Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: To have it play. Yes, thanks for making the course
Speaker 2: with them.
Speaker 3: Yeah, so we're just getting started off the business.
Speaker 1: That's Tom Barkin, President and CEO of the Richmond Fed,
Speaker 1: one of the twelve regional banks of the Federal Reserve.
Speaker 4: He's talking to executives at Carport Central, a manufacturing firm
Speaker 4: that builds and sells carports, garages, barns, and even homes
Speaker 4: made out of metal tubin.
Speaker 1: In addition to being a voting member of the Central
Speaker 1: Bank's monetary policy body, the FOMC, Tom's responsible for actually
Speaker 1: implementing that policy in his district.
Speaker 5: So united to.
Speaker 2: Prefers himself for worlds.
Speaker 4: Yeah, he's on one of his regular listening tours, traveling
Speaker 4: by car around the Richmond Fed area, which covers DC
Speaker 4: and several Southeast states, including North Carolina where we are
Speaker 4: right now in Mount Airing, North Carolina.
Speaker 1: To be exact, Tom's invited us to come along as
Speaker 1: he learns about the businesses in his district and what
Speaker 1: they're seeing when it comes to inflation, the labor market,
Speaker 1: consumer demand, and the general economic outlook.
Speaker 6: Thank you guys for coming out. First of all, we
Speaker 6: don't know.
Speaker 7: Whatever you guys need from us, We're here to answer
Speaker 7: the questions, and we're going to tell you about our
Speaker 7: industries demand.
Speaker 3: We're interested in labor markets for insta in supply chains,
Speaker 3: for instance of pricing.
Speaker 2: Perfect to understand.
Speaker 4: You'll get to hear what a FED president hears is
Speaker 4: he embarks on one of these research trips. What are
Speaker 4: the questions he asks to get a better handle on
Speaker 4: the direction of the economy, And what kind of questions
Speaker 4: get asked to him.
Speaker 7: What is it like now that prevents from lower interests?
Speaker 3: Well, technically nothing our next meeting, but I mean, but
Speaker 3: practically it's that inflations too.
Speaker 1: We're also going to hear from local businesses themselves and
Speaker 1: learn about things like car ports, thermal underwear, and spinning
Speaker 1: yarn from plastic bottles.
Speaker 4: And we'll here's some of the challenges and opportunities facing
Speaker 4: some of America's small towns, things like shrinking populations, housing shortages,
Speaker 4: and the difficulty of finding childcare. This is odd lots
Speaker 4: on the road.
Speaker 8: Historic downtown mount Airy. There's a candy store, Let's go there.
Speaker 1: In many ways, mount Airy really is the quintessential American
Speaker 1: small town. Sitting in Surrey, County in the northwest corner
Speaker 1: of North Carolina. It was the inspiration for Mayberry, the
Speaker 1: fictional idyllic home of the Andy Griffith Show. It's also
Speaker 1: the first leg of Barkin's trip for this week.
Speaker 3: We try to go to that we haven't been the
Speaker 3: big cities work themselves. I'm there naturally to give speeches
Speaker 3: to rotary clubs or chambers of commerce, but the small
Speaker 3: towns you have to put them on your calendar. And
Speaker 3: we picked am on Eric as we hadn't been here
Speaker 3: before and we'd heard some interesting stuff about what they're
Speaker 3: doing in the workforce.
Speaker 4: Once the locations are chosen, Barkin and his team generate
Speaker 4: a list of the region's key employers, then start reaching
Speaker 4: out to set up interviews and maybe a meal or
Speaker 4: two with some of the local community leaders.
Speaker 3: We always want to find whoever the biggest businesses are
Speaker 3: and try to understand because they'll have the best input
Speaker 3: on the labor market. And then I do try to
Speaker 3: do a round table where I can of whatever the
Speaker 3: core businesses in that community. It was aquaculture and the
Speaker 3: Northern Neck. It's tourism in a place like Mount Area.
Speaker 3: I'm trying to understand the core part of every town's
Speaker 3: economy and how that's performing.
Speaker 4: Tom's not wrong about the importance of tourism in mount Airy.
Speaker 4: The Andy Griffith Museum and Mayburry themed shops on main
Speaker 4: Street inspire thousands of tourists to come every year.
Speaker 1: It's a pretty cute town. There's a downtown area with
Speaker 1: a store that sells moonshine ice cream, which was delicious.
Speaker 1: There's Mayberry RFD cop cars parked on the street, and
Speaker 1: a gospel music store is selling guitars, which you love,
Speaker 1: Joe I did.
Speaker 4: But there's also other types of businesses around too. Take
Speaker 4: for instance, Carport Central. The company makes these outdoor structures
Speaker 4: that you can use to protect your car from rain
Speaker 4: or snow or sun, but it also makes bigger things
Speaker 4: like barn dominiums or prefabricated houses. It's actually one of
Speaker 4: several companies in the immediate area that manufactures these structures,
Speaker 4: making the rural county a sort of hub for the industry.
Speaker 1: Albert Laura, the president of Carport Central, explains to Tom
Speaker 1: why that is.
Speaker 7: My brother and I've been in this industry over close
Speaker 7: to twenty four to twenty five years, so almost since
Speaker 7: it first started back in ninety nine and ninety said,
Speaker 7: and actually ninety eight ninety nine the beginnings of this industry,
Speaker 7: but it kind of grew in this area. So Surrey
Speaker 7: County is pretty much the hometown or home place, so
Speaker 7: the birthplace of this type of structure. Now there's been
Speaker 7: other structures made out of different you know, tubing, like
Speaker 7: round tubes all that that's you know on the West coast,
Speaker 7: but to be square tubing and to go to what
Speaker 7: we're doing now is different. So a start off, and
Speaker 7: you probably drove by even where you live, you see
Speaker 7: the little tops and people perked their cars, or you
Speaker 7: drive by some kind of dealer that sells outdoor equipment
Speaker 7: or something you see a little sign that as a price.
Speaker 6: Well, that's how it pretty much started in.
Speaker 4: It's an interesting time to be a FED president talking
Speaker 4: to businesses about what they're seeing day to day. Across
Speaker 4: the economy. Inflation is still above the Central banks two
Speaker 4: percent inflation target, but unemployment is still at its lowest
Speaker 4: level in years.
Speaker 1: And even though the FED isn't satisfied with progress on
Speaker 1: prices in some respects, the US economy has to fight expectations.
Speaker 1: A lot of people thought things would cool down as
Speaker 1: the FED hyped interest rates at the fastest pace in decades.
Speaker 1: Many thought we'd be in a recession by now.
Speaker 4: But that hasn't happened, and yet there's still a lot
Speaker 4: of un certainty over things like consumer demand and the
Speaker 4: ultimate impact of tighter monetary policy.
Speaker 1: And in many ways, the carport business is kind of
Speaker 1: emblematic of a lot of recent trends in the economy.
Speaker 1: Sales boomed in the aftermath of the pandemic when everyone
Speaker 1: was buying cars or adding stuff to their houses, and
Speaker 1: then there were supply chain issues, and the business has
Speaker 1: since seen some tailing off in demand.
Speaker 7: COVID hit and it was like a boom because everybody
Speaker 7: pretty much got an influx so that they had bought
Speaker 7: in our video and they bought Yeah, they needed this,
Speaker 7: and people were at home, well, I now needed a
Speaker 7: place to put my stuff in redo my bathroom. I'm
Speaker 7: going to put all my stuff in this building now,
Speaker 7: which is great, but again, you know what happened. They
Speaker 7: are supply chain issues, and so a lot of the
Speaker 7: material was delayed and then they came in and it
Speaker 7: was a higher price, and it was just a crazy time.
Speaker 1: But so for Tom the big questions right now are
Speaker 1: what carport Central is seeing in terms of pricing. Because
Speaker 1: when stuff was booming, carport manufacturers could all raise their prices.
Speaker 1: But as things normalize, it's becoming a lot more competitive.
