(upbeat theme music) - [Narrator] This is "Carolina Business Review."

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- So the bones of headlines and concerns and the big wins for 2025 have pretty much been picked over by now, here at the end of the year.

But what is going to happen at the dawn of this new year?

What surprises are coming?

What might be fixed, if you will, and what may get worse?

Well, we'll continue the dialogue and start part two of our CBR Economic Forecast with a big announcement at the end of this program.

We hope you'll stay with us for the whole thing.

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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.

The "Carolina Business Review" Economic Forecast 2026, featuring Laura Ullrich from Indeed, Dr.

John Connaughton of UNC Charlotte, Dr.

Joseph C. Von Nessen of the University of South Carolina, and Dr.

Frank Hefner from the College of Charleston.

(upbeat music) - Welcome again to our program, Happy New Year.

Here we go.

What is going to be the biggest surprise this year?

Laura, what's gonna be the black swan?

What are we gonna look back and say, yeah, well, that's something.

- You know, at our shop at Indeed, we're not predicting a black swan.

However, if there is one, the thing I'm most worried about is an AI investment bubble.

I am worried about that.

- Really?

- Yeah, I am.

- From a valuation, company valuation or something broader.

- Yes.

And the top companies, just, if you look at how they're just kind of like reinvesting the funds between themselves, it's a a little bit concerning.

And so if I were to pinpoint something that I'm a little worried about, that's what I would pick.

- Okay, good one.

- Yeah.

- Yeah, all right.

Joey, what do you think?

- So, I agree with that.

I'll put a little bit of a different take on it though.

I think it's about the timing of when we see any potential connection or disconnect between investor behavior and what we see with productivity.

And one way is to look historically, we can put some perspective on it.

If you look at the .com bubble of the nineties that popped in 2001, we nevertheless saw a significant increase in productivity levels during the first decade, especially during the first five years, between 2000 and 2005.

But the problem was that the productivity didn't happen until after investors had soured a bit.

And so that disconnect in the timing is in part, what led to that bubble popping.

And so the question this time around is is that timing more aligned or is it not?

Do we see more productivity gains from AI in 2026 or is it lagged and make it more likely that we see this bubble deflate or pop?

- Biggest surprise?

- That'll be the AI problem.

Again, I don't call it necessarily a bubble, but I mean, there's a disconnect between everybody trying to rush to get on this bandwagon and not be left behind.

Okay, 'cause if you're left behind, that could be really, really serious.

- [Chris] Did you see that in 2025?

By and large is that what you're referring to?

- Oh, yeah, I mean, yeah.

And so what you've got is a whole bunch of people investing tons of money not to lose this race, but right now nobody's making any money with AI, okay?

And the longer that goes on, the longer or the sooner that people who are the investors are gonna start to sour and start to say, hmm, maybe being in the lead pack on this isn't nearly as important as we thought it was.

Does it happen in '26?

I don't know.

Does it happen in '27?

Maybe, I don't know.

So it's the timing that's completely uncertain.

It'll be one of these things that when it hits, it's gonna hit hard.

- So do you, not to put words in your mouth, Dr.

Hefner, do you think it's not if it's when.

Do you agree with the AI?

- Well, we used to have a book called "Irrational Exuberance."

- Yeah.

- And this could be a clear sign.

- Former Fed share.

- Exactly.

And this could be the situation.

The productivity gains are issue and the whole idea of how disruptive this could be, which we don't know either.

So it may have some negative consequences.

I mean, in academia, we already had a doctoral dissertation completely fabricated by AI, including the data and the dissertation itself.

And so you wonder like, well, how is this going to improve things?

And so it's gonna be a while before we work through all those issues.

So as Frank talks about the disruptive nature, are you talking about the disruptive nature from the valuations of the companies or the disruptive nature of the science of AI?

- Well, I think a combination of the two.

I mean, I saw a presentation on AI in a manufacturing concern.

And where it's good, it is excellent.

I mean, having my eyes observe defects in the production line of a car, for example, versus an AI, learning and readjusting, and catching every little blemish is absolutely amazing.

So where it's good, it is really good.

And it could actually enhance things.

- I think there are two.

- Go ahead.

- I think there are two separate issues here.

One, is the AI investment bubble, and the other is how it's going to affect our economic system.

- Mm-hmm.

- And we're already starting to see some impact on that.

