(melodic music) - The unemployment rate continues on its downward trend and wages are rising.

Signs of a healthy economy and yet, inflation is on the rise caused by a number of global events.

What should we make of the U.S. economy?

We'll break it down on "West Michigan Week".

(melodic music) Thank you for joining us on "West Michigan Week".

Throughout 2021, Federal Reserve Chairman Jerome Powell repeated inflation was short term or transitory.

As prices continue rising, that term has been shelved.

Now the Fed is focusing on cooling the U.S. economy, raising interest rates.

Here to discuss the causes and effects and how to best deal with it are Jamiel Robinson, Founder and CEO of Grand Rapids Area Black Businesses, and Paul Isely, Associate Dean at Seidman College of Business at Grand Valley State University.

Gentlemen, how are you?

- [Jamiel] Doing well.

- Awesome.

- (laughs) I feel the awesomeness here.

(Jamiel and Paul laughing) We're in the green room and you're like, oh, this is kind of an ugly situation here.

I mentioned all the positives and yet there's this flip side, there's supply and demand issues, pandemic, global events involved with that.

And there is that psyche, right?

Consumer emotions at play here that are really fueling a lot of this.

I mean, on the way in, you pass a corner, a street corner, there's a gas station and in your face is that price per gallon of gas.

So how should we approach this in an emotional way that makes sense.

Paul, I know that you've been reading the tea leaves here for months.

- Yeah.

So what really worries us is when we start to see a change in consumer expectations, because that's what causes inflation to get legs and stay with us.

All right.

That happens after people experience inflation for a long enough period of time.

What we're seeing now is that there's been enough shocks to the system.

There's been the pandemic.

There's been the stimulus packages.

There's been the supply chain problems caused by the pandemic.

There has been the Ukraine.

So we've had issue after issue after issue adding to that inflation pressure, and people are now starting to get used to it.

As they get used to it, they build it into their expectations and they expect prices to go up.

And so prices do go up.

That's what we're starting to see right now is that change in expectations.

You think to yourself how many times you've heard somebody say, I need to buy that now, because it's just gonna go up in price.

When you start to hear that, inflation's going to be endemic and it's going to take a lot of work by the federal reserve to get rid of it.

- Jimmy, I know you work with small business owners.

A lot of them are entrepreneurs.

We've been through this pandemic.

I mean, that was tough enough.

Stimulus was there, small businesses received some relief.

Now here we are with this inflation that is creeping in.

What are small business owners talking about right now?

What are their concerns?

- Yeah, for the micro businesses, 'cause we talk about small businesses, but the very micro, the mom and pop shop businesses, they're really fighting on how best do they price their products, given that they don't wanna price themselves out of customers and having them go to a bigger business that can buffer a lot of those costs in a lot of different ways.

So they're fighting whether or not to increase their pricing, as well as they're seeing the cost of nearly everything go up, and the conflict in Ukraine, as well as just the ongoing pandemic.

We've been suffering from supply chain issues all the way down.

It's just putting a lot of pressure on micro and small businesses.

So they're beginning to increase prices, because they really don't have a choice.

They can no longer just swallow.

That's a tough pill, they've been swallowing it for about two years now.

So unfortunately, we're seeing prices go up at some of these local and small businesses.

- You're saying, we haven't really even hit the peak yet.

There's still more to come.

- Yeah, there's still more to come.

I mean, certain types of things have probably peaked, where we've seen big run ups because of demand and supply problems from China.

Those will start to ease as we go through the year.

But coming through the Ukraine side is the food side.

So the food and the fuel side and the commodity side.

So what we really expect here is because so much of the world's grains are produced in the Ukraine and Russia, that's going to have a very detrimental effect to prices, and in some places, the ability to get it.

I would not be surprised if near the end of this year, we don't start hearing about famines in Africa, because there's many countries in Africa where 50% of their food or of their grains come from the Ukraine.

- A lot of those small businesses you work with they are in that hospitality sector, right?

So those restaurant owners.

You mentioned, we're already seeing just the cost of a meal at local restaurants has been going up.

We have worker issues too.

We'll get to that.

But that alone makes it very difficult to run a business, especially if there's more coming.

- Ah, definitely.

It's been very challenging for the small business, especially those in the hospitality industry.

Myself and a few partners, we just opened up a couple of hospitality businesses.

So we're definitely not looking forward to some of these price increases that are coming from us purchasing food from some of the distributors in the area.

But given that, if we know now we can start playing ahead.

Like Paul was saying, probably make some of those purchases that we can't make sooner than later.

- It's being able to make those informed decisions.

Now is the time to do that.

When we look at the pandemic and what took place there, a lot of that is fueling what we're seeing now.

Not all of it, but you're saying some of that stimulus is at play now for stimulus good follow up stimulus maybe not so good.