Speaker 3: So on the rest on the car port side, does
Speaker 3: that mean that your pricing is under pressure.
Speaker 7: Yes, so we have to compete with an inferior product,
Speaker 7: but we the consumer at a certain point, they don't
Speaker 7: really take that in consider. So, you know what, I
Speaker 7: just want the lowest product, even if we tell them, well,
Speaker 7: you know, our product is you know, thirty to forty
Speaker 7: fifty percent stronger than what you're getting, and unfortunately we
Speaker 7: have to either match the price or in some cases
Speaker 7: try it undercut it. But the thing is we're paying
Speaker 7: a whole lot more for our you know, our materials
Speaker 7: and of course our designs and everything.
Speaker 6: They're they're just they're they're way above what most people
Speaker 6: are are getting.
Speaker 2: Now.
Speaker 9: To answer your question a little bit, is are pricing
Speaker 9: Our profits have gone down because of the competitors in
Speaker 9: the market that are continuously doing things wrong, so they've
Speaker 9: cheapened the product. So we were making more money pre
Speaker 9: covid COVID. Now we're the only industry that I know
Speaker 9: of that the inflation. Everybody that went up, we were
Speaker 9: the other way. When the person went down, Our pricing
Speaker 9: went down with.
Speaker 2: The inflation fighting organization. Thank you for that.
Speaker 6: But our labor is still read yeah.
Speaker 1: And labor costs and availability of workers creates an interesting
Speaker 1: dynamic in Surrey County, North Carolina has seen its population
Speaker 1: boom in the years since the pandemic. In fact, it's
Speaker 1: still one of the fastest growing states in America, but
Speaker 1: that population growth hasn't been spread evenly. In Mount Airy
Speaker 1: there are now about ten seven hundred residents, not much
Speaker 1: more than the ten four hundred people that were recorded
Speaker 1: here more than a decade ago, back in twenty ten.
Speaker 4: That means the area is having to get creative when
Speaker 4: it comes to the labor market. For instance, there's an
Speaker 4: apprentice program called Surrey Edgin Works. It's been placing hundreds
Speaker 4: of local high school students into internships and apprenticeships for
Speaker 4: things like welding, manufacturing, and teaching, providing future workers for
Speaker 4: those businesses and giving young residents a re stentistick around.
Speaker 3: So many of our small towns have a problem with
Speaker 3: population growth and workforce growth, and this is an effort
Speaker 3: to try to get local people meaningfully engaged in the
Speaker 3: workforce in places where there are lots of good jobs.
Speaker 3: And I think that's a very interesting thing that other
Speaker 3: communities might want to replicate.
Speaker 1: And businesses like carports Central have had to get more
Speaker 1: creative when it comes to their labor too.
Speaker 7: It's not as efficient when you get to a large
Speaker 7: volume production. You have to have faster equipment, you have
Speaker 7: to have more automation or more people. One of the two, right,
Speaker 7: more people, more regular equipment. But for us, we went
Speaker 7: with a little bit more automation. We still have to
Speaker 7: have more people, but automation has helped us get to
Speaker 7: where we're at streamlined. But what we've noticed is that
Speaker 7: at the beginning, say last year, we were working forty
Speaker 7: five to fifty maybe sixty hours of some cases, you know, Saturdays,
Speaker 7: half Sundays, one shift. We wanted to cut back to
Speaker 7: forty hours, and we didn't want them to work on weekends.
Speaker 7: But we still have a lot of demand, so we
Speaker 7: had to get more efficient in our processes. And the guys,
Speaker 7: you know, they were very very hesitant at first because
Speaker 7: obviously they were used to getting a fifty hour pay
Speaker 7: check verse sixty hour overtime.
Speaker 6: But we told them, look, let's try this.
Speaker 7: We want you to spend more time with your family,
Speaker 7: you know, we want you to enjoy. We don't want
Speaker 7: you to have to stress having to come in and
Speaker 7: finish this, or we don't want you to rush through
Speaker 7: it where it's not.
Speaker 6: The exact quality we want.
Speaker 7: So yeah, so now that's changed a lot. And I
Speaker 7: think that's probably why back Tommy's point is, our turnover
Speaker 7: rate isn't as much as it probably is for other manufacturers.
Speaker 4: So Carport Central has been able to adjust to some
Speaker 4: post pandemic pressures.
Speaker 1: But there are still some restraining factors on its business.
Speaker 1: Take for instance, banks and the availability of credit. Not
Speaker 1: only have interest rates surge as the FED fight's inflation,
Speaker 1: but banks have also been pulling back on some loans.
Speaker 10: What's the constraint on your growth right now? Is it
Speaker 10: getting the materials?
Speaker 1: Is it availability of contractors?
Speaker 2: Like?
Speaker 1: What what's stopping you from selling even more?
Speaker 7: I guess for us it's gonna be more financial institutions
Speaker 7: understanding our business more.
Speaker 6: I think the supply chain issue.
Speaker 11: For us, it's it's it's okay because we have access
Speaker 11: to different supplies, but it's more of having a backing
Speaker 11: of a financial institution for us.
Speaker 7: So credit, but our turnaround time in our industry, luckily
Speaker 7: it is pretty quick. But because of the fabrication time
Speaker 7: and their time scheduled for commercial projects, they don't they
Speaker 7: are not able to pay us let's say within maybe
Speaker 7: ninety days, and we are credit terms are say net
Speaker 7: thirty net forty five.
Speaker 6: Uh So basically we have to have a reserve of cash.
Speaker 7: You know it'll come in, but it's just a delayed situation.
Speaker 7: The growth that we're seeing, we're actually being restrained because
Speaker 7: of not having access to the capital that we need
Speaker 7: to Actually.
Speaker 3: What we're telling you when you go talk to them
Speaker 3: and say I got a business and I got a
Speaker 3: lot of demand and I just need.
Speaker 7: A little more capital, well, I think right now it's
Speaker 7: more mostly because of the way the economy is going.
Speaker 7: They're really they're not as free you know, telling you, hey,
Speaker 7: come on in, let's help it.
Speaker 6: It's more like let me see if I can.
Speaker 7: I don't know if I can. You know, that kind
Speaker 7: of situation, not like it was before.
Speaker 3: But it's access rather than rate because you could say, oh,
Speaker 3: they'll give it to me it's just costing me too much.
Speaker 6: Yeah, I think it's more access. I think people are
Speaker 6: more reserved with that.
Speaker 4: And as we've seen before, even as the company gets bigger,
Speaker 4: that creates a new set of challenges.
Speaker 7: But with the other challenges that we're facing, competition, but
Speaker 7: also the lending part.
Speaker 6: Getting to that, you know.
Speaker 7: It costs money for an AUDI, you know, it cost
Speaker 7: you have to have a team of CPAs you know,
Speaker 7: you have to have a financial you know, it's more money,
Speaker 7: more you know, income that's that's dedicated to that instead
Speaker 7: of dedicated to equipment and growth.
Speaker 9: So that's where and I don't know, maybe you've seen
Speaker 9: other banks of other companies and internal processes too. For
Speaker 9: on the accounting side, you know, growing so much that
Speaker 9: we were growing twenty five thirty five percent every year
Speaker 9: for the past five six years. But then we got
Speaker 9: to that point where okay, quick books can only do
Speaker 9: so much, right, so we went to an ERP system.
Speaker 9: You know, going to that EP system has been a
Speaker 9: very very hard struggle over a year now try and implement.
Speaker 2: Nobody address that. So that's what also.
Speaker 4: For those of you wondering, an ERP system is basically
Speaker 4: software used to organize a company's finances, supply chain management,
Speaker 4: and a lot more. The reason this is familiar to Tom
Speaker 4: is because not only does he spend a lot of
Speaker 4: his days on the road talking to businesses about stuff
Speaker 4: exactly like this, but he also spent many years at McKenzie,
Speaker 4: the consulting giant before he joined the Richmond Fed.
