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- Okay, holidays are over.

Elections have been way over.

We have to face the music now, and in with the new so to speak.

So what are we going to do this year?

Welcome to the most widely watched and longest running dialogue on Carolina Business Policy and Public Affairs, seen every week across North and South Carolina.

And we try to analyze those issues that affect us most in this region.

But now what?

We've got a whole year ahead of us, and we've got an economy that seems to be still expanding.

We've got a new administration in Washington.

How will this shear unfold?

We're here to talk about it.

This is part two of our two part year-end year beginning specials.

And we will look ahead in 2025 with our expert economists and economic insiders.

Stay with us.

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And, Martin Marietta, a leading provider of natural resource-based building materials, providing the foundation on which our communities improve and grow.

This is the "Carolina Business Review" economic forecast for 2025.

Featuring Sarah House of Wells Fargo, Mark Vitner of Piedmont Crescent Capital, Dr. John Connaughton of UNC Charlotte, and Anders Persson from Nuveen.

- Happy New Year.

Welcome to our program.

Happy New Year.

Good to have you all here.

Sarah, you get the first pitch.

- Oh boy.

- Yeah, isn't that always fun?

So Sarah, we've heard so much during the election at the end of the year, et cetera, et cetera.

And now we have a new president, we have a new administration.

He's been very clear about what he and his team want to accomplish.

If you strip away all the politics, if that's possible, and look at the clinical effectiveness of what the Trump proposals are, how do you think that affects 2025?

- Yeah, so I think it's, there's gonna be a lot of potential policy changes that we've seen relative to the past couple years.

And I think, you know, probably first and foremost the one we're thinking about is what happens with tariffs.

So this is something that can be done very early on in the administration where I think there's gonna be a lot of conversation about taxes in 2025, but that's not really something that's gonna affect economic activity until 2026.

Immigration is another one that we could start to feel some of that in 2025.

But I think looking at things like tariffs, potential immigration curbs, a lot of those point to higher, at least stickier inflation in 2025 as you get prices initially going up.

Sure, if it's a onetime level shift, you get inflation eventually coming down.

But ultimately I think you're in for, I think, policies that generally more inflationary, and we get to 2026 also, you know, potentially bigger deficits as as well if you were to take at least some of his policies at face value now.

There's, I think a lot of, a lot to unpack in there that.

- It's lot of daylight between.

- Face value but I think just that's the direction we're thinking about things.

- John, what do you think that Trump's policies do to the economic momentum?

- Well, they're certainly gonna add uncertainty because we don't know how many of them are policies he's gonna follow through on, and how many are negotiating positions.

Like for example, Sarah was talking about the tariffs.

But I think in terms of tariffs, if you think about this, first of all, I gotta set some things straight here.

Tariffs are not sales taxes.

So if you go into Target, and you look into a $50 toaster, and all of a sudden there's a 10% across the board tariff on all Chinese imported products, the toaster is not gonna be $55.

'Cause the tariff is imposed on what's called the last sale price, which actually occurred in China when the factory sold it to the exporter.

Okay?

It shows up on the American shores, and that's where the tax is imposed on that sale price, which could be 15, $20.

So a tax on a, what looks like a retail $50 toaster may only be one and a half, $2.

And that gets split between buyer and seller.

So at the end of the day, the impact may be $1, which is a 2% increase in the price.

So that may be all that happens with a 10% tariff.

I digress a little bit.

- Okay, yeah, yeah.

- But we don't know what's gonna, we will probably see tariffs on Chinese products.

I don't think that's a, I think that's gonna happen.

That'll be a little inflationary.

We're also gonna see some tax cuts, more so than just the continuation of the two 17 tax cuts.

That's gonna be inflationary.

And also, if we start deporting lots and lots of immigrants or illegal aliens, however you wanna call 'em, undocumented folks, if we deport too many, that will put constraints on the supply side.

That could be inflationary as well Mark.

- Well, yeah, I think it's important to judge Trump or view Trump against the earlier Trump, 2.0 versus 1.0.

- Do you think it's dramatically different?

- I think it's dramatically different.

I think there's some things that are the same.

Peter Thiel is famous for saying, "You need to take Trump seriously, but don't take him literally."

