JOHNSON CITY, Tenn. (WJHL) — Whether the National Bureau of Economic Research poobahs deem the U.S. to be in a recession after two straight quarters of negative growth, a weakening economy poses some particular risks for the region, a local economist told News Channel 11 Thursday.
“I think we’re definitely entering a recession that’s been brought on by the fed (U.S. Federal Reserve System),” Milligan University economist David Campbell said.
While the Biden administration has balked at admitting the economy is in recession, pointing to extremely low unemployment and several other factors, the standard definition — two consecutive quarters of a contracting economy — has been met.
The federal government reported a 0.9% decline in gross domestic product (GDP) in the quarter that ended June 30. That follows a 1.6% drop in 2022’s first quarter.
Campbell said the government has a point about unemployment, but added that one cause is a slow return of people to the workforce post-COVID.
“There aren’t as many people to be producing things and selling things so you would expect to see that in the GDP numbers,” Campbell said. And that’s what is showing up, he added, with softer conditions across a number of sectors partly brought on by the fed’s recent rapid interest rate increases that are largely designed to quell the highest inflation rate in several decades.
Tennessee’s Department of Labor and Workforce Development released job and labor force numbers for June Thursday. They show eight Northeast Tennessee counties with about 6,000 fewer people combined in the workforce than the June 2019, pre-COVID numbers show, which amounts to 2.6% fewer workers.
Sullivan (-3,768), Greene (-1,958) and Hawkins (-1,338) account for the drop, while the labor force is flat compared to three years ago in Carter, Unicoi and Johnson counties and has grown about 15% in tiny Hancock County and 1.6% in Washington County.
Campbell said he sees particular risk for Northeast Tennessee and Southwest Virginia if the economy continues to weaken. He said several factors are behind this, but the region’s traditionally low wages and incomes are chief among them.
“When you start talking about recession, you look at how people are able to deal with the economic environment they operate within,” Campbell said. “The people who lived in the Tri-Cities before COVID are really struggling now because inflation is nasty.”
Higher prices for necessary goods impact people with lower incomes much more. But layered on top of that, Campbell said, is a very recent phenomenon: large numbers of people moving to small metro areas including the Tri-Cities, which had the #3 and #29 housing markets (out of 300) in the most recent Wall Street Journal/Realtor.com emerging housing markets index.
That creates a real challenge for nurses, teachers, and a host of other people in middle-income jobs who are needing to rent or hoping to buy.
“If you’ve got people who are here already and earning, and have financial profiles of a Johnson City or Kingsport person, those people are unable to live and compete in an area where people are coming in with California and New York financial resources and bidding up prices on them,” Campbell said.
As those pressures mount, the region’s longstanding concerns about “brain drain” — people who grew up here leaving for better opportunities elsewhere — could be exacerbated.
Campbell said his sense is that many of the transplants who can pay top dollar for housing are on the verge of retirement or work remotely, meaning they’re not coming here to take jobs that employers desperately need to fill.
“That makes it harder for people who are fully committed to this area, and I think housing affordability is going to create some serious headwinds for this area as far as near term recession.”
Even if they can’t afford to purchase homes, people with the “financial profiles” more traditional to the region have to rent. Those costs are rising as well and leaving less discretionary income for many people in the middle class.
“When the rank and file starts struggling then your consumer spending starts struggling and that’s a recessionary condition,” Campbell said.
As for the big picture nationally, he said for more than 20 years the U.S. has used fiscal (government revenue and spending) and monetary (interest rates and money supply) policies to avoid at least a couple of recessions that were needed to restore balance to the economy.
“When we use extraordinary monetary and fiscal stimulus to avoid pain, we’re not really avoiding, we’re just pushing it down the road,” Campbell said. He said that led to the massive financial crisis of 2008 and that efforts to combat the COVID-caused recession of 2020 — including interest rates near zero and massive government spending — have helped lead the country to its current inflationary environment.
“A fair amount of that was necessary because of COVID, but I also think it was overdone by both administrations and I think that’s a bill that’s coming due.”