Speaker 1: That background is one reason he takes such an intro
Speaker 1: in the nuts and bolts of local companies. But what
Speaker 1: does he do with the information that he gets from
Speaker 1: these meetings. At the end of the first day of
Speaker 1: his trip, we sat down with Tom to talk about
Speaker 1: what he'd heard. You know, the town's commerce department says,
Speaker 1: we have to compete with other areas in order to
Speaker 1: attract developers. Or you speak to the head of a
Speaker 1: carport company and they say, well, it's difficult to get
Speaker 1: financing for what we're building here.
Speaker 3: Well, sometimes what I learn is confirmatory, sometimes what I
Speaker 3: learn is new. We had a dinner where we talked
Speaker 3: to a bunch of people about the labor market, and
Speaker 3: what they told me, which was news, was that they're
Speaker 3: still short workers in teaching, in healthcare, in state and
Speaker 3: local government. And you know, that's where most of the
Speaker 3: jobs have been added over the last year, and one
Speaker 3: of the big questions is is that cycle complete or not.
Speaker 3: They sort of sent the message it's not yet complete,
Speaker 3: which is helpful, you know, to know there's still a
Speaker 3: little bit of juice left in the job market. We
Speaker 3: had a conversation with a carport manuf facture and they're
Speaker 3: feeling significant price pressure. And if you care about inflation,
Speaker 3: that's good to know and again maybe confirmatory that on
Speaker 3: the good side, there's still price pressure coming. This housing
Speaker 3: thing is very interesting in terms of shelter costs. Is
Speaker 3: housing availability getting plentiful enough that you can imagine shelter
Speaker 3: costs coming down or is it still tight enough that
Speaker 3: we have a challenge. And so you know, I try
Speaker 3: to bring what I learn in the economy into the
Speaker 3: room at the FOMC and hopefully am able to build
Speaker 3: confidence when I do twenty of these conversations, not just
Speaker 3: one that I learned something about what's happening to goods
Speaker 3: inflation and services inflation and shelter inflation, that I know
Speaker 3: what's happening to the labor market into wages, and I
Speaker 3: have a real time sense of what's happening to demand.
Speaker 3: So that's that's what I'm learning. And you will have
Speaker 3: noted that I asked thirty those questions today, many of
Speaker 3: them off cycle. You know, as I meet somebody right
Speaker 3: before a speech or before I talk, I'll turn to
Speaker 3: them and ask how their business is doing and try
Speaker 3: to see what I can learn.
Speaker 4: For Birken, the anecdote learns from local businesses help to
Speaker 4: supplement and all the official data that DEFED gets constantly,
Speaker 4: things like non farm payrolls, weekly jobless claims, and much more.
Speaker 4: So it's interesting to ask him if he ever sees
Speaker 4: or hears things on the ground before they show up
Speaker 4: in the official data. So you mentioned when we talked
Speaker 4: about the sort of anecdotal learnings or from the examples
Speaker 4: you gave were sort of either confirmatory or maybe informed
Speaker 4: something at the margins, like okay, maybe there's still more
Speaker 4: juice on the public sector for labor side. How often
Speaker 4: does it come up where people will start consistently saying
Speaker 4: something that, oh, this is really not showing up in
Speaker 4: the data yet, and it's sort of an early signal
Speaker 4: of something that later on you say, yep, there it
Speaker 4: is playing out in the numbers.
Speaker 3: I'd say every quarter there's something like that. So in
Speaker 3: the fourth quarter last year, in October, you may remember,
Speaker 3: the numbers were really really frothy, and I wasn't hearing
Speaker 3: any of that in the market. Actually came out and said,
Speaker 3: that's just not consistent with what i'm The inflation numbers, know,
Speaker 3: the demand numbers, the consumer spending numbers, retail sales numbers
Speaker 3: were very fraud the that's not consistent. I'd say today.
Speaker 3: We just got a retail sales report recently that was
Speaker 3: quite strong, and I'm hearing decent consumer spending. I'm not
Speaker 3: hearing that strong. Maybe I'll be proven wrong by the
Speaker 3: time this errs, but you know that's what I'm hearing.
Speaker 3: I do hear things that are different, and then i'd
Speaker 3: hear some number of things that are in advance. May
Speaker 3: of twenty twenty in Bristol, Tennessee opened, Virginia wasn't open.
Speaker 3: It was right at the end of the first part
Speaker 3: of COVID, and I talked to a developer who said, oh,
Speaker 3: I got the malls are packed. And that was before
Speaker 3: any of us knew that the opening of the economy
Speaker 3: would lead to that kind of spending. That's a good
Speaker 3: example I'll also get a reasonable amount of i'll call
Speaker 3: it segment specific information. You know, how our higher income
Speaker 3: consumers thinking versus lower income consumers, or what's the job
Speaker 3: market for professionals versus skilled trades, and so the overall
Speaker 3: number may be the same, but you'll get some insight
Speaker 3: into what's really driving it.
Speaker 1: While gathering information to supplement his data, the folks he
Speaker 1: talks to are also learning from him. Something we saw
Speaker 1: over and over again on our trip to North Carolina
Speaker 1: is that people are just fascinated by what the FED
Speaker 1: actually does and how it works. And at a time
Speaker 1: when inflation is still running above target and there's still
Speaker 1: a lot of doubt about the direction of the economy,
Speaker 1: there are more questions than ever about what the FED
Speaker 1: is doing.
Speaker 4: Obviously, everyone wants to know where interest rates are heading,
Speaker 4: but they also want to know what other businesses are saying,
Speaker 4: what the Fed's hearing, and crucially, how the FED processes
Speaker 4: all that information. So these trips are not just a
Speaker 4: chance for business leaders to tell a FED president what
Speaker 4: they think. They're also an opportunity to find out what's
Speaker 4: on his mind and get their own questions answered. More
Speaker 4: on that in our next segment.
Speaker 10: I think we'd love it sooner by j Nuts.
Speaker 1: Welcome to the Winston Salem Rotary Club's weekly luncheon. This
Speaker 1: week's guest speaker is, of course, Tom Barkin.
Speaker 4: Tracy, I'm glad we finally figured out what a rotary
Speaker 4: club is.
Speaker 1: Yeah, I had this sort of vague idea in my mind,
Speaker 1: but I had to look it up to It is
Speaker 1: a society of I would say, civic minded people who
Speaker 1: meet regularly to network and take on some community projects.
Speaker 6: About the community.
Speaker 12: I felt like every week dot Com I learned something
Speaker 12: about my city that I didn't have there.
Speaker 2: That's cool.
Speaker 4: The Winston Salem Rotary Club has been going on for
Speaker 4: more than one hundred years, all the way back to
Speaker 4: when Winston Salem was basically cigarette central. Today, driving around
Speaker 4: Winston Salem, I'm pretty sure we saw more vineyards and
Speaker 4: breweries than we did tobacco fields.
Speaker 10: So please give Tom Barkin a warm welcome.
Speaker 1: As part of his trips around the Richmond Fed District,
Speaker 1: Barkin often speaks to local business groups and societies, giving
Speaker 1: his regular stump speech about the state of the economy.
Speaker 3: Thanks Chris, I appreciate that advertisement. So it's great to
Speaker 3: be back in Winston. I'm a proud deacon parent.
Speaker 1: But the reason he enjoys doing it is for the
Speaker 1: Q and a portion afterwards. Taking questions from the audience
Speaker 1: members helps reveal what's really on people's minds.
Speaker 3: I want to know it because I do think this
Speaker 3: two way interchange on the economy is really quite valuable.
Speaker 4: Even if you're a regular watcher of the FED, you
Speaker 4: can learn a lot from this discussions.
Speaker 13: A flavor of which your int free media and you
Speaker 13: had me favor not me, Midmar, very beautiful.
Speaker 3: You know what I'm mostly interested in is real time information.
Speaker 3: You're trying to figure out what's actually happening in the marketplace.