And, so yeah, he's going to raise tariffs.

I mean that's absolutely going to happen.

There are going to be some sort of deportations, but they're gonna be starting with criminals, which I'm kind of like, "Well if someone's committed a crime here, I don't at first, I don't want to deport them, and then have them come back and do another crime."

I mean, would you would think that they would be put in jail, and then be deported when they get released.

But any event, I don't think that's going to be as immediate.

I think that they're probably going to find ways to be less disruptive.

The other thing is that folks need to look at this more globally.

I mean the, the world's changing.

We're operating in Trump time where everything's happening very fast.

- Yeah.

- And with the Assad falling in Syria, I think we're going to see a push between the U.S. and Saudi Arabia to drive oil prices down below $50 a barrel.

And that is going to be a big disinflationary shock.

And I think that happens early in the year.

- Okay, I'm going to come back to the energy thing, 'cause that's a bigger issue that we can expand on.

Anders, when you look at fixed income, when you look at foreign exchange rates, when you look at things all related to not just bonds and and rates, what do you see when it comes to to the Trump effect going forward?

- Yeah, no, certainly we are having to kind of price in, you know, base case scenarios here.

As Sarah and others kind of mentioned.

It's a little unclear what the proposal and kind of discussions are about versus what's actually gonna be implemented.

I think another thing that we're trying to assess as well is the timing here, because that's gonna have an impact as well.

It's gonna be some inflationary aspects here that we have to kind of price in.

That's why you've been seeing treasury rates moving higher effectively post-election to really.

- What does that tell you then?

- So basically there is, you know, a concern that inflation will be higher for longer or stickier and therefore rates gonna have to basically be higher to reflect that there is a concern that therefore, or at least a realization that the Fed probably is not gonna be able to cut rate rates as quickly.

So that's being priced in the market both at the 10 year on the front end.

So, so all of that is basically playing through in terms of the rate side, on the credit side on the other hand and the equity markets as well.

There is a little bit that animal spirit kind of type aspect of it where there's some comfort that the Republican administration is probably gonna be quite friendly to the economy, to corporates regulation M and A and what have you.

And we seeing that, you know, playing through as well.

So two moving pieces there effectively.

- Oh, okay.

So sorry to interrupt you.

So would you say that rates, and let's go around the table and get the forecast on rates for this year, you think rates are gonna stay level?

- Yeah, our anticipation is that the rates are gonna be sort of a range around 4.5% on the 10 year for 2000 and twenty-five.

- But I'm talking about the federal funds rate.

- Oh, fed, sorry yeah, so we're expecting the fed to cut most likely two times in the first half of next year to really still make sure that they're, you know, are thinking through what is happening on the inflation side, but also thinking about the dual mandate.

So job markets, you know, making sure that the unemployment rate is still on their check, so to say.

So we're expecting two cuts in the first half down to roughly 4% by mid-year, and then second half of the year is still much more uncertain at this point.

- Rate cuts.

- Yeah.

So we're still looking for the Fed to continue cutting a little bit this year.

So we have the Fed funds rate probably somewhere around three and three quarters percent.

- Wow.

- At the end of next year.

And, but I think part of that, we talk about the inflationary impacts of tariffs, but there's also what we think will be a growth depressing effect too, where, you know, maybe not all of it's passed on to consumers.

Some of it's gonna get absorbed by business margins, but that's gonna make them less likely to hire and invest if their margins are getting squeezed.

And so the fed's going to need to balance that sticky inflation with we think some further deceleration and growth.

- Mark, what do you think?

- I've got two more cuts in 2025 and possibly three.

But you know, I think it's important for people to remember the fed's not putting their foot on the gas, they're taking their foot off the brake.

So monetary policy is still restrictive right now, so it's going to become less restrictive.

And so I think there's certainly room for them to cut at least two more times.

Long-term rates are probably gonna go up in that environment.

And oddly enough, I think that mortgage rates are going to come down because the spread between mortgage rates and 10 and the 10 year treasury is, at least a percentage point wider than it has been on average.

- Well I think panel's right, I think that the Fed will likely cut rate probably two more rates early in this year on first half of the year.

But I want to highlight something that Andrew said about this.