I think, you know, what Powell said a week ago on his press conference was what they were seeing or what they believe was happening in the labor market is not a decline, but a no hire, no fire.

And the no hire is a cautionary.

- Yes.

- Okay.

Companies being, they don't know how this is gonna play out, they don't know how soon they're gonna start to see productivity gains.

So they're gonna say, well, let's not hire somebody that we may have to lay off in six months.

I mean, companies don't like to do that, okay?

It's not that, you know, that they're heartless.

- Do you think that's a hangover from 2020?

- No, I don't think so.

I think this is just- - The no fire thing.

- I think this is just being pragmatic about it because there's a tremendous amount of uncertainty going into '26 and into '27.

We just don't know how it's gonna play out in terms of the economic system impact that AI is gonna have, no idea.

- Does AI, as we're talking about it now, and I wanna go back to the valuations on the companies, you know, the money that's flowed to these companies that don't have earnings - Right.

- and they're investing in each other.

I mean- - We've seen that before, Chris.

- Yes.

- Well, that's my point.

199, 2000, pow, pop.

- Yes.

- Will we look back and go, all on, the turn of the century?

Is that- - Well, part of that was the Y2K phenomena.

And so, that's a different story.

This could be more the irrational exuberance phenomena.

- But I think to Joey's point, this does happen with technology.

I think it's Amara's Law that says we typically overestimate the value of technology in the early days, but underestimate the value of it in the long run.

And so I do think it's a timing mismatch, but it's concerning when you see, and it's also this, like, tale of two worlds, right?

The growth that is happening is happening, it's so concentrated in a small number of firms and, I think the Russell Index of small firms, over 40% of them have no earnings right now, right?

So there are some companies that are not in a good spot right now.

And then a lot of the investment and the money that's being generated in the markets are amongst just the top 10 companies.

So that could lead to a bubble.

- Hold on one sec.

Joey, finish that thought.

- Well, I was just gonna say, we could also flip this discussion on its head and say, well, another black swan event is that maybe the productivity gains are stronger than we think that we see companies adapt, or find ways to use this technology faster than we anticipate.

And that could lead to higher rates of growth in 2026.

I don't think that's likely, at least from what we see companies telling us now.

But that certainly is a possibility and something to to consider.

- But probably further down the road in terms- - Probably further down the road, yeah.

- Than '26, yeah so.

But I think that, you know, we've gotta be very careful here in terms of what's gonna happen in '26.

And I think that the key thing is uncertainty, because there's just a lot of factors.

Normally, we've got a pretty good idea of what's gonna happen going forward.

But there are so many wildcard out there.

We talked about this in the last show.

What happens when the Supreme Court rules about tariffs?

What kind of, you know, crazy thing is gonna happen if they say no, you exceeded your constitutional authority.

What's gonna happen?

'Cause we've been riding on that tariffs, and working those trade deals out all year long.

And all of a sudden, who do you have to pay back?

Do you pay back consumers, do you pay back businesses?

- So let me zoom out to capital markets for a second.

This is not an investment show, but capital markets do drive a lot of- - C plus I plus G.

- Yeah.

(Laura laughs) - But the I has gotta be real.

- It's gotta be real, not nominal.

- So to the point if that, so investor behavior is different now.

There hasn't been a real recession and I'm talking to- - No, you're right.

- That's right.

- There hasn't been a real recession or a real bear market in 16 years at least.

- Yeah.

- So if we've got the business owners, investors, the average person on the street investing, like they, well, I've gotta just get in the way of good investments and that pops, does investor behavior become even worse on the downside?

- Don't ask me, I don't do investments like that.

I put everything into Crypto.

(panel laughs) - Well, better than crack futures.

- Right.

- Well there's certainly a wealth effect in terms of - Exactly.

- how it's affecting consumer spending.

So consumer spending is still 70% of the economy.

So that's the bulk.

And right now we're seeing higher income households that are generating disproportionately, the spending that we're seeing.

And so this wealth effect is part of the reason they're able to continue to spend.

- [Laura] Yeah, absolutely.

- So a pullback in the stock market could affect that.

- It's going to affect.

Something I heard on the news the other day, someone referred to this as the potential new Gilded Age.

If you look at the old Gilded Age from the turn the 1800s, early 1900s, wealth was concentrated, Carnegie, Vanderbilts, I mean, and that's happening now with AI.

The concentration of wealth is in a very small group of people.