Speaker 3: So I get credit cards spending every week year, every year,
Speaker 3: and during COVID I got pretty calibrated on what that
Speaker 3: means in terms of retail sales. But that's something I
Speaker 3: look at closely to try to get a sense of
Speaker 3: demand consumer spending. Seventy percent of the economy. On the
Speaker 3: labor market, the job support that comes out every month
Speaker 3: is clearly the best, most secure thing. But I take
Speaker 3: some comfort from the weekly jobless claims because it's at
Speaker 3: least a real time measure of whether layoffs are accelerating,
Speaker 3: which is what you'd see if the economy turns out.
Speaker 3: And I think you kind of get the point I'm
Speaker 3: trying to figure out, is there any risk of the
Speaker 3: economy turning? That's really what I focus on In terms
Speaker 3: of the meeting. Maybe I'll give you a ten day
Speaker 3: look at it rather than just the meeting itself, because
Speaker 3: the weekend before ten days before the meeting. The weekend
Speaker 3: ten days before the meeting, we'll get the staff does
Speaker 3: a two hundred page vertical text, greatest analysis the economy
Speaker 3: you've ever seen, and it'll include domestic and international and
Speaker 3: financial markets and lending markets, and different scenarios for where
Speaker 3: the economy might go, and different monetary policy operations, and
Speaker 3: so it's a brilliantly done piece of work.
Speaker 1: Wouldn't it be cool to see that two hundred page
Speaker 1: FED staff analysis of the economy.
Speaker 4: Definitely, But I'll settle for the speeches and meetings.
Speaker 3: At the same time, Jay Powell sends around his first
Speaker 3: draft of what the statement might be, and so we
Speaker 3: work all weekend and into the week debating how we
Speaker 3: want to talk about the economy and whether we like
Speaker 3: that statement we'll offer. Jay, I'm giving this background, so
Speaker 3: you understand that, I mean, we'll give offer Jay our
Speaker 3: perspective on the statements. He always likes, mind best that
Speaker 3: it's not actually true the statement. I'm making the point,
Speaker 3: the statement that we issue the Wednesday of the meeting
Speaker 3: has largely, not always, but largely been pretty well vetted
Speaker 3: by the time you get to the meeting, So we
Speaker 3: don't go to the meeting and try to line edit
Speaker 3: a statement. For the most part, every time that the
Speaker 3: chair has a bad press conference, that's because we've line
Speaker 3: edited the statement in the meeting and we send him
Speaker 3: out there two hours after the meeting to go defend it,
Speaker 3: which is I think, in my judgment, a little bit
Speaker 3: of malpractice. But we do it.
Speaker 6: Sometimes.
Speaker 3: In the meeting itself, there's often a special topic, and
Speaker 3: so the staff will present some papers on a special
Speaker 3: topic and we'll have a debate about it. Then we
Speaker 3: all go around and talk about economic conditions. So I'll say,
Speaker 3: I've been in the district for the last seven weeks,
Speaker 3: and here's what I think I've learned, and here's what
Speaker 3: I take solace from in the recent data. And here's
Speaker 3: what I think you know are some interesting conclusions you
Speaker 3: might not have otherwise thought about. Then we all talk
Speaker 3: about the statement. Pretty productive meeting. It's a reasonably formal meeting.
Speaker 10: It's not.
Speaker 3: It's not really flippant. There's not tons of humor in there.
Speaker 3: You know, it's a it's a pretty serious mean. But
Speaker 3: it's also every every word is transcripted, so if you're
Speaker 3: having trouble sleeping, you can go get them from five
Speaker 3: years ago and read through both.
Speaker 4: About thirty miles west of Winston Salem, then half an
Speaker 4: hour's drive south from Mount Airy is Yatkinville in yet
Speaker 4: In County, population thirty seven thousand, seven hundred, and for
Speaker 4: the better part of the past decade that population has
Speaker 4: been shrinking.
Speaker 1: It's day two of Tom's North Carolina tour and we're
Speaker 1: starting off at the offices of textile manufacturer in Deira Mills.
Speaker 6: It works, it's worth a real good look.
Speaker 7: Well.
Speaker 3: One of the ways we pick our where we visit
Speaker 3: is when you hear there's something interesting going on. And
Speaker 3: we talked to the Sirri yak And Works yesterday up
Speaker 3: in Surrey County. Yeah, and then we thought that would
Speaker 3: be interesting today. And then we try to find the
Speaker 3: big employers in a market.
Speaker 14: Well We're not a big employer, but we're pretty unique.
Speaker 6: We've got a good story to tell.
Speaker 4: That's John Willingham, the fourth generation owner of India Mills
Speaker 4: in Yadkinville. His company can trace its history back over
Speaker 4: one hundred years, all the way back to Colonel Francis
Speaker 4: Henry Freese, who is the first president of Lacovia Loan
Speaker 4: and Trust, which eventually grew to be one of the
Speaker 4: biggest banks in the US before being bought by Wells
Speaker 4: Fargo in two thousand and eight. In addition to banking,
Speaker 4: the colonel started a bunch of textile businesses in the
Speaker 4: early nineteen hundreds.
Speaker 1: Right because North Carolina used to be a global player
Speaker 1: in textiles. There were mills in almost every single one
Speaker 1: of the state's counties as recently as the nineteen nineties,
Speaker 1: and just thirty years ago, those mills were employing some
Speaker 1: two hundred and eighty thousand workers, but that started to
Speaker 1: change as global competition heated up and companies moved production
Speaker 1: outside of the US. Today, there's just an estimated thirty
Speaker 1: nine thousand textile workers in the state.
Speaker 14: We migrated up here in nineteen ninety eight. We were
Speaker 14: in one hundred year old facilities in Western settem and
Speaker 14: this was a good community. We already had satellite plants
Speaker 14: up here, so we came to Yakinville and then we
Speaker 14: got on board with NAFTA and moved our manufacturing a
Speaker 14: lot of our labor work to Mexico.
Speaker 3: And is that I managed to survive the whole exact
Speaker 3: trauma that happened around here.
Speaker 6: That's exactly why.
Speaker 14: So what we kept here in Yakinville is a back office, functions,
Speaker 14: design work, and distribution. So all of our labor work
Speaker 14: is in Mexica. We have plants in Monera, Mexico.
Speaker 1: So Yakinville was a big mill town once upon a time,
Speaker 1: but like lots of places in America, this particular type
Speaker 1: of manufacturing just got hollowed out.
Speaker 4: In Dera survived in part by outsourcing its production. They
Speaker 4: also started specializing in thermal underwear and tracy. I just
Speaker 4: have to say I love thermals anyway, today you can
Speaker 4: buy in Deer's Thermals and places like tractor supply and
Speaker 4: exporting goods.
Speaker 6: We realized that to survive we needed a niche. We
Speaker 6: needed something.
Speaker 14: That we could control, and that was a very small
Speaker 14: market and not a very interesting one for a lot
Speaker 14: of larger players like Hange of Gildan for the looms,
Speaker 14: so we picked thermal underwear and we became sort of
Speaker 14: the go to.
Speaker 6: People in thermal underwear.
Speaker 14: It's a highly seasonal business, or coires a lot of
Speaker 14: working capital because we built inventory all year and that
Speaker 14: keeps people out of it.
Speaker 6: And who do you sell into?
Speaker 2: Do you sell? Do you brand yourself?
Speaker 6: Do you sell it?
Speaker 14: We do mostly our brands, but we also do private label.
Speaker 14: We like to tell people that we do everybody but Walmart.
Speaker 1: Now, just like with the carport business, pricing is obviously
Speaker 1: an issue in the apparel industry too. If you look
Speaker 1: at apparel in the Consumer Price Index, you can see
Speaker 1: clothing inflation basically peaked at more than six percent year
Speaker 1: on year back in twenty twenty two, but in more
Speaker 1: recent months, inflation and apparel has been kind of moderating.
Speaker 1: It came in at zero point four zero percent in March,
Speaker 1: and that's kind of been the story of inflation across
Speaker 1: the US recently. Housing costs and services keep going up,
Speaker 1: but some goods like apparel, aren't seeing quite the same
Speaker 1: kind of pricing increases anymore.
