Hi, I'm Jeff Rea, your host for Economic Outlook.

Thanks for joining us.

As we dig into the trends, the people and the forces shaping our regional economy.

On today's episode, we're taking a broader look beyond our backyard to the national and global economies and how they ripple through our local communities.

I'll sit down with PNC chief economist Gus Faucher to talk inflation, interest rates, job growth and what we might expect in the months ahead.

That conversation is coming up next.

The US economy has been through a whirlwind over the past few years.

Pandemic disruptions, record inflation, interest rate hikes, supply chain snarls, shifting labor markets, and most recently, market instability due to tariff uncertainties.

While some signs point toward stabilization, questions remain about what's next and how it impacts the day to day realities for businesses and workers in our region.

To help us make sense of it all, we're turning to a leading voice in the field.

Joining me today is Gus Faucher, the chief economist at PNC Financial Services with deep experience analyzing economic trends and forecasting what lies ahead.

Gus will help us connect the dots between the national trends and the local impacts.

Welcome, Gus.

Thank you very much.

Pleasure to be here.

Gus, it's great to have you back here again.

Really appreciate you joining us.

You've become a trusted source on the economy.

And we thought given just kind of all of the conversation about it everywhere, we thought it'd be helpful to have you back again.

Gus, just to maybe level said at the beginning, remind us of of just kind of your role at PNC and kind of what you do in this in the economist space there.

So I'm the chief economist at PNC.

And what that means is that I'm forecasting where the US economy is going to be going over the next few years.

I look at the data that come in.

I look at what we're seeing in terms of federal government spending policy and what the Federal Reserve is doing with interest rates.

Now, I'm looking at tariffs and some of the tariffs that the Trump administration is talking about, and figuring out how the US economy is going to perform, what's going to happen to the job market.

What's going to happen with economic growth?

What's going to happen with interest rates?

What's going to happen with inflation?

Great.

Thank you.

And we've appreciated sort of your your kind of honest insight and the look into your crystal ball sometimes to help better understand some of that.

So so Gus, let's just start kind of high level talk to us a little bit about just the kind of the national economy, sort of the state of, of the economy.

What's strong, what's concerning?

Give us a little insight there.

So so we just recently got data on, gross domestic product.

That's the size of the US economy.

It actually fell slightly in the first quarter of 2025 by less than 1%.

It can't it it contracted because we brought in a lot of imports from abroad.

So businesses were trying to get ahead of potentially higher tariffs from the Trump administration.

And we did get those in April.

So they were importing a lot in January, February and March.

That subtracted from economic growth.

And we saw the overall economy contract slightly.

That being said, I think generally the economy is in good shape in early 2025 and in particular the labor market looks very good.

We've added about 150,000 jobs per month on average so far this year.

The unemployment rate is around 4.2%.

It's a little higher than it was a couple of years ago, but still historically low.

Consumers continue to increase their spending.

They're buying a lot.

They're feeling comfortable.

Or at least they were before the tariffs came on.

And so we're we're starting from a pretty good spot at this point.

But I do think that the tariffs are causing some big disruptions in the US economy right now.

Great.

Guess I'll stay in the tariff space for a second to help, maybe help the average viewer better understand a little bit of, you know, kind of what's happening in that tariff space and how it will, how it could ultimately impact them.

So first of all, tariffs are a tax.

They're a tax on goods that we import into the United States from other countries.

And so in early April, the Trump administration announced a new, much higher round of tariffs on many countries, most countries.

Now some of those tariffs have been dialed back.

But when you look at the level of tariffs as of now, they're about eight times higher than they were at the beginning of 2025.

So that means that it's going to be more expensive for businesses to import goods from abroad.

And they're going to pass these higher prices along to their customers.

So that means we as consumers are going to pay higher prices for imported goods.

Manufacturers, including those in northern Indiana that use imported goods in their production processes.

They're going to pay more for that.

And so it's going to increase prices across a wide variety of goods in the US economy.

And it's not just foreign goods.

U.S. manufacturers will see that their competitors now face higher prices.

So they may be inclined to raise their prices as well in order to increase their profit.

