Economics expert addresses Kiwanis Club

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At the May 6, meeting of the Roxboro Kiwanis Club at La Piazza restaurant, club member Mitzi Thomas announced that a K-Kids club has been established at Southern Middle School, and its charter will soon be presented to principal Patrick Holmes.

Teresa Bailey received a contribution from the club for the Backpack Pals program. She indicated that 285 students are being served this year. It serves all the elementary schools and both middle schools, and may possibly be expanded to the high school next year. Eligibility is determined in consultation with the school counselors and teachers, in order to identify students who could benefit from healthy foods to take home for the weekend, when they will not have access to school food service.

Dr. Mike Walden, a William Neal Reynolds Distinguished Professor of Economics at North Carolina State University, made his annual appearance to update the club membership on the status of the state and national economies. He said that at the end of last year, things were uncertain. The stock market experienced a correction and there was a government shutdown in early 2019. However, he disagrees with those who predict a recession at the end of this year.

A preliminary forecast for GDP growth was just released by the government, indicating 3.2% for the first quarter, which is quite good. The latest job report for April revealed 263,000 net new jobs created. The present 3.6% national unemployment rate is the lowest in 49 years. Walden believes that the all-time record for sustained economic growth between recessions will likely be set in 2019, since June of this year will mark the 10th anniversary of the last recession.

Economist Kevin Hassett, chair of the President’s Council of Economic Advisors, has been on target with his predictions about the strength of the economy. Hassett argues that the tax cut of 2017 is a large factor in this. He contends its main purpose was to motivate businesses to invest in technology and machinery, which has also resulted in some wage growth in excess of inflation. This translates into increased consumer spending, which makes up 70% of all economic spending. This legislation also allowed all business technology and machinery investment to be written off in one year.

Walden believes the economy will continue to grow, although not necessarily above 3%. He noted that some contend we are now at full unemployment. However, he urged attention to the distinction between those who are not employed and want a job, as opposed to those who are unemployed and are not looking for work, the latter are not counted in the unemployment numbers. There is therefore, still a reservoir of people who could re-enter the labor force. Walden accordingly believes that the economy can continue to add jobs. He noted that Person County has been gaining jobs over the last couple of years.

As to things that could derail the economy, hostilities with a foreign country could create a problem. Additional implementation of tariffs on foreign goods also makes the domestic equities markets nervous. The Chinese have not given the desired surances on combating cyber terrorism, and the state subsidized companies in China are an issue, since it is difficult for private U. S. companies to compete with them. Walden indicated that Robert Lighthizer, the chief of the U. S. negotiating team with China, is very well regarded. He believes that investors have been expecting a favorable trade deal with China and that has already been incorporated into current market prices.

There are also European trade talks ongoing. One of the issues is that the U. S. is not being allowed into the European markets to the extent that our government would like. Likewise, U. S. access to the Japanese and South Korean markets is less than desired. He reminded that next year it is predicted that the U. S. will be a net oil exporter.

Walden does not see a recession on the horizon for next year. These are normally caused by an imbalance in the economy. The last recession was caused by such an imbalance in the housing market, which has never recovered to its previous level. Household and business debt is at reasonable levels.

However, the labor market is in transition. Robotics is becoming a significant issue in the areas of inventory, order fulfillment and shipping. Amazon contends that this will not result in layoffs, because employees will be re-employed to other tasks, although Walden notes that this means that there will be a need for retraining, which implicates universities and community colleges.

Walden noted that he serves on a transportation commission charged with evaluating the state’s financing of road infrastructure, with the understanding that the gas tax can no longer be solely relied upon to fund this need. The commission has 14 members, including a former state treasurer, the Raleigh mayor and some industry representatives. Its task is to present a plan within the next two years. NC is actually looking at buying existing rail lines and refurbishing them to adapt for high speed rail use.

He noted that the Federal Reserve has effectively changed course. It had been on a path of gradually increasing rates since 2015. Last year there was pushback from some circles about this, resulting in a slowdown of interest rate increases. The increase in the national debt has not received much attention because lower interest rates have meant that the interest payments that have to be factored into the federal budget have not been dramatically increasing.

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