Speaker 4: Endearer's experience also says something about post pandemic demand. It's
Speaker 4: basically ridden a roller coaster here. When COVID struck, it
Speaker 4: started making face masks, but demand for masks went away.
Speaker 4: Is the pandemic petered out and people aren't buying thermals
Speaker 4: like they once were either.
Speaker 14: We were the very first people to make man I
Speaker 14: mean we were like the day after the shut down,
Speaker 14: and we couldn't we couldn't get off the telephone. It
Speaker 14: was everybody from American airlines to Centas uniforms. They all
Speaker 14: wanted masks, and so we we just did.
Speaker 6: Everything we could do. By June, it was parent that
Speaker 6: that wasn't going to last.
Speaker 14: When the economy started to come back, it was so
Speaker 14: strange because demand was this outh roof.
Speaker 6: There was a lot of.
Speaker 14: Money in the consumer's hands and they were buying anything
Speaker 14: and everything. They were buying online like crazy, and so
Speaker 14: there was a surge of business that occurred, and we
Speaker 14: were all chasing it as hard as we possibly could.
Speaker 14: We were just you know, we were blind to the
Speaker 14: fact that this was an artificial situation and it wasn't
Speaker 14: going to last.
Speaker 6: We were riding the wave, and then.
Speaker 14: It caught up with itself and there was a letter
Speaker 14: a crash. Obviously, inflation had gone crazy.
Speaker 2: But that's now we're in late twenty one, early twenty two.
Speaker 14: Exactly, and demand just fell off. Our largest customer at
Speaker 14: that time, Amazon.
Speaker 6: Just shut the books. They were so overstopped because they
Speaker 6: had been chasing it, just like all of us, everybody.
Speaker 1: Joe Indarra Mills is also where we learned there's basically
Speaker 1: a Jones Act for textiles. It's called the Bury Amendment.
Speaker 1: Here's Tom and John talking about that, as well as
Speaker 1: the company's decision to move their textile production out of
Speaker 1: the US.
Speaker 3: I know I know the answer this question, but I'm
Speaker 3: going to ask because I get asked a lot, which is,
Speaker 3: did you consider moving it back to the States.
Speaker 2: No, and just give us your logic.
Speaker 13: It was.
Speaker 14: This skill level is just not here anymore. When we
Speaker 14: closed out sewing here in nineteen ninety four AFT I
Speaker 14: believe it was ninety four. When after it came in,
Speaker 14: we had three hundred people here and yet can feel
Speaker 14: sewing and.
Speaker 6: They were they were gone instantly. They found other.
Speaker 14: Jobs to bring that labor force back and to train
Speaker 14: it and to pay not just the base but all
Speaker 14: the fringes and all the ancillary costs to go with it.
Speaker 6: We would not be competitive. I just say it.
Speaker 14: Now, you're from me with a Bury Act, which is
Speaker 14: products that have to be made into US because of
Speaker 14: government requirements, whether it's a.
Speaker 6: Military sort of think. There are manufacturers of our.
Speaker 14: Type of product on a small scale here because of
Speaker 14: the Bury Act.
Speaker 6: They made flags and they make uniform lots of military.
Speaker 14: We chose not to get into that, but we would
Speaker 14: not be able to bring our company, the labor part
Speaker 14: of our company back to the to the States. It's unfortunate.
Speaker 14: I mean, it broke our hearts when we had to move,
Speaker 14: but we either moved or are.
Speaker 2: So it happened.
Speaker 11: I did.
Speaker 4: But even after outsourcing production in Mexico, a company like
Speaker 4: Indira isn't sitting still and they're currently shifting manufacturing again.
Speaker 6: We're leaving Mexico. Oh to go where else?
Speaker 2: Our door?
Speaker 1: Oh that's interesting, Yeah, you're sort of a lot of
Speaker 1: companies are just now moving into Mexico.
Speaker 2: Well, John is.
Speaker 6: Mexico.
Speaker 14: We were in Mexico twenty five years in Monterey, Mexico.
Speaker 14: I don't know if you've ever been there.
Speaker 6: It's quite a city.
Speaker 14: You could be dropped in there and you would think
Speaker 14: you were in Atlanta or somewhere, But we've seen it
Speaker 14: grow up in twenty five years from carts and buggy,
Speaker 14: horse and buggy to modern highways and everything. Inflation is
Speaker 14: pretty serious there. Of course, everything is unionized there, so
Speaker 14: you're dealing with an element that we don't have to
Speaker 14: focus on.
Speaker 15: Now.
Speaker 6: We have Makuila doors, so we don't we.
Speaker 14: Just contract for labor, we don't own it, we don't
Speaker 14: know pay directly. But inflation is pretty tough there, and
Speaker 14: they've essentially priced us out.
Speaker 4: And so when Deer has been able to survive in
Speaker 4: the mill business in part by adapting to these new challenges.
Speaker 4: But there are still some complications that come from being
Speaker 4: based in the small town.
Speaker 2: Housing.
Speaker 14: Housing shortage here is is dramatic and it hurts. It
Speaker 14: hurts the manufacturers here, it hurts the economy. Small town
Speaker 14: America is a special place to live. And I consider
Speaker 14: you active.
Speaker 6: A small town.
Speaker 14: I mean, the values are so great, the work ethic,
Speaker 14: just knowing everybody in town first named basis, fewer fears
Speaker 14: and of certain things.
Speaker 6: So it's a it's a cool place to live small town.
Speaker 6: But you've got to you've got to be successful as a.
Speaker 14: Small town, you need good progressive government, and you need
Speaker 14: a base of businesses, a few large businesses.
Speaker 6: A lot of small medium sized businesses.
Speaker 14: You need, you need culture, uh, you need, you need
Speaker 14: the elements that make life enjoyable.
Speaker 1: Yeah, Kinville isn't alone here. We heard similar things in
Speaker 1: Mount Airy too. Smaller towns may have cheaper land for construction,
Speaker 1: but that doesn't mean developers are flocking to them. Here's
Speaker 1: Tom talking to us about exactly this.
Speaker 3: You know, every small town is competing for developers, and
Speaker 3: there's a limited number of developers that gave a speech
Speaker 3: on this in November, and developers care a lot about
Speaker 3: availability of cheap land. Developers care a lot about permitting
Speaker 3: and infrastructure in the land, and developers have the ability
Speaker 3: to choose. And so what they told us here is
Speaker 3: if you go a little bit further south, where it's
Speaker 3: closer to an interstate, the developers are prioritizing there.
Speaker 7: Now.
Speaker 3: They had a bit of a roadshow for developers and
Speaker 3: they think they're making some progress. So that says something
Speaker 3: about what a community can do in terms of proactively
Speaker 3: seeking developers. And I think that's actually a pretty important thing.
Speaker 3: If you want housing built in your community.
Speaker 4: I find this actually to be like a kind of
Speaker 4: fascinating dynamic, right because in my mind you would think
Speaker 4: of like the developers are all competing against each other
Speaker 4: to find the cheapest land available or whatever it is.
Speaker 4: But this idea that from maybe like a community standpoint,
Speaker 4: it's the other way around arguably, and that it works
Speaker 4: and such that they need to basically pitch the developers
Speaker 4: on coming here.
Speaker 3: Yeah, So after the Great Recession, what happened is a
Speaker 3: lot of developers went under and left the business, a
Speaker 3: lot of banks stopped financing development. We underbuild housing for
Speaker 3: a decade, so we're light developers. In addition, what's happened
Speaker 3: during the post pandemic era is there's been so much
Speaker 3: construction going on, not just houses, but also data centers
Speaker 3: and warehouses and state, local government, educational that we're short
Speaker 3: construction people too. And so you know, if you took
Speaker 3: the entire economy, you'd say, we're actually really short construction capacity.
Speaker 3: And that's what leads to it. It's an adjustment issue.