But when you're in the midst of a pandemic, I don't know that it's easy to have the past to tell you what to do now and then to address the future.

- Certainly, with hindsight, it looks like too much money got kicked in and it got kicked in too broadly.

There were certainly people who were hurting.

We certainly had to deal with people who were hurting, but it looks like the stimulus ended up being larger.

It looks like it was about twice as big as the whole.

So if you consider a recession a hole, we put $5 trillion into a two and a half trillion dollar hole.

That extra money then gets used to bid up prices on things like cars and houses and even food.

So if you look, consumer spending has been going up, but that consumer spending going up in January and February is being driven almost entirely by increases in prices, not by people buying more things, and that's not going to make people feel better.

You feel better when you buy stuff and you can buy more stuff.

If you're spending more and getting the same amount of stuff, you start to see that consumer confidence start to drop.

We've started to see those numbers start to drop where the consumers are more pessimistic about the future than they used to be.

- Econ 201.

(Paul and Jamiel chuckling) You teach a class, right?

- [Paul] Yeah.

- Just explain to the viewers the simulation that you have students run.

- Yeah.

We simulate a recession and have the students change their monetary policy and their physical policy, their government spending to try and smooth out the recession.

What happens is after the first iteration of the game, they then figure that they need to hit it much harder, put more government spending, more monetary stimulus in.

Almost to a T, they overstimulate the economy the second time.

So that's a bunch of what we're seeing right now.

In 2007, 8, 9, 10. we understimulated the economy and it took years and years to get out of that recession.

So that lesson was taken to task as we came into making decisions now.

We said, we're not gonna make that mistake this time.

Well, we didn't.

We overstimulated it the same as my 200 level students do.

So now we're gonna have to learn from that for the next time.

- Have we ever experienced an economic landscape?

Like the one we are in the midst of now?

I mean, when you talk with business owners, I mean, this seems unprecedented having the pandemic and now these world events that are impacting all of us.

- No.

It's definitely unprecedented times as a country.

But in the black community, African American community, we've always been in a scarcity type of situation, not as a whole, but in large part.

So when we look at inability to access capital, when we look at paying a higher price for things, 'cause if you're paying a higher percentage on a credit card or you're paying a higher percentage in a lot of different ways, they say it's a tax to being in poverty and impoverished.

That's not the entire black community, but that is a good portion of it.

So we're used to dealing with the bumps and the bruises of the economy.

It's a old saying, it says, when the economy and the American economy catches a cold, the black community catches pneumonia.

So it's always felt a little bit, so it's a little bit more of the hacks and the tricks and the resiliency that we're able to kind of pull together and figure out ways.

So even when we look at the stimulus, the stimulus, it was applied extremely broadly.

We know when the first stimulus came out and we're talking about small businesses being able to recover with the PPP and the idol, a large part of that relief wasn't ever felt in the African American business community.

So when we talked about recovery, we're still looking for relief.

There's always relief and investment is always lagging behind in our community.

So it's unprecedented.

I think, if we look at it from a nationwide perspective, but within our community, we've always faced difficult economies.

So you think of the Reagan years, the Nixon years.

We can go back even further in history, whenever it's been economic issue in our country.

Like we've been in a state of recession for generations upon generations.

- The data points it out just the February unemployment.

3.8%.

Yet, if you look at it, unemployment rate for black women ticked up to 6.1%.

This is at a time when we are looking for a workforce.

It's the disproportionate landscape that you're talking about here.

This is just another sign that's the case.

That goes for, I think, yeah, black unemployment rate, 6.6% in February.

That's double the white unemployment rate.

- Yeah, and it's been that way historically.

So I think when we look at unemployment rates, we need to look at a different metric to really assess how well the African American community is doing, because if we're just constantly going by unemployment rate, the unemployment rate hasn't changed.

It changes a little here and there, but it's usually, historically, always double that to the white community from that standpoint.

So we have to look at other ways to measure true economic success within the black community as opposed to unemployment, 'cause even if unemployment gets closer to what white unemployment is, then we have to look at the type of sector in which they're being employed in, which is usually the lowest paying sector.

So it's still gonna be a household economics issue as far as being able to gain and create wealth.

So we have to look at it differently.

So even if all of us were to get employed, it's typically gonna be in the lowest pay in sectors with whether that's retail or service.

- So breaking these cycles, I mean, where do we begin with that?

- Yeah, if we start looking at all sorts of different groups, but with African American groups in particular, we're seeing that they're overexposed to service sector jobs, particularly retail, education, the lower end of medical.

That's the types of places where there tends to be more volatility in employment than we see in some of those other types of jobs, where you can work from home behind your computer.

So it is about how do we look at moving those jobs around the different sectors, those individuals and help retraining.