So we're going to see higher prices for most manufactured goods in the United States as a result of tariffs.

And that is going to be a drag.

It does mean that if we're we as consumers are paying more for some goods, we have less money to spend on other things.

Same thing with businesses.

If they're paying more for imports, and they may have lower profits and maybe less willing to invest, or to higher rate.

Gus, can you give us some, maybe historical perspective on tariffs?

Is this, you know, I mean, this I think seems new to, to some people, but tariffs have been around for a long time to, you know, have you in your time seen something like this?

I have not when you look at this historically.

When you look at tariffs relative to the level of imports, these are the highest tariffs we've had in, in, you know, more than 75 years.

So I'm not quite that old.

You know, so it used to be back in the, you know, when the early part of the country, you know, in the, in the 19th century, tariffs were very high because that was an easy way for the government to collect tax revenue.

And tariffs were viewed primarily as a revenue source.

Now they're a function of trade policy.

The Trump administration is concerned about the United States trade deficit.

And so they want to make it more expensive to buy imported goods.

So that's why they've raised tariffs.

But we haven't seen tariffs at this level for 75 100 years.

Right.

So just let's let's stay in the tariff space for a second.

Talk for a second.

You know one of the I think the, objectives I hear coming out from outside of Washington is we want to bring some manufacturing back here.

And if we level this playing field, this will encourage folks.

Is there a chance that, that this will lead to greater success on the labor market or less unemployment?

Will some companies bring production back as part of this?

I do think that we will see some countries increasing their manufacturing output in the United States, and they may hire more.

Now, it's going to take a long time for them to build the facilities, find the workers, all of those types of things.

And so we shouldn't expect to see an immediate increase in manufacturing employment.

And then there are going to be other companies, other manufacturers, other non manufacturing companies that are going to be hit by tariffs and they're going to actually reduce employment.

So I think the net effect on employment is likely to be minimal.

I don't think it's going to do much to increase employment or decrease employment for that matter.

But I do think that it is going to be a drag overall on the economy is consumers are paying higher prices for a lot of the goods that we're buying.

Great.

And one last tariff question.

So so any advice, Gus, to, to business people who are watching this that, you know, kind of a maybe a small business person who's sort of seeing this, in any advice on how to help weather, you know, kind of the what's going on in the tariff space.

Yeah.

What I think that they can do is they can redouble their efforts to make sure that they are searching for the lowest prices that are out there.

They can talk with their distributors, see if they can get import from countries that are subject to lower tariffs.

So, for example, tariffs on China are very high right now.

So maybe you can find, imported product coming in from another country that's less expensive than those from China.

To talk with, other companies that are located in the United States that perhaps aren't subject to tariffs.

But I think for many businesses it is going to be difficult for them, and they are going to face higher prices for many of the goods that they're buying.

Great.

Guest.

Let's shift a little bit.

Let's talk inflation a little bit.

And I again, maybe the the national news doesn't always sort of get into the depth of the economy.

Right.

They're talking about the price of eggs and whether it's up or down or gas or whatever.

But but talk generally about inflation and what's happening in the inflation space these days.

So we saw inflation slow dramatically over the past couple of years.

So you go back to 2021 or 2022 when the economy was starting to reopen and we were buying a lot of things and in particular a lot of goods.

You know, we had been cooped up, we got stimulus funds, so we had more money to spend.

So we were going out and purchasing a lot of things, and businesses couldn't keep up.

They couldn't supply goods fast enough, and that allowed them to raise their prices.

So we saw very high inflation in 2021, 2022.

And then we had the Russian invasion of Ukraine and much higher energy prices.

What we've seen since then, over the past couple of years is that inflation has slowed.

That doesn't mean that prices have fallen.

It means that prices aren't going up as quickly now as they were a couple of years ago.

So you go back to 2022, let's say, in prices in 2022, on average, across all of the goods and services that we buy were about 7 or 8% higher than they had been a year earlier.

Now, in early 2025, what we're seeing is inflation is closer to two and a half, 3%.

So prices have gone up by about 2.5% or 3% on average from where they were a year ago.

It's a little bit higher for some things like housing and education and health care a little bit lower.