Speaker 3: It doesn't mean it's a permanent problem, but it is
Speaker 3: right now an adjustment issue. And if you're short housing
Speaker 3: in your community, you really need that housing to get
Speaker 3: launched today.
Speaker 1: So towns like Yatkinville and mount Airy are doing what
Speaker 1: they can here by proactively courting developers and experimenting with
Speaker 1: new models for childcare to course correct for that ongoing shortage.
Speaker 15: And there just isn't enough childcare. When we did the
Speaker 15: study in twenty twenty one, Yatkin County was the third
Speaker 15: worst in the state for the number of children according
Speaker 15: to I think Babi's report for the number of infants
Speaker 15: in toddlers per slot, we're about nineteen two. One side
Speaker 15: why is that there has been a huge reduction in
Speaker 15: the number of childcare providers. It's like eighty two percent
Speaker 15: have reduced within the last twelve years.
Speaker 2: So it's so it's.
Speaker 15: Been shrinking partially because it is difficult to maintain a
Speaker 15: license to get the star rating. Star rating is like
Speaker 15: a quality rating, and here for private providers, we don't
Speaker 15: other than one family home in the western part of
Speaker 15: the county, there are no four or five star rated
Speaker 15: childcare providers.
Speaker 4: That's Sandy Scanelli of the shallow Ford Foundation. She's spearheading
Speaker 4: a new type of childcare model that would see providers
Speaker 4: pool and share resources like buildings, playgrounds, and operations to
Speaker 4: help load their costs. Tom met with her as part
Speaker 4: of his tour of the county. So typically speaking, a
Speaker 4: childcare provider would have to do the legwork of like
Speaker 4: finding the location and furnishing it and building it out itself. Yes,
Speaker 4: and so the main right and so the main thing
Speaker 4: that this solved sounds like is just like they just
Speaker 4: have to rent this. They can focus on what they
Speaker 4: do taking care of children without having a tour about
Speaker 4: all these other ancillary things to get the physical.
Speaker 15: Because licensing is both for the individual as well as
Speaker 15: for the facility. And when we did our study, what
Speaker 15: we found is that I'll give you an example. One
Speaker 15: of the playgrounds needed new mulch. It was going to
Speaker 15: cost eight thousand dollars to replace the mulch. That's the
Speaker 15: key licensing factor is you have to have six inches
Speaker 15: of fluffing mulch. And so every time it rained, they
Speaker 15: were running outside with pitchworks to fluffuck the mulch. Well,
Speaker 15: those kinds of stresses are a distraction, honestly from managing
Speaker 15: that facility. So to have the facility taken care of
Speaker 15: and maintaining that license really allows more focus on the childcare.
Speaker 10: Smart starts only doing the facility. It's not an other
Speaker 10: shared cost model like.
Speaker 15: HR that sort of Actually no, they will also offer
Speaker 15: back on support to each of those businesses if they
Speaker 15: are interested in it. Part of this.
Speaker 4: So the hope is that if some of the back
Speaker 4: end can be centralized, then the actual childcare providers can
Speaker 4: focus on what they do best, providing childcare and reversing
Speaker 4: the decline in total capacit.
Speaker 1: And of course this isn't just a small town problem.
Speaker 1: A shortage of childcare providers and high housing costs, all
Speaker 1: of which contribute to inflation, is pretty much the story
Speaker 1: across America's economy. At our next stop, we talked to
Speaker 1: one of the largest employers in the county and see
Speaker 1: how all the things we've talked about labor, housing prices
Speaker 1: have impacted them as well.
Speaker 10: Hi, thank you, Hi, welcome, Welcome to Unified.
Speaker 4: Hie Tracy allow Eddie, I'm Joe Wise great to make Eddie,
Speaker 4: Eddie Ingle and the CEO of Grace.
Speaker 2: And thereby calls from Sweden.
Speaker 1: Just a few minutes away from Indarram Mills is the
Speaker 1: Yatkinville factory for Unify, a publicly listed manufacturer of polyester
Speaker 1: nylon and spandex yarns. It's headquartered in Greensboro, but it
Speaker 1: has a pretty big facility here in Yachtkinville.
Speaker 4: It is a big facility. There is a huge recycling
Speaker 4: center where Unified turns plastic bottles into a recycled fiber
Speaker 4: and calls Reprieve. There are big trucks parked outside that
Speaker 4: say bottles equal cool stuff, and there's cool stuff inside too,
Speaker 4: including a showroom showing off some of Unified materials even.
Speaker 2: Where it comes from.
Speaker 12: The absolutely Reprieve is a product that we have now
Speaker 12: that we take recycled plastic bottles and is chopped up
Speaker 12: almost a lot of plastic corn flakes. At our reasonable
Speaker 12: facility is cleaned, we separate the green and the brown
Speaker 12: plastic from the clear in the blue. We use the
Speaker 12: clear in the blue plastic in our yarn.
Speaker 1: That's Smith Williams Unifies hr Manager, but everyone calls them smitty.
Speaker 12: But the clear and the blue plastic is shipped here
Speaker 12: to our recycle center where it goes through another process
Speaker 12: becomes pet.
Speaker 2: This is from REDS and is pt REDS and.
Speaker 12: Then we take it and it is in lock plastic
Speaker 12: bbes and it is melted and extrude, it goes through
Speaker 12: large shower hands and as it falls five floors it
Speaker 12: becomes a solid again.
Speaker 4: That plastic yarn is then sold to companies like Nike, Patagonia,
Speaker 4: A six and others who weave it into their products.
Speaker 10: In this country, only about twenty eight percent of the
Speaker 10: bottles are.
Speaker 5: Collected, and when we get a bail of bottles, if
Speaker 5: we get around fifty six percent yield, because the collection.
Speaker 1: System here is not and that's Unified CEO at ee Ingle.
Speaker 1: Bigger companies like Unify haven't been immune to post pandemic
Speaker 1: challenges either. Eddie describes to Tom how the price of
Speaker 1: plastic shot up in twenty twenty one and twenty twenty two,
Speaker 1: including the cost of the plastic bottles that they used
Speaker 1: to make into fabric.
Speaker 5: Marketplace, So that price that bail bottle goes up and
Speaker 5: down significantly. It's been as low as thirteen cents in
Speaker 5: the last six months, it's been as high as eighteen cents,
Speaker 5: but it has been as high as fifty cents two
Speaker 5: years ago. So with a fifty six minute yeld, it
Speaker 5: can get very very expensive, very quickly.
Speaker 10: And that's an average number I've given you.
Speaker 5: But it's the fact that we have to take the bottles,
Speaker 5: and we have to take the caps oft, take the
Speaker 5: labels off, make this flake, and then we have to
Speaker 5: take this flake and make it the chip and their
Speaker 5: year losses are throughout.
Speaker 10: That whole supply chain.
Speaker 5: But it's what's cool is I say this all the time,
Speaker 5: but you've never met a sad recycling. So what we're
Speaker 5: doing here at tracks young people who want to be sustainable,
Speaker 5: want to be purpose rhythm.
Speaker 10: And while yes.
Speaker 5: This raw material is more expensive and the yields are higher,
Speaker 5: we aren't giving the brands what they need.
Speaker 4: So Unify as a lot bigger than many of the
Speaker 4: other local businesses around it. In fact, it's the biggest
Speaker 4: private sector employer in the Edkin County and it's had
Speaker 4: the sort of secular tail end of demand from more
Speaker 4: sustainable fabrics behind it, but it has encountered some similar issues.
Speaker 4: Supply chain disruptions are still kind of reverberating and clouding
Speaker 4: the picture of demand.
Speaker 5: So I'd say from a demand perspective, there was a
Speaker 5: lot of over purchasing and the stocks of all these
Speaker 5: brands and quoted the power brands went way up because
Speaker 5: they basically had this supply chain issue. What used to
Speaker 5: take thirty days from China was taking three months because
Speaker 5: the votes were sitting out there. But everybody started ordering them,
Speaker 5: not just in China, from Vietnam, from India, so they
Speaker 5: had not just long supply chains.