I look at this thing and I say, "There's a stock market and they're crazy people and then there's the bond market, which is the adults in the room."

Okay.

And no, seriously.

- Yeah.

- And you know, people need to understand the difference.

So when you look at the previous last year where the rate cuts the Fed did, what happened in the bond market, when they cut the rate, they cut the federal funds rate, which is a rate they can set, and it's just the overnight rate borrowing between banks.

Okay.

So it just has an effect on liquidity.

What happens?

- Meaning last year in 2024?

- Yeah, what happened?

The rates went up, right?

- Yeah.

- Yeah, so you know, the market rates went up when the fed cut because the market, the bond traders are not believing that Fed has control of inflation.

Okay and I suspect that may happen in the first half of this year as well.

- I wanna add just one thing though.

The other reason the bond yields went up is they're expecting more growth as well.

So it is not just higher, it is not that just that inflation expectations were bumped up a little bit.

They're also expecting stronger growth.

- I think when you look at the 10 year, it's inflationary expectations.

- Let's shift to housing, what happens in housing this year?

- So we think that it, we're gonna still see some moderation.

So given that rates are still high, I think in many ways still prohibitively high for a lot of potential buyers.

So even as mortgage rates have come down, we think they'll come down a little bit further this year, but still probably stay above 6%.

And so for a lot of homeowners that just still doesn't make sense to move, that's gonna keep supply in the existing homes market tight.

And with that not a lot of supply still probably see some increase in prices and just keep that affordability challenge very much in focus, now in terms of the builders, so they've been able to buy down rates to some extent, but that's getting harder and harder, the longer rates stay elevated.

So we're expecting construction to slow a little bit further this year too.

As builders are having, are those affordability challenges too, in terms of making the math work for buyers.

- Sarah, somebody had told me anecdotal piece that builders were actually making lower loans to move their inventory out and basically eating the difference between what their capital costs them and where they were lending it out because they were making it up on the price of the home to sell the home.

Is that over with or are builders still doing that?

- It's getting harder.

- Okay.

- So you're still seeing some of that dynamic, but it's just getting harder.

Again, the longer you're in this higher rate environment to, you know, there's less and less you can take a bite out of.

- It's a finite number.

Do you look at the housing industry when you price things out?

- Yeah, certainly do.

I mean that is a very key component of the broader US economy and the fixed income markets more broadly, particularly on the securitized.

There's, you know, a lot of instruments that we look at that are housing related.

So that's certainly on the mortgage securities and particular obviously very tied to that.

So an area that we're spending a lot of time and being very focused on.

I would concur with Sarah's view that it's probably a bit more of the same going into to this year, so to say, not a dramatic shift for now, particularly if we have this a bit higher for longer backdrop, where you know, rates are probably gonna stay fairly high, so a major shift from what we saw in 2024, at least not for the first half of this year.

- So housing nationally and housing in the Carolinas is different.

I mean so it seems like Mark, John, there's a lot of room to, to run yet in housing in not just the urban cores and the high growth areas in the Carolinas because of the in migration.

But it seems like, to use the analogy, there's a lot of red left on this candy and it hasn't been licked off yet when it comes to housing and exploding housing prices.

Does that slow down?

- I think that this year is going to be a pretty good year for housing in the Carolinas and mainly because.

- Meaning prices going higher.

- Prices are going higher, we got stronger population growth, we're gonna get a little bit of a break on rates.

Florida is having problems right now and inventories are backing up on Florida.

And one of the things that can make it tougher for builders to get aggressive on buying down rates is they've got some earnings pressures coming outta Florida because so many folks are.

- Piled in.

- Shying away from Florida because of insurance issues and they've had a build up in inventories and every time that Florida has boomed, we've seen an echo boom here in the Carolinas where people move to Florida and they say, "Gosh, it's crowded, it's expensive, it's a lot more human than I thought."

And they said, "You know what?

The juice just isn't worth the squeeze.

I'm moving to the Carolinas."

And so I think we're seeing that wave right now and that with the exception of Asheville, which I think has got some longer running problems, so it'll take 'em a little bit longer to get back up and running.

I think that the Carolinas are going to have a pretty good year.