Energy prices have basically been flat or down over slightly over the last year or so.

But when you look at prices now, first thing is, is that they are still much higher than they were before the pandemic.

They're about 25 or 30% higher than they were then, but they are going up more slowly now than they were a couple of years ago.

So we say that inflation is slowing, and also inflation is still a little bit higher than the Federal Reserve would like.

The Federal Reserve has set an inflation objective of around 2%.

Inflation now is running somewhere closer to two and a half 3%.

So the fed still would like to see a bit of a slowing in inflation.

And then with tariffs tariffs are going to raise a lot of prices right.

We're going to see higher prices for imported goods.

We're going to see higher prices for some domestically manufactured goods where the domestic producers are going to take advantage of tariffs to raise their prices.

So I do expect to see a slight acceleration in inflation, particularly for goods, over the next six months or so.

Is the impact of those tariffs works their way through the economy.

Great.

You know, Gus, I think back to the, the 2000, the national media, began to descend upon our area here a little bit, especially Elkhart, because that's the bellwether that, you know, kind of predicts what's happening sort of in the economy and such.

Just this last week, one of the national news had to do a story from Elkhart.

You know, kind of talking is the is there a recession coming, some of that.

So, talk a little bit about, you know, just maybe some local perspective, things like RVs and such, which we depend on very heavily to, to drive our local economy, how things like that are performing in today's economy.

Yeah.

I think when you look at RVs, when you look at durable goods more generally.

So these are big ticket items like cars and appliances.

A lot of which are produced in Indiana, in northern Indiana.

You think about it, you know, if you go out and buy an RV, you're not going to pay cash for it.

Most of the time you're going to finance it.

And with the Federal Reserve raising interest rates over the past few years, it's a lot more expensive to finance an RV now than it was back in 2021, when interest rates were much lower.

So that's been a drag on heavy manufacturing.

It's been a drag on RVs, in particular in the northern Indiana economy.

Now interest rates are down a little bit over the past six, nine months or so, but they're still a lot higher than they were a few years ago.

I mean, so that has been a bit of a drag and we have seen a bit slower growth in Indiana, in northern Indiana compared to the rest of the country because of the area's dependance on interest rate sensitive industries, heavy manufacturing, RVs in particular.

I think we'll see the fed probably cut rates later this year, so that may provide a little bit of a support to the industry.

But on the other hand, consumers will be dealing with higher inflation from the tariffs.

So that may make them a bit more reluctant to spend great gas.

When we've been together before August, we've talked a little bit about, the stock market and I think, Joe Public sometimes think the, the, the stock market is a strong indicator of what's happening, on the economy.

And.

Sure.

And obviously, I think we're coming through one of the biggest losses months in a long time, which has people worried about their 400 and K's and some of that talk a little bit about just kind of stock market in relation to the the economy and what's happening today.

Yeah.

So a couple of things.

First of which is that the stock market is forward looking.

It's not looking at conditions in May in 2025.

It's looking at conditions towards the end of 2025 or in 2026.

Investors are trying to figure out how corporations will be doing six months, 12 months, a couple of years down the road.

There's no question but that the stock market responded very poorly to the tariffs that President Trump announced in April.

There was an expectation that these tariffs would be a substantial drag on economic growth, that they would weigh on corporate profits.

Now, as the administration has stepped back from some of those tariffs, we've seen stock prices come back somewhat.

I would point out that, you know, the decline that we saw in the stock market in the spring of 2025, you know, we oftentimes see stock prices were down about 19% from their peak in in February to where stock prices bottomed out in April, at least, at least for now.

We oftentimes see stock price declines of that magnitude without getting a recession.

So we're still waiting to see what's going to happen to the economy, what's going to happen to the stock market.

I do expect that we will see slower economic growth this year, but there are no indications that a recession is imminent.

And in fact, some of the economic data are looking pretty solid.

Consumers continue to spend, jobs continue to go up.

And those are obviously positive signs for the economy going forward.

I appreciate you sharing that.

I think some some are ready to hit the panic button, kind of why we wanted to talk today a little bit because I think there are some some good indicators there.

Let's talk the jobs side of things.