Which looking back to the Gilded Age period was actually a blessing because productivity increased, lifestyles increased, health increased.

So a major transformation like that, even though it creates inequality, inequality per se is not a bad thing.

- Well, it could be a little uncomfortable.

- But I would also say the big differences, the original Gilded Age, those were industrialists that employed a lot of people from the top to the bottom of the income distribution.

- Right.

- And these AI companies are not employing people at the bottom of the income- - But the other problem is it could leave people out.

- Absolutely.

absolutely.

- Joe, you just said something about income growth.

Is income growth outpacing inflation?

- Yes.

- Broadly.

- Yes.

- Broadly, yes.

But the top 10% are- - [Chris] He didn't agree with you by the way.

- Okay.

- Yeah, yeah.

- Wage growth.

- Just keep going.

- Wage growth, wage growth.

But the top 10% are counting for 50% of consumption right now.

So that's a very tenuous balance.

If the top income earners pull back for some reason, we're gonna be in trouble.

- And they will pull back if the wealth effect has an impact.

- Right.

- If the stock market starts going down, it's at 40, what Chris now 47,000.

Yeah, something.

And if it starts to go down, and it's, you know, 40,000 in six months, then it's gonna have a big impact on the consumption side of things.

But I'm going back to the wages.

Look, since January of 2021, okay, prices have gone up a little over 25%.

Wages have only gone up about 23.5%.

So there's almost a 2% disconnect or difference, two percentage point difference between where purchasing power is today versus where prices are today.

And that's why you see what Joey's talking about, the top 10% driving.

- Mm-hmm.

- But to be clear to on that, we have seen wages grow faster than prices in the last two years.

But the cumulative effect, we're still down.

- Yes.

- Yeah.

- But consumers are very slowly clawing that back.

And that's one of the reasons they're still so frustrated and sentiment has been so low.

- Well, okay, let's zoom out a little bit and talk about a majority of those that earn a wage and work a job, et cetera, et cetera.

Laura, you may have been on one of our programs, you all have been engaged in this idea, but one of the, the biggest stealth issues, and I suspect it's still gonna be maybe even more so acute going forward, the overlooked issue in South Carolina, a report found that childcare issues cost the state economy $1 billion.

- Absolutely.

- In South Carolina.

That's not even in North Carolina, which we know has 2x the size of top line.

- Yeah, and let me tell you an interesting stat.

Childcare is the second softest job sector in South Carolina right now.

- Second softest?

- Yes.

And part of that reason is that some of the cuts of the federal government have closed, like, Head Start in Rock Hill, South Carolina where I live, for example, has closed because of those federal government cuts.

- [Chris] Permanently?

- I mean, for now.

- I guess that's the question.

- Yeah, if they got the funding back, I think it would reopen.

But right now in South Carolina, childcare jobs are over 25% below where they were before COVID.

And so it looks like we're moving in the wrong direction in South Carolina as a whole, at least.

- Childcare, is it the stealth issue.

You see that when it comes to?

- Well, childcare is just one of many things that are generating this new thrust of affordability as being the issue, okay.

Everybody.

- But it's a big part of affordability.

- Absolutely.

- Yeah, A big part of it, yeah.

I mean.

- Yeah.

- Finding it and then paying for it is a big issue along with other costs such as eggs.

I know Frank wants to talk about egg prices.

- And coffee.

- And coffee, yeah.

But that's partly tariff related on coffee.

- Coffee is tariff.

- Yeah.

But I mean, we are going to see this year because it's an off year election in terms of, you know, Congress is up in November, and affordability has already been tagged as the number one issue here.

And that's gonna be the key.

And you know, as much as we have relied on the Fed to deal with inflation, they only have one tool on their belts - Mm-hmm.

- and that's interest rates.

And you know, a lot of the affordability issue is federal spending.

I mean, we're looking at $2 trillion deficits this year.

- And I'll add one more thing to the childcare piece that I think is also interesting.

If you look at where women, as the only woman at the table, I feel like I need to bring this up.

Return to work policies are causing women to leave business and professional services and financial activities.

Those sectors have lost female employees this year, even though they've gained employees overall.

And that was also return, people having flexibility in the workplace was allowing people to consume less childcare, like, maybe they get- - So that's a ripple.

- Absolutely.

It increases the need for childcare, the cost of childcare.

And so you see women leaving the sectors where return to office has been most prevalent.

- We got about five minutes or so left.