South Carolina actually has stronger in migration than North Carolina does, even though the state's smaller than North Carolina.

- I think South Carolina likes to be smaller than North Carolina 'cause they can end run on a lot of things.

John, what do you think about housing?

- Well, I pretty much agree with Westford said.

I think there's, you know, nationally probably it's gonna be down again this year locally.

It could, Carolinas could be up a little bit.

But I wanna go back to something that was mentioned about Asheville and what's going on there.

And I think it's gotten lost.

So when we looked at the October 24 numbers for job growth in North Carolina, okay, we actually lost jobs.

So there were, the job from September to October dropped by 5,500 jobs.

- Because of the natural disasters.

- Because of the natural disaster.

Normally we would add six or 7,000 jobs every month on average.

Okay, so when you see we didn't get the six or seven and we lost five and a half, we're talking about 13,000 fewer jobs in October compared to what would've been had the hurricane not occurred.

And two things that bother me about what's going on right now in Asheville, aside from the fact the feds are asleep at the wheel, unlike when you have hurricanes in Florida are in the Gulf coast and you know, 70%, 80% of the people have flood insurance.

Nobody's got flood insurance.

And most of the damage in Asheville area in the mountains in general was caused by rising water.

And so you've got a lot of uninsured and that's going to, you know, as Mark said, "It's gonna delay construction considerably."

Normally we'd see a boom in construction in 25 to repair things, but it's gonna take longer 'cause it's gonna require.

- Okay.

- Fed money.

- Let me zoom out from that, Sarah.

So John brings up a good point.

I wanted to ask this question about housing affordability includes the insurance around housing.

If we've had, not just Hurricane Helene, but we've had two or three storms that have rolled through the Carolinas this last season.

Does that make, does that increase in premium?

Is it a meaningful amount to a homeowner to factor in to a housing cost going forward now?

- I think a lot of it is, I mean it depends on where you sit on the income spectrum, how long you've had your mortgage in terms of, you know, where did you get it 10, 15 years ago and you know, or maybe it's even paid off.

But I think for a lot of homeowners, the insurance portion has been certainly some sticker shock and I think it's been delayed versus what we've seen in things like motor vehicle insurance.

But you know, you just think about everything we've seen in terms of the increase in material costs, labor costs, it's getting more and more expensive to repair, it's getting more and more expensive to replace.

And so those insurance premiums they've started to go up and I think we haven't necessarily seen the end of that yet.

And that is an additional squeeze, particularly for those newer buyers who are already buying at a very difficult price point.

- Anders, let's switch gears just a little bit and talk about immigration and employment.

Does with the Trump administration, will that have a meaningful impact on employment?

And I know you want to answer that question.

- Well yeah, devil in the detail for sure.

But if some of the proposals that we're hearing so far is actually implemented, yes, it will have an impact for sure.

- A chilling effect would you say?

- Yeah, generally that is the takeaway and as John mentioned, can have an inflationary aspect of it as well.

I think, you know, one thing I've observed a little bit is that there's been a lot of focus on the inflation side, a lot of these proposals.

But ultimately I think Sarah mentioned this as well, it could be a slowing of the economy as well.

That probably will come a bit later.

But on the immigration side, I think that's something that we have to be maybe more mindful around what is the sort of medium term impact on growth going forward.

Not just the inflation side, but short answer is yes, it will have an impact.

- John, I'm gonna not ask you a question, but I'm gonna quote you because on this program, and I know in several forums, John has always argued not to speak for you, I'm not your attorney, but he's always argued that the natural demographics of the country itself are going to make it difficult for hiring going forward because the baby boomers are rolling out and it's a big hole that's gotta be filled.

Did immigration, was that the hope for employment and is it changed now because of immigration policy?

- It certainly was the hope, particularly in construction and agriculture.

Two very important industries in the Carolinas.

And I don't think we're going to see mass deportations that affect workers in those industries.

If you are here and you're here illegally or undocumented or whatever the actual term is and you're working, I think that what's going to happen is there'll be something called an administrative deportation where you'll get a court date, your employer will pay a fine, which will be served as a bond and that you'll have to show up so that we know that you're in the country and that you're not a troublemaker that's, you know, trouble in Trump terms.

- Yeah.