You talked a little bit about unemployment, relatively stable and low labor market has been growing.

Obviously from a region where we're interested in that economy growing.

We've seen some major investments in and things like data centers and EV and some other things.

But talk to us a little bit about just maybe industries even that are kind of driving economic growth, maybe some, some things that that are real positives, either for our region or for the US as a whole on the on the job side of things.

All right.

So, so first of all, when we look at the unemployment rate, nationally, it's pretty low in Indiana, it's it's pretty low.

It's a little bit higher in northern Indiana than it is in the rest of the state, in the US, but not noticeably so.

And I think that the labor market generally remains pretty solid.

When we look at job growth over the past couple of years, it's been concentrated primarily in service industries.

So things like education, which is obviously very important for northern Indiana, health care, leisure, hospitality services, those types of service industries, construction employment has generally been going up.

Manufacturing's been a little bit softer, as I mentioned, we you know, the economy has been dealing with higher rates.

And in particular, that's a drag on on manufacturing employment.

But generally job gains have been broad based.

But concentrated more in service industries.

And I think that it is still a tight labor market in the United States, in Indiana, in northern Indiana, perhaps not as tight as it was a few years ago.

But as long as the economy continues to add jobs, that means that household incomes should be going up and consumer spending should be increasing.

Great.

Thanks for that perspective.

We have a lot of close attention on what's happening on the job side of things.

You know, here in particular, just give us some, can you give us some, global perspective, you know, like, like, I think we, maybe talk a little bit about sort of global influences, maybe how other economies in the, in the world are doing and how those, might influence what happens in the US.

Yeah.

So, so, so just as in the United States, we dealt with high inflation and then we had the Federal Reserve raising interest rates in the US.

We saw the same situation globally.

So when you look across the world, you had high inflation in most economies during the recovery from the pandemic.

You saw central banks raising interest rates.

The Bank of England, the European Central Bank, the Bank of Canada, in response to that high inflation.

Now, like the fed here in the US, we've seen those central banks cutting rates.

But interest rates globally, not just in the US, but interest rates across the world now are a lot higher than they were back in 2021 or 2022.

And that does mean that we have seen global economic growth slow as these economies have adjusted to higher interest rates.

And then you add on the top of that the tariffs and the trade war that we're experiencing.

And those are likely to hit other countries perhaps even harder than they would hit the United States.

So you look, for example, at the Canadian economy.

They're very dependent on manufacturing exports to the United States.

So the tariffs that the Trump administration has imposed on Canada, in particular, those are going to be a drag on the Canadian economy.

And we've seen higher tariffs on goods coming in from the European Union, from Mexico, particularly from China, from the UK, you know, all the countries across the globe.

And so that does mean that global economic growth this year is likely to be a lot softer than it was in 2024.

And that does increase the risk of a recession in the US economy.

Now we can have a global recession without a U.S. recession.

But that does mean that export growth in the United States is going to be weaker.

Economic growth in the United States is going to be weaker, and that makes us more vulnerable to some kind of shock.

And then I'd also point out that we're seeing, just as the United States has raised tariffs on imports from overseas, other countries in retaliation have raised their tariffs on US exports.

And so and there are a lot of these businesses in northern Indiana that export all over the world.

The higher, tariffs that our trading partners are imposing are going to be a drag on those companies.

And so that may offset some of the benefits if these companies are receiving them from higher US tariffs.

Yeah.

I appreciate you know, I my experience in terms of talking to some local folks, Canada in particular.

So Michigan and Indiana are both really important Canada trading partners.

And so there's been probably the most discussion I've heard is related to, you know, kind of that, US Canada kind of relationship and what's going on there, Gus?

Let's, let's look ahead a little bit.

And, and I think you've kind of touched briefly on, but, you know, this is, you know, folks, our viewers are trying to think about, you know, kind of the rest of the year and what's what's ahead.

You talked a little bit about and again, not holding you to it, but but obviously you're looking at a lot of data and information, you know, talk to us about, you know, kind of, some of those key indicators you're watching and what, what you think is, logical that could happen.

You know, in the US economy as we get through the rest of 2025.

So, so first of all, let let you know.

