Economists wary of what's ahead

Dr. John Mitchell asked the question Thursday that was likely on most minds when it comes to America’s economy.

“Where are we going?"

He didn’t have a definitive answer.

“It’s an uncertain path,” Mitchell told about 200 people during a Coeur d’Alene Regional Chamber program.

Mitchell, who taught economics at Boise State University, and the Idaho Department of Labor's Sam Wolkenhauer offered their annual economic outlook at The Coeur d’Alene Resort.

They presented a lighthearted, upbeat analysis, if one filled with warnings of what could come down the road as the workforce changes from driven Baby Boomers to less motivated Gen Zers.

For this year, Mitchell said he sees a sound labor market, solid productivity, and a strong supply chain.

But he also cited concerns about global political dysfunction, balance sheet problems at some U.S. banks, weak national January retail sales and a rapid decline in commercial real estate values. He also noted that “inflation pressure is persistent.”

“We had this rapid decline, but it may be harder from here,” he said.

Mitchell said some large cities, such as Seattle, are seeing rising office and retail vacancy rates. And with many leases likely to expire soon, some businesses will have to decide whether to renew, but at much higher interest rates.

He said the world’s economy is changing, which could be an opportunity.

“We are getting the chance to watch a new or different world unfold,” he said.

Mitchell did not seem convinced that The Federal Reserve would hit its inflation target of 2% in 2025, or that the country would have a "soft landing" from the economic woes of the pandemic.

He said despite 11 rate bumps, The Federal Reserve has not made a single cut and may not as inflation hasn't gone away.

“What if they don’t get there?" he asked. 

Mitchell pointed out that half the world’s population, some 60 countries, will face elections this year, creating more question marks for the fiscal path ahead. He expects surprises in 2024.

He summarized with his usual poem. In part, he said: “The Gaza war, Red Sea drones, repricing loans and paying your student debts are now in play. Wild cards have been added that might deliver a hard landing after a long delay."

Wolkenhauer was both optimistic and pessimistic of what's ahead.

On the positive, he said Idaho is seeing “relentless year-over-year job creation.”

According to the Idaho Department of Labor, Idaho’s seasonally adjusted unemployment rate was unchanged between November and December, remaining at 3.3%. The state’s labor force increased by 1,616 people, 0.2%, to 975,560.

“If you look at job creation, Idaho’s economy is extraordinarily strong,” Wolkenhauer said.

And it has a rising population of nearly 2 million, “because it’s a place people actually want to live.”

“Idaho and Kootenai County by extension grow because they are magnets for residents from other parts of the country,” he said.

While increased traffic and higher housing costs come with more people, it's worth the price.

“It’s better to be growing than a shrinking community,” he said.

Wolkenhauer warned, however, that Idaho’s growth is imbalanced, with an older, retired population moving in, and a younger, working population leaving in search of higher-paying jobs and lower housing costs.

“I do not intend to put up a flashing warning sign here that we are becoming Florida north, but there are some undercurrents to that effect,” he said.

Retirees are both “a blessing and a curse,” Wolkenhauer said. They are great for a housing market and have exceptional purchasing power, so they are good for businesses.

But, he added, “They don’t contribute on the labor side.”

“So it creates an imbalance between the consumption pool and labor availability,” he said. 

According to the U.S. Bureau of Labor Statistic, Idaho had 57,000 job openings in October 2023, compared to 55,000 openings in September.

Wolkenhauer said another problem at the national level is that Baby Boomers, born between 1946 and 1964, some 71 million today, are retiring at a rapidly escalating rate. 

They are being replaced in the workforce by about 65 million Gen Zers, born between 1996 and 2010. 

Boomers, Wolkenhauer said, are known as a hard-working, dedicated generation with exceptional work habits. They are being replaced by a smaller generation with inferior work habits.

He also pointed out there are about five million fewer Gen Zers than Baby Boomers.

“It’s gets even worse. Because Gen Z, unfortunately, has the worst work habits of any generation we’ve ever observed,” he said.

Wolkenhauer said that in 2020, for the first time in America’s history, more people turned 65 than 18, reaching what he called “the point of demographic exhaustion.”

“It’s the point at which your labor force can no longer grow under its own momentum,” he said.