- And and I think that that'll be it.

And ultimately once Trump can claim that the border is secure and that, we've pushed back on on the gangs and people feel safer about the folks that are in the country, then we can talk about putting people on a path to citizenship.

And I think that's what's ultimately going to happen.

I think one of the issues with immigration is that we've made it way too easy for people with no skills at all to come into the country.

And it's very difficult to get people with skills to come to the country.

And so that's we've got a little bit of a skills mismatch there.

- Just in less than two minutes.

I need you to wrap that one up 'cause I wanna move on to something before we ending and that's about the immigration and the employment.

- Yeah, well I mean we've all, I think everybody at the table agrees that if if the push goes too far, it could be problematic because Mark mentioned agriculture construction but also hospitality and leisure rely on, on these workers and have been relying on these workers for decades.

So all of a sudden you get, you know, real, a real pinch in terms of availability of labor if it gets a little bit outta hand.

And I'm a little bit less optimistic than, than Mark is about this.

I think, I think everybody agrees we gotta get the bad guys outta town, but you know, sometimes you do your job to generate numbers and sometimes it's easier to pick a lot of people out of a processing plant and you can get a whole bunch of folks.

So, you know, I don't know what's gonna happen.

I know Holman has suggested that he's going after the bad guys, but he always says, "First."

- Yeah, okay, thank you.

We have a few minutes left and Sarah, if you can't answer this question, I understand 'cause it's not really the most pillar of economics, but Bill Belichick is now going to be the head coach at, and there's a question in here, I promise I'm not being flippant at Carolina, but what that brings up is that brings up, wow, we've got an NFL coach going down to not down, but going to college.

We had Saban do the same thing with some pretty wild success.

But the point is there's a thing called NIL, name image likeness, and that refers to student athletes being paid.

Now it's, we had Peter Hans from the UNC system on this program and they are probably very concerned is my term, how does NIL change the dynamics of higher education?

It's going to be a big change, isn't it?

- You just asked a football and economics question.

- Yeah, I know.

- Your left.

I'm gonna have to pass this over to Mark.

This is his sweet spot.

- I have been writing about college football the last couple of years, but you know, but you ended that with asking about education and I don't know, I think that the name image and likeness may be disconnecting college sports from education and that.

- Is that bad or good?

- I'm not sure there's good and bad to it.

A lot of college athletes are going to be, make more money playing college sports than they're likely to make doing whatever they do after they graduate from college.

I mean certainly, you know, not just the football players, it's also gymnast, it's basketball players that aren't, that really don't have a path to the NBA because very few make it from from college to the NBA.

And so I see some good from coming from that, but I don't know that it has as much of a direct impact on education.

Certainly universities want to get their name out there and they want to get their alumni engaged and sports certainly help do that and there's a lot of pressure to win and the NIL deals are increasing that pressure to win.

And I think it's really tough getting Belichick to come down to North Carolina for a very large sum of money for a 72-year-old coach is.

- Hey, hey.

- It's pretty impressive.

- Well, but, and Anders, if you have an opinion on this, please, I don't know that most fixed income guys either want to talk about it publicly, but John, that the idea that this is a big change is it a c change in higher ed calculus?

- First of all, I think we're in a transition period here, so I don't think we should place too.

- And you have 45 seconds.

- I don't think we could place too much emphasis on the fact that we're in transition and things are gonna change considerably as it relates to NIL over the next several years.

You went from an exploitive environment to a free for all okay.

When that exploitation rules went away because they were deemed to be unconstitutional.

So now you're in a free for all.

We're probably gonna see collective bargaining down the road and we're probably gonna see salary caps, et cetera, or or spending caps rules.

- Does it take the innocence away from the student athlete?

- A little, yeah.

- Yeah.

- But I think that's more the transfer portal than it is the NIL money.

- Yeah, thank you.

That's the last word.

You all have been great sports, always.

Thank you for being here, John, Mark.

Of course Sarah, thanks for being a sport and doing it.

And Anders, thanks for jumping in here.

Please come back.

We hope you will.

- Thank you so much.

- Thank you.

Thank you for watching our program.

Of course we are very grateful for you supporting this program.

Happy New Year.

Until next week, goodnight.

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