Let's consider first of all where we are, which is in, you know, the spring of 2025, what we called the hard economic data, data on the number of jobs, data on industrial output, those numbers generally look pretty good.

The labor market remains solid.

We're watching initial claims for unemployment insurance.

Those come out every Thursday for the precede in week.

So those are a good, real time indicator of how the labor market is doing.

There's been a little softness there lately, but still looking pretty good.

So do you look at that hard economic data often comes with the lag, but that's generally solid.

What we're looking at, and what's more concerning is what we call the soft data.

Things like how we're consumer is feeling.

How are businesses feeling, what are they saying?

Anecdotal reports, things like that.

And that type of data doesn't look as good.

Now they're can often be a disconnect between the hard data and the soft data.

A couple of years ago, consumers said that they weren't feeling very good, that they were anxious about the economy, but they continued to spend in the economy chugged along.

So just because we've had some soft economic data that has come in worse than expected recently, that doesn't necessarily mean that the economy is in trouble, but we are going to be looking to see if we start to see some weakness in that hard data that matches what we're seeing in the soft data so far.

And it's going to be interesting to see how that contradiction resolves itself.

And whether we do start to see some indications that the economy is softening as we head towards the middle of the year.

Great guess, as we get into our last three minutes or so, your role at PNC or, you know, as an economist, you're helping, business people are part of, of your of the organization, their, make decisions and navigate, you know, kind of what's going on.

What advice would you share with, with business owners, with community, with kind of everyday Americans about, navigating the economy?

Yeah.

I mean, there's just a great deal of uncertainty out there.

So we're not quite sure what tariffs they're going to be, how high they're going to be, how long they're going to be in place.

And so I think this and you know this I think people have turned more cautious.

And that is certainly understandable.

Given the current environment, you know, you need to make a decision, you know, does it make sense to, to purchase something now to make an investment?

Now, or do I think that if the tariff situation is resolved sometime over the next couple of months, you know, the economy may be doing a little bit better.

We may see some lower prices and so forth.

So just a lot of uncertainty out there.

But you need to look at your own personal circumstances.

The other thing is, is, is not to panic.

I think that the US economy, when you look at it in early 2025, is, is still in okay shape.

Obviously I think the tariffs are going to be a drag, but that doesn't mean that we're necessarily going to get a recession this year.

So the the other point I would make is don't panic, that I think that there are some real strengths to the United States economy still.

And that I think that over the longer run that the US economy will continue to grow, will be creating more jobs, and we will see inflation, slow a little bit further, not necessarily in 2025, but in 2026 as we adjust to the tariffs that are in place now.

Great.

Maybe last question in our in our last minute or minute and a half or so, talk a little bit about just people who want to know more, learn more.

What are some what are some of the best resources out there for people to better understand sort of economic conditions and how to how to look at some of those things?

Well, I mean, certainly I can refer to our website which is pnc.com/economic reports.

And so we have write ups and all the data that come out.

We have a US economic outlook and so forth.

So they can take a look at that.

But you know just look at a wide variety of sources and not particularly from one particular ideology or another.

You know, I look at a wide variety of publications, whether it's The Wall Street Journal or The New York Times or The Economist magazine, you know, so, so follow those types of things and, and follow economists at different stripes.

They're liberal economists.

They're a conservative economists.

Nobody has a monopoly on the correct answer.

So try to get your news from a wide variety of sources that give you diverse opinions, and then that will help you better understand what the economy is and how it's doing and how it's performing for all of us.

Gus, we're grateful.

Thank you for your time today, for being with us.

You present stuff in a really easy and understandable way.

We're we're glad that you've, great us with your with your time to help us better understand that.

So thank you for being here, Gus.

For thank you very much.

Appreciate it.

That wraps up this edition of Economic Outlook.

A special thank you to Gus Faucher for joining us and offering his valuable insight into the state of the economy and what lies ahead.

Thanks for tuning in to PBS Michiana WNIT or listening to the podcast.

Don't forget, you can catch all past episodes at WNIT.org, on YouTube and on most major podcast platforms.

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I'm Jeff Rea, I'll see you next time.

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