By Colette Panchot
What follows is an edited version of a January 11, 2023, interview with local economist Chris Kuehl. Kuehl is the managing director and cofounder of Armada Corporate Intelligence, which provides corporate intelligence gathering, economic forecasting, and strategy development. He was also a professor of economics and finance for 15 years.
How did the Kansas City metro area fare in comparison to the U.S. economy in 2022?
We are in the middle of the country geographically and economically. Our local economy is diverse, so at any given time we have sectors that are doing well, and others that are not. Now the automotive industry is very strong, and aeronautics is coming back. The agricultural, health care, and hospitality sectors have been down, but they are starting to recover.
What do you predict will happen to the rate of inflation this year?
We may have reached the peak of inflation. We hit a high of 9.2% at the beginning of 2022, and now we are at 7.1%. Inflation is still high but has eased on energy and shipping rates, but not on agricultural products, such as the price of eggs that spiked due to the bird flu. Luckily the bird population replenishes itself in 36 days, so prices will drop quickly.
It is also encouraging that farmers are expected to plant 2-3 times more than they had planned even a month ago because of rain in California and the Midwest. These heavy rains, called the Pineapple Express, happen every 5-6 years and relieve the drought for about a year. The snowpack is huge, and about half of reservoirs in the West will be back to normal by spring if we get the usual snowmelt.
How will the worker shortage affect our area?
We have an unemployment rate of 2.3% compared with a national norm of 3.7%. Normally such low numbers would prompt layoffs, but employers don’t want to lose the scarce workers they are able to attract.
Missouri and Kansas don’t have enough skilled workers when companies return their operations from overseas, which is called reshoring. With the Panasonic lithium-ion battery manufacturing plant coming to De Soto, Kansas, the company is expected to hire 4,000 people, mostly from out of state. They will also have to invest heavily in robotics automated technologies.
Missouri and Kansas are emphasizing workforce development at junior colleges and trade schools, which will be very helpful down the road. If workers have the skills, they have leverage they haven’t had in a long time.
We are also seeing more union activities, with potential railroad and airline strikes, and the longshore strike that still hasn’t been resolved.
What about the price and availability of local housing?
Multi-family housing building permits increased locally by 20%, a number that has not been this high since the 1980s.
The number of single-family home permits in 2022 meanwhile declined by 20%. Mortgage rates have gone up, and single-family homes will remain out of reach until prices decline.
We are always short on low-cost housing, which is the hardest to get built and requires mass transit to get residents to their workplaces. Cities across the U.S. have the same challenge, which needs to be addressed nationally, rather than after the fact, which usually meets resistance.
What do you expect interest rates to do in 2023?
Interest rate policies will calm down a bit. I expect the central banks to push up rates another ¼ to ½ percentage point. The consensus view is the Federal Reserve will get to 5% inflation and stop, which would take us back to what was considered a normal rate prior to 2008. We can probably expect interest rates to come down in July or August.
Do you expect another recession in 2023?
My overall assessment is that we are going to see a significant downturn for just a couple of quarters of minor recession, and by the second or third quarter we will start to see growth again.
There are potential pitfalls, such as credit card use being way up. People can sustain big credit card debt as long as they are employed, but if the unemployment rate got worse, then we would have a crisis quickly because people don’t have much savings.
In 2021, the national savings rate hit a record of 38% of income, and now it is below average at 4%.