's happening in the corporate debt,.

Laura Knoy:
Zombie companies.

Laura Knoy:
That's what keeps economies up at night!

Brian Gottlob:
I mean, there's there's companies that are living off of leverage.

Brian Gottlob:
They're living off the leverage. And they can do that because interest rates are so low.

Laura Knoy:
What are you going to be looking at in the next couple of weeks? Russ in terms of economic indicators, reports. Obviously, the Federal Reserve Bank of Kansas is holding its big meeting in Jackson Hole, Wyoming. Just a really pretty place, by the way. Good place for a meeting.

Russ Thibeault:
I just think watching that so many things to keep an eye on right now, it's hard to say. One thought I had was that last year we had a very good economy and Red Sox won the World Series. OK. This year, the Red Sox are faltering a bit. And look where we are with the economy. So maybe what we should be watching is are the Red Sox gonna do well in the balance of the year? Little let's let. I think interest. Rates the stock market is probably volatile, that will be a nice thing to keep an eye on. Is it going to be up 800 points one day and down 800 points the next day or down a thousand?

Laura Knoy:
Some change obviously is normal, but these big mega swings are concerning.

Russ Thibeault:
They are. And the stock market is not the economy, but it is a reflection of investor confidence. So maybe if one thing I would keep an eye on most would be the market.

Laura Knoy:
All right. Well, wetting our appetites for the next time. Thank you so much, gentlemen, for being here.

Russ Thibeault:
I want to congratulate Brian on his new gig. Yes. Labor Market Information Bureau is my favorite state agency. Congratulations.

Laura Knoy:
And that is Brian Gottlob, again, longtime New Hampshire economist. And as Russ said, recently appointed the director of the state's economic and Labor Market Information Bureau. Russ Thibeault is also with us, president of Applied Economic Research based in Laconia. And you're listening to The Exchange on New Hampshire Public Radio.