That becomes important then for the resilience of the entire economy, because we can't find workers any place within the economy right now.

So you have to be able to find a way to help people move up into that next tier of jobs, because that next tier of jobs is what we need people to get into in order to keep inflation from really taking off on us.

- Are we seeing employers making shifts to fulfill some of what you're saying to help relieve some of those pressures in increasing the workforce?

- Well, I've seen and I've talked to a few that they are attempting to make changes to increase the workforce, but here locally and even nationally, talking to some of my friends and colleagues, they're seeing that in our communities, there are pools of laborers in our community and it's just a disconnect between them being able to find, not just employment but stable employment.

Them being able to be in their positions for 18 months to two years.

That's when you begin to see some of those day-to-day pressures begin to subside.

So we've been working here locally with a lot of different groups on trying to how do we do that.

I know it's a lot of programs that have been created.

A lot of times with these programs, they're not co-creating those with the populations in which they wanna serve.

So it's a disconnect between is this something that is truly beneficial to the community in which they're looking to assist.

So we have to make sure that with these programs, 'cause it's funds that are allocated towards these programs that go underutilized.

And then eventually, because of under-utilization, these programs are put away and those dollars are reallocated elsewhere when they really could be more impactful in communities like ours and the Latinx community.

When it comes to the reskilling and the employability of getting them into different job training that's actually beneficially to gain for employment at a higher pay.

- One of the cool things about the extra stimulus that we kicked out is that it gave some people time to retrain on their own.

So one of the things that we did see as we came through this pandemic is particularly people on the lower rungs of service jobs said, I don't wanna do this anymore.

They got enough stimulus money and enough on employment money that they were given the time to retrain.

So we saw a good pile of people choose to do that.

So there was an ability for people to use some of this to pull themselves up.

It's exciting to see that happen.

- Yeah, definitely.

I think with the governor's program that allowed for frontline workers to go back to community college and get that additional education to reposition themselves into better positions have been extremely helpful, especially within our community.

I know several people that have taken advantage of that went back to school and actually got their associate's degree, that they otherwise didn't have the time to, or felt as if they couldn't afford to.

So that is one the benefits of, if we talk about one of the benefits of the pandemic, it did allow people time to kind of reassess and look for a path forward, a new path forward.

- Well, we have this vibrant community and we have a younger workforce, right?

A workforce that's retraining.

But at one of those other inflationary pressure, and we all talked about this earlier, housing.

I mean, this has been ongoing, right?

I mean the costs keep going up.

Report today, skyrocketing home values, outearn salaries.

In 25, I think of the top 38 US metros, we're not in there.

Detroit was on the list.

But I think, this is probably across the board in most communities.

I mean, housing prices are high and a lot of it against supply and demand, and it is impacting just about everybody.

So I know Paul, you follow housing, where are we today?

How does this all play into this inflation cycle that we're entering?

- Well, we we're there, and we're gonna continue to see those prices go up.

So this isn't like 2007, 2008, when we saw the crash in housing prices.

We saw that crash in housing prices because a bunch of reasons that don't exist today.

All right.

What we seeing today is there are a lot of people trying to get into a few houses.

That although over the last 10 years, the growth in housing units have been about the same as the growth in families.

Most of that has been in this area in multifamily.

And then they got bit in 2020, because all of a sudden, people wanted to get out of multifamily and into single family when COVID came through.

All right.

So where we are right now is we're underbuilt on single family and we don't have the locations or the zoning that would allow us to build the types of housing that we need to backfill for young couples and young individuals trying to get into houses.

So that guarantees we're gonna continue to have bids.

We're gonna continue to bid up those prices.

Until the interest rates get high enough, which we don't see until late this year, there's gonna be strong upward pressure on those prices.

- So what are the realities that we're seeing here short-term, long-term?

'Cause there's a long-term effect, but short-term, as employers are looking for a skilled workforce, that becomes an issue too.

- Yeah.

If there's no place to house the people, 'cause right now, in order for us to increase our skilled workforce, people have to move here, all right?

To do it through having more babies that takes 18 years.

All right.

So for us to increase our workforce tomorrow, we have to have people move here.

For them to move here, they have to have a place to live.

If there's not a place to live, they won't move here.

If they won't move here, businesses won't start new businesses here.

So it is a vicious cycle, if we don't get it right.

- Sounds like a 201 course.

(all laughing) But that's the reality of it.

I mean, it is truly that simple.

So what happens on the rezoning side?

What's going on?

- Yeah, definitely.

Talking to a few different people in this sector, it is about rezoning.

So we were having a conversation before and talking about how in certain neighborhoods and on certain streets, within the grandpa's community, there's vacant lots.

A lot of times, it's either because either house was demolished or there was a fire, whatever the case is, it's a lot of infield potential in these.