And I wanna get to, where's the Fed going with interest rates?

What do you think?

- Well, one thing I'd like to point out is, as was observed, that's their only tool.

So everything is an interest rate.

That's what everyone focuses on.

The real question in my mind is, I mean, how much does a shift in interest rates actually generate real economic growth?

It makes press, it does a lot of other things.

And that's the thing.

So they could lower the Fed funds rate another 2% and mortgages may not respond at all.

And even if they do, you gonna lower mortgage at a higher house price, you're still making the same payments.

- But the mortgage rates don't track what the Fed does necessarily.

- Definitely not, because one's short term and one's long term.

- Chris, in 2024, in the fall of '24, when the Fed dropped the federal funds rate by a hundred basis points, guess what went up during the same period of time by 90 basis points?

The 10 Year Treasury.

And the 10 Year Treasury is tied a lot closer to the mortgage rate than the federal funds rate is.

And so you've got what they call the business bond vigilantes.

And they're, you know, every other rate, but the federal funds rate is a market rate.

- I don't wanna keep going to Laura.

Laura's like the Fed to English dictionary for us because you work there.

But I mean, what are your thoughts about- - Yeah.

- Can you talk about interest rates now that you're kind of clear?

- Sure, absolutely.

- Okay.

- Don't work there anymore.

Yeah, I think if you look, so after the meeting this last time, they released their projections and if you look, the median FOMC member expects just one cut in 2026.

- Okay.

- However, we're gonna have a complete regime change next year, right?

Jay Powell's gonna be gone, someone new is coming in.

- Political pressure is going to change that?

- Political pressure's gonna change.

If you look at the most recent Trump nominee that is at the Fed, he's been voting for more aggressive rate cuts.

And in theory, that is inflationary.

So then you could see additional inflation.

So the Fed has a tough job this next year.

And I think also it's gonna be interesting to watch how the board of governors responds versus the 12 regional presidents.

- So the other thing is a lower interest rate, is that gonna create more jobs?

And there's a disconnect there also in history.

- And do we need- - Joey, do you think, do you think the Fed is going to have a political overhang kind of on every, not kind of, on every decision that they look at now?

- Well, I think every administration wants lower interest rates in general 'cause they're wanting to stimulate the economy.

And we just see more emphasis on that now.

But another, I think interesting takeaway from this meeting was that we had, you can clearly see the disagreement and the debate in the Fed because they had three different sets of votes.

So you had the 25 basis point cut, you had one member voting for 50 basis point cut, but you also had those that were voting for no cuts at all.

- True.

- And so- - [Chris] Have they been closer on their agreements?

- Yes, three ways.

- Well, they have been in recent years, yes.

- Three ways.

- Yeah, but if you look at it only as the nine versus the two, that's not an unusual spread at the Fed, okay.

'Cause the third no vote was more dovish in terms of raising rates, 50 basis points, okay?

But here's the thing.

Remember, the Fed has a dual mandate, inflation, stable prices and employment.

And you know, I always try to remind people this, and I don't think there's a board member, you correct me if I'm wrong on this, but I don't think there's a board member that doesn't recognize that the burden spread of those two is completely different.

Everybody suffers a little bit when there's 3% inflation instead of 2%.

But when there's 5% unemployment instead of 4%, you know, there's essentially millions of people who suffer badly.

- Right.

- because of that.

- Okay, so we've got two minutes left and I wanna get to this question because we've seen the Carolinas over 10 years, 5 years, 20 years, we've seen this growth happening and the expansion has been nice and it is nice.

In less than two minutes, do you think this is the year it starts to level out in growth access or growth numbers in the Carolinas?

- No.

- No, quickly?

- I don't.

- You don't think so?

- No.

- No.

- No.

- No.

I think everything, all the data that's out there right now tells me that this will continue.

- And it becomes less affordable?

- Yes.

- Yes.

- I mean, I know that's a dark way to say it, but that's a real issue.

- Well, less affordable for the people who already live here, but it's still more relatively affordable, if we take out Charleston.

- Right.

- Relatively affordable compared to many of the places these people are moving from.

- I haven't seen any forecast.

And again, let me know if you all disagree, I haven't seen any forecast that shows the southeastern United States not being the fastest growing region of the country for the next 20 to 30 years.

- We still have- - It's one thing all economists agree on right now.

- Yes.

- Clearly.

- [Laura] That might be the only thing we all agree on.