Speaker 10: They over ordered to compensate.
Speaker 5: And then suddenly eighteen months ago, nineteen twenty months ago,
Speaker 5: things started freeing up, so that all the brands globally
Speaker 5: just pulled back on as many purchases as they could,
Speaker 5: and that really impacted us. We're seeing consumer demand for
Speaker 5: our products or down about seven or eight percent, maybe
Speaker 5: six percent, so with.
Speaker 10: The de stocking.
Speaker 5: And not only do de stalking happen, but they said, oh,
Speaker 5: I don't want to spend any of my cash on inventory,
Speaker 5: so they're actually tightening up the supply changes. They're growing further,
Speaker 5: taking more risk than they normally would. But I will say,
Speaker 5: starting really beginning this year, most of the inventory seem
Speaker 5: to be cleared out. So we are seeing business come
Speaker 5: back slowly. Consumers are still constrained a little bit as
Speaker 5: far as what we're reading.
Speaker 10: You got us better than I do.
Speaker 5: But you know that when the COVID happened, everybody jumped
Speaker 5: to a casual and now they're coming back to wearing
Speaker 5: a bit more formal. Oh, I got to go to
Speaker 5: the office. I'm not going to the office. I got
Speaker 5: to go to the office.
Speaker 2: So if I had thought about that, I'd want to
Speaker 2: fleees today.
Speaker 7: Sorry.
Speaker 1: Yeah, And of course, hovering over this entire conversation, there
Speaker 1: is still the question of price.
Speaker 2: But you know, in my day job, I'm worried about inflation.
Speaker 2: I think.
Speaker 3: I think what I take from what you just said is,
Speaker 3: you know, over the last couple of years, we have
Speaker 3: not been your problem.
Speaker 2: You know, our prices have been headed down not.
Speaker 5: I mean I think you know one person's finish with
Speaker 5: to somebody who's very knowledge about this. I think labor
Speaker 5: always goes up no matter what. Yes, but if you
Speaker 5: think about energy here, energy in North Carolina was very,
Speaker 5: very stable for a long time.
Speaker 10: But as.
Speaker 5: Energy companies like two have invested in renewables, they've been
Speaker 5: able to pass that cost on as they should or shouldn't,
Speaker 5: I don't know, but they passed that cost on. So
Speaker 5: our energy costs have gone up, not just because CREU
Speaker 5: has gone off, but because the investment renewables. So we're
Speaker 5: we are very, very energy intensive company. We use a
Speaker 5: lot of energy here, we're involved in trying to negotiate that.
Speaker 3: With exact That took your cost, That took cost practicing
Speaker 3: labour's taking your labor cost package take it.
Speaker 2: Yes, so you're saying prices have actually done about.
Speaker 10: Yes, But.
Speaker 5: When two thousand and twenty one, twenty two happened, we
Speaker 5: had cost escalations because of bail.
Speaker 2: Bottle prices going out of and you've had that, and we.
Speaker 5: Had record it was record, Patrick Chmical prices went up
Speaker 5: to a record if you remember CREWD was out one
Speaker 5: hundred and twenty tw three, maybe one thirty is spike
Speaker 5: for a day. But so all of that got you
Speaker 5: had to put passed off. Yeah, otherwise you wouldn't be here.
Speaker 5: And then but as it crashed and because demand slow down,
Speaker 5: there was pressure to drop pricing. So I think we're
Speaker 5: in this today, this weird spot where everybody knows prices
Speaker 5: have to go up and it's just a matter of
Speaker 5: slowly doing that in a scientific way. And again, where
Speaker 5: is the value, How we capture that, how we price that?
Speaker 10: It is very challenging, you have to say from a
Speaker 10: pricing pre here.
Speaker 1: This is another theme that comes up regularly in Tom's meetings.
Speaker 1: Big and small companies seem to have experienced a lot
Speaker 1: of the economy of recent years in very different ways.
Speaker 1: We asked Tom about this. Do you notice a big
Speaker 1: difference between what larger companies are saying versus smaller companies.
Speaker 11: I do.
Speaker 3: Smaller companies are still struggling to fill workforce jobs. They're
Speaker 3: still struggling to fill jobs, and that's in part because
Speaker 3: there was more wage more capacity to raise wages in
Speaker 3: the larger companies than there were in the smaller companies.
Speaker 3: So when we were with one earlier today, but when
Speaker 3: you go to a smaller company, you do hear that
Speaker 3: kind of constraint being much bigger. During the supply chain
Speaker 3: shortage era, you absolutely heard that the big companies had
Speaker 3: a lot more benefit than the smaller companies. And I
Speaker 3: think when it came to the margin recapture cycle, the
Speaker 3: big companies have led the way on that, and a
Speaker 3: lot of small companies are still saying that they're working
Speaker 3: to recapture margins.
Speaker 4: Being able to compete on wages isn't the only edge
Speaker 4: that larger companies have in the current environment. Many of
Speaker 4: them have also been able to refinance their debt. Contrast
Speaker 4: out with the smaller company Carport Central, which told Tom
Speaker 4: that bank lending is becoming a constraint on its business.
Speaker 1: That might be one reason, according to Tom, that economic
Speaker 1: growth has so far defied the gravity of higher interest rates.
Speaker 1: They just haven't flowed through to some parts of the
Speaker 1: economy just yet.
Speaker 3: Well, so, the data that I keep coming back to
Speaker 3: is interest payments is a percent of either personal disposable
Speaker 3: income or or corporate revenue. And those numbers have only
Speaker 3: now finally gotten back to twenty nineteen levels. And that's
Speaker 3: because a lot of individuals pay down their credit cards
Speaker 3: and refinance their mortgages, and a lot of companies paid
Speaker 3: down their debt and refinance their debt. And so the
Speaker 3: inaggregate impact of having the Fed funds rate at five
Speaker 3: and a third versus you know, where it was basically
Speaker 3: at zero hasn't really flown through the aggregate economy. Now,
Speaker 3: it's certainly flown through to individual parts of the economy.
Speaker 3: And you know, the most surprising things to me, you know,
Speaker 3: obviously the residential market, where you've got the three percent
Speaker 3: mortgage holders who don't want to trade into a seven
Speaker 3: percent mortgage and are unwilling to sell their house. But
Speaker 3: behind that is that you know, ninety two percent of
Speaker 3: mortgages are fixed rate. Okay, so that's different than what
Speaker 3: the economy was fifteen years ago. In commercial real estate,
Speaker 3: you know, multifamily, you hear about a set of people
Speaker 3: who really can't develop anymore, want to turn in the keys,
Speaker 3: whatever version of it, and another set of people who
Speaker 3: are owners who are feeling actually just fine.
Speaker 4: And unifies experience underscores that big refinancing trend. They refinanced
Speaker 4: their debt in twenty twenty two and it has since
Speaker 4: been investing in new equipment.
Speaker 5: From a balancing point of view, I feel pretty good
Speaker 5: where we are, but it is impacting us because we
Speaker 5: knew we were going to take on debt with this
Speaker 5: new investment, and the investments based on equipment that was
Speaker 5: really new and really differentiated. It's we'd had a spike
Speaker 5: in capital capex for like three years and it was
Speaker 5: on new equipment that was very, very different from what
Speaker 5: we could have bought a few years earlier. And we've
Speaker 5: been developed it.
Speaker 2: Well, you guys are great to make the time. We
Speaker 2: really appreciate it.
Speaker 5: I just want I'm going to make it since you
Speaker 5: walk out there just seem just look your head out
Speaker 5: of episode.
Speaker 1: UNIFS Factory was the last stop for us, but not
Speaker 1: for Tom. As we made our way to the airport,
Speaker 1: he was already back in the car and on his
Speaker 1: way to Greensboro for the next leg of his listening tour.
Speaker 1: Barkin spends about two to three weeks of every month
Speaker 1: on trips just like this one, which means that most days,
Speaker 1: if he's not getting ready for the next FOMC meeting
Speaker 1: in DC, he's in the car, or at another luncheon,
Speaker 1: or taking one last look at another factory floor back and.