But currently, because of zoning, it doesn't allow for a single family house to be put on to that plot of land, just because of whatever the zoning restrictions are as far as lot size setbacks and all the other kind of things like that that go into whether or not you can actually build a house.

So I know it is, with the housing necks, and then the city rapids in Ken county really looking at affordability and looking at different zone change that will alleviate, at least in the interim, some of those pressures when it comes to looking at smaller lot sizes or even ADUs, accessory dwelling units, in this community, whether that's converting a garage into a secondary house or whatever the case it may be.

Yeah, I think we have to get really creative.

We also gotta look at the where we live being bigger than the city grand rapids.

I think that's why we're seeing the county start to get involved in these conversations around affordable housing, because we're having the pressures in the neighborhoods, in the community and it's displacing people to kind of that first ring suburbs.

We have to look at it from a county perspective and how we can build housing.

I think we all also have to get over the fact that grandpas used to be a a big small city and where people can get anywhere they wanted to get within 10 minutes.

I think we're gonna have to start looking at potentially a long commute, like some of the other metropolitan areas, especially since, this is a growth area for the state.

So I think that's just what we're gonna have to get used to.

- There is that idea, the American dream of the single family dwelling that plays into some of this too.

There are some benefits of owning a single family.

- It is.

We talk about the wealth creation or even the ability to leverage that asset for other things.

So when we look at how difficult it is for African American entrepreneurs to secure access from a traditional financial institution, having asset like a home or some other kind of property where you can leverage that in the form of a line of credit or whatever you need to be able to either finance your business or put some capital into your business, or even use that for other investment opportunities.

So we see a huge gap in that for the African American community, 'cause when we look at home ownership rates, it's very low and it's historical reasons for that, as far as like redlining and just discrimination and racism amongst financial institutions, not only here locally but nationally.

- You touched on interest rates, where are we going, Paul?

(everyone laughing) - Well, the Fed has already said that they're gonna do six more this year is what they're forecasting.

So that means that we're looking at one and a half percentage points total over the course of the year is what they're saying.

That amount right now, given the slowdown that's gonna happen because of the additional price pressures of the Ukraine starts tipping us towards worrying about a recession in 2023.

It doesn't mean that one will happen, but it means that we start worrying about it because that's a lot of interest rate increase in a short period of amount time.

- But it's tapping the brakes, right?

I mean.

- [Paul] That's what they're gonna try and do.

- Right.

But you're saying it, yeah, it was so overheated and now the pendulum is swinging.

- What pulls a pendulum back in the economy isn't gravity, it's prices.

So that really accelerated run up in prices that we see is slowing the economy down now.

What we're trying to do with increasing the interest rates is slow the economy down.

So if we get the mix wrong, then we have a problem.

So economists are gonna be watching very carefully over the second half of this year to make sure the federal reserve is getting the mix right.

- So what do people need to keep their eye on?

What are the certainties?

What are the uncertainties at this point?

- Well, there's lots of uncertainties.

So what we know is prices are gonna go up this year.

We know wages are gonna go up this year pretty fast, probably not as fast as prices.

So we're now looking at a seven to 9% increase in CPI.

We're probably looking at a five to 7% increase in wages.

We're looking at interest rates going up more than another percentage point for the rest of this year.

Those are the things that we know.

So under those situations, we have to ask, how does that change your business?

If it changes your business, how do you take advantage of that now today?

- Because businesses, there's a balancing act here and it's already started.

- It's been started for the last couple of years, definitely.

Balancing, like I said, where do they pass on their increases?

Well, what we're telling businesses today is those things that they can actually purchase into the future.

Definitely start looking at those.

When we saw people who have construction projects, they push some of their construction, and now, we're seeing a lot of that occurring in 2022, whereas everything was paused in 2020.

People started to plan projects 2021 and now it's just go, but we see cost increase on everything.

- But it's difficult because we saw this light at the end of the tunnel and it's all been dashed.

- I mean, one of the big problems that we have here isn't any one of these things.

It's the fact that they got stacked one on top of the other.

So we had an unprecedented pandemic, which hadn't happened in this level for a hundred years.

Then we have unprecedented stimulus, which hadn't happened since world war II.

And then we have a war that in Europe, which is not similar to any that we've had recently.

When you start stacking them on top of each other, you start becoming much harder to figure out what's going on.

- Stay tuned.

(laughs) I'm sure this will be an ongoing conversation.

Hopefully, things will improve.

Paul Isely, Associate Dean in the Seidman College of Business at Grand Valley State University.

Thank you for joining us.

And Jamiel Robinson, founder and CEO, Grand Rapids Area Black Businesses.

Thank you both so much.

- Thank you.

- Thank you.

- Thank you for joining us.

We'll see you again soon.

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