- What's that old joke?

Find every economist in the world, lay 'em end to end and they still won't come to a conclusion.

- Right.

(Chris imitates drum roll) - Yes.

- And on that note, thank you.

All right, so we have come to a moment here that's pretty important.

So this is our very last show after 34 years roughly, after I think at last count it was almost 1700 programs.

- Wow.

- Wow.

- And probably 2000 dialogues, in October, 1991, it was our first regular show, this was not planned, there was a young economist named Dr.

John Connaughton from the University of North Carolina, Charlotte.

And it's interesting that you are on the last show.

Can we get a shot of what John looked like?

Oh.

John, you look like a porn star from the seventies.

(panel laughs) - Thank you.

- No, very handsome.

You were very eloquent and still are.

And anyway, so something else that happened and you know, you can laugh at me because this is gonna happen.

So this was one of my very first standups, to introduce this program to a Carolinas that had no idea what was coming to it.

So Donna, if you could run that, I don't know that I want to see this.

I haven't really seen this before, but go ahead and run this 30 second clip.

This is October, 1991.

Here we go.

Hold onto your seats.

(bright music) (bright music continues) Good evening, I'm Chris William.

Welcome to "Carolina Business Review."

Charles Dickens' "A Tale of two Cities" starts with the line, "It was the best of times, it was the worst of times."

It also applies if you look at our current business barometers.

In the good column, interest rates are low, in the bad column, interest rates are low.

That was 34-year-old, I don't even know what that was, but Donna, I think, thanks for running that.

So finally, and I mean finally, we come to the end of this dialogue and we come to the end of the series of "Carolina Business Review" programs over the last 34 years, plus a little bit, there have been thousands and I mean thousands of dialogues of crucial, of fluent, of important conversations that have gone on both in front of and behind the cameras, and in board rooms, and in meeting rooms, and the fact you have been so supportive and allowed us to have some measure of credibility,, even though it's hard to see after that, and some measure of public trust to deliver these dialogues to you, that has been important to us and to me.

It has been, for me, it has been an immeasurable gift.

I can't even begin to articulate it.

And it's important, we're not ending now because of any market pressure or God, the guy's getting too old, you need a fresh face, or public broadcasting, or any direction that's being forced on us it's, all good things just must come to an end.

And under our own direction, we have decided to take a break, to take a sabbatical, to renew, to rest, to rethink, to reset this whole thing.

And what would the next series of dialogues look like and what may it resemble?

So it has been an honor, it's an understatement to say it's an honor, not only of these guys friends behind me, but of so many great dialogues.

I've been personally enriched by folks just like these friends that have brought together conversations, we worked with over the years.

And I wanna say this is important to me.

I thank God for this opportunity, and I thank my family second because they've been listening to this chatter and my two sons have heard it since birth so God bless 'em, and the constant talk of "Carolina Business Review."

But I thank the crew that you can't even see, you can't see.

But I can guarantee they're always present.

They always make me look better than I am.

And I would be remiss to say we need to thank our PBS Charlotte partner because they have been our flagship station for years.

They help us deliver this program to our larger partners, PBS North Carolina and South Carolina ETV, that have brought the entire region into the dialogue.

So that has been our regional audience.

So a quick word about those who have actually bankrolled this production, our underwriters, Martin Marietta Materials, and the incomparable Ward Nye, Sonoco products in Hartsville and Roger Schrum, the incomparable, the unknowable, Dr.

Nido Qubein at High Point University, Todd Hall at Truliant Federal Credit Union in Winston-Salem, Blue Cross Blue Shield of South Carolina, three successive CEOs, Mike Mizeur, David Pankow, Ed Sellers, all in it, a good friend of mine, who has become a good friend of mine, Mike McGuire from Grand Thornton, and finally, last and certainly not least, Foundation for the Carolinas president, Cathy Bessant and the entire non-profit crew over there have been so supportive, and over and over and over again.

There are so many people, I'm never gonna say 'em all.

So let me just say this last line and I promise I'm gonna get through it.

This is not goodbye, I promise.

This is just so long for now.

See ya, bye.

(audience applauding) - [Narrator] Gratefully acknowledging support by Martin Marietta, Truliant Federal Credit Union, Foundation for the Carolinas, Sonoco, Blue Cross Blue Shield of South Carolina, High Point University and by viewers like you.

Thank you.

(upbeat music) (upbeat music continues)