Speaker 5: Automaticly, yeah, all the way again.
Speaker 10: I saw that you wouldn't.
Speaker 9: You have to say it?
Speaker 13: So let's do we make stuff.
Speaker 5: That's what we did. We make crop Star.
Speaker 11: Well.
Speaker 2: I love that.
Speaker 4: So after two days on the road with a Fed
Speaker 4: Bank president, what did we learn? Well, on the one hand,
Speaker 4: there are some businesses that seem to be doing fine
Speaker 4: in this environment. Meanwhile, others are struggling with the impact
Speaker 4: of higher rates and moderating demand. All of these veried
Speaker 4: individual experiences are one reason why it seems particularly challenging
Speaker 4: right now to figuregure out what's going on with the
Speaker 4: larger economy. One of the questions that I think people
Speaker 4: are scratching their head is how did the FED raise
Speaker 4: rate so much and yet the economy hasn't slowed down
Speaker 4: as fast as people expected.
Speaker 3: Well, I've done it intentionally over the last three months,
Speaker 3: probably fifteen different sessions with real commercial real estate groups,
Speaker 3: because they're definitely feeling the impact of rates, and I
Speaker 3: want to hear from those segments. When you talk to banks,
Speaker 3: which I do a good bit, you also hear the
Speaker 3: same thing. I was very interested because in theory, higher
Speaker 3: rates should you know, hit the whole economy relatively quickly.
Speaker 3: It starts with intra sensitive sectors like real estate and banking,
Speaker 3: but historically manufacturings followed pretty closely, and I haven't heard
Speaker 3: that much on the manufacturer side, So it was very
Speaker 3: interesting to hear these guys talk about how creat availability
Speaker 3: was constraining their ability to grow. Now you know they've
Speaker 3: had some margin challenges, which you know they talked about
Speaker 3: that could be relevant. And I do think the banks
Speaker 3: I talked to will talk quite openly about tightening credit,
Speaker 3: and part of that is just being prudent. You know,
Speaker 3: in a world of uncertainty, you hear about it, but
Speaker 3: then you get to see it, right, So now we
Speaker 3: have in the economy. It's not just what people are
Speaker 3: saying might happen, there's some evidence that actually is happening.
Speaker 1: Complicating the whole picture is also the overarching weirdness of
Speaker 1: the post pandemic business cycle and the long term impact
Speaker 1: that the pandemic experience may have had on businesses. This
Speaker 1: is something Tom talks about a lot. I'm curious if
Speaker 1: there are any lessons that businesses you speak to seem
Speaker 1: to have internalized from the past few years the post
Speaker 1: pandemic experience. So we used to talk a lot about
Speaker 1: the idea of labor hoarding. Everyone was caught short during COVID,
Speaker 1: so they hired a lot and they're terrified of having
Speaker 1: to go through, you know, the same scarcity of labor again,
Speaker 1: or the experience of raising prices and testing that elasticity
Speaker 1: of demand. Are those things that people seem to have
Speaker 1: actually internalized in your mind?
Speaker 3: Yeah, So maybe three things that come to mind supply
Speaker 3: chain resilience. If you had everything in China before, you
Speaker 3: have to ask yourself the question how smart that is?
Speaker 3: And so I see everywhere people diversifying their supply chain
Speaker 3: more near shoring than onshoing, but still or in certainly
Speaker 3: Thailand and Vietnam, you know, in Indonesia playing a role too.
Speaker 3: That's very clear. Second is I think a new respect
Speaker 3: for the scarcity of labor. We lived in a world
Speaker 3: where labor was long for a long time. Now it's short.
Speaker 3: You talked about labor hoarding, but I think it's even
Speaker 3: more than that. It's about investment and benefits and compensation
Speaker 3: on a continuous basis. By the way, on the other
Speaker 3: side of that, there's investment in automation that's going on
Speaker 3: as well, but new respect for the scarcity of labor.
Speaker 3: And then I do think on the pricing side. You know,
Speaker 3: I've been talking about this for a while, but there's
Speaker 3: a bunch of businesses that before COVID knew they had
Speaker 3: no chance to increase prices, and then COVID happened, supply
Speaker 3: chain trunk labor costs increase, they had no choice. They
Speaker 3: went from having no chance to have a no choice,
Speaker 3: and when they raise prices there were no squences, right,
Speaker 3: And so we'd like to be on the other side
Speaker 3: of that where they really thought there wasn't any chance
Speaker 3: to raise prices again, but I'm not sure they're done.
Speaker 3: And if they're not done, part of it is they're
Speaker 3: trying to recapture margins. Part of it is they're just
Speaker 3: a little more courageous. I talked to a furniture manufacturer
Speaker 3: a couple days ago who just said, yeah, you know,
Speaker 3: I used to just give in, but now I'm just
Speaker 3: a little bolder. I've had the experience of raising prices.
Speaker 3: I'm a little bolder, and I think it just takes
Speaker 3: a while to get from no consequences all the way
Speaker 3: back to no chance again.
Speaker 1: And that's ultimately Tom's message. In this part of North
Speaker 1: Carolina and beyond, economic scars can linger for a long
Speaker 1: time and play out in unexpected ways. There's still an
Speaker 1: undersupply of housing in places like Yadkinville and Mount Airy,
Speaker 1: in part because of the two thousand and eight financial crisis,
Speaker 1: not just twenty twenty and the higher interest rates after that. Meanwhile,
Speaker 1: the hollowing out of manufacturing in this area and other
Speaker 1: parts of the US has been going on for decades. Now,
Speaker 1: companies might be more aware of supply chain disruptions and
Speaker 1: labor shortages, and they may be more willing to raise
Speaker 1: their prices to offset them too, which could add to inflation.
Speaker 4: All of that creates difficulties for the FED, which is
Speaker 4: still trying to balance inflation and unemployment in both big
Speaker 4: and small towns across America. It has its data, and
Speaker 4: it can attempt to assume some relationship between things like prices,
Speaker 4: labor market tightness, and so forth, but it's hard to
Speaker 4: know what that lingering psychological effect of the past few
Speaker 4: years might be, let alone, what aspects of the economy
Speaker 4: still have yet to be normalized. And if you think
Speaker 4: about somewhere like the Richmond FED District, which has both
Speaker 4: booming cities and deep rural areas, trying to gauge the
Speaker 4: disparate effects that a given and policy change might have
Speaker 4: gets even trickier. See after seeing all that, I'm not
Speaker 4: sure how good we would be at the rate setting
Speaker 4: part of the job of being a FED president. That
Speaker 4: seems pretty tough. But I actually think we'd be pretty
Speaker 4: good at the asking questions of business's part.
Speaker 1: Yeah, I would not want to be voting on policy moves,
Speaker 1: but I did like how odd lotsy, let's say, a
Speaker 1: lot of Tom's questions actually seem to be I feel
Speaker 1: like we could do that. Shall we leave it there?
Speaker 10: Let's leave it there.
Speaker 1: This has been another episode of the All Thoughts podcast.
Speaker 1: You can follow me at Tracy Alloway and.
Speaker 4: I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 4: Thank you to Tom Barkin and the Richmond Fed, Jim
Speaker 4: Strader and Maya Caatello for their help in putting together
Speaker 4: this episode. You can follow them at Richmond Fed. Follow
Speaker 4: our producers Carmen Rodriguez at Carmen armand dash O Bennett
Speaker 4: at Dashbot and Cale Brooks at Cale Brooks. And thank
Speaker 4: you to our sound engineer Blake Maples.
Speaker 1: And a special thank you to all the businesses who
Speaker 1: participated and let us listen in on their conversations with
Speaker 1: Tom Barkin and let us join their meetings and even
Speaker 1: ask our own questions. If you enjoyed this episode, if
Speaker 1: you like it when Joe and I go on the road,
Speaker 1: then please leave us a positive review on your favorite
Speaker 1: podcast platform. Thanks for listening.