What’s next for the U.S. economy?

The state of the economy was front and center at the Greater Norwalk Chamber of Commerce’s Economic Outlook Breakfast on Feb. 16, sponsored by Webster Bank and held at the Norwalk Inn.

The keynote speaker at the event was Jason Bram, the economic research advisor for urban and regional studies at the Federal Reserve Bank of New York, who shared survey data gathered from businesses owners within the bank’s territory.

“What we do in these surveys is ask a number of very straightforward questions,” Bram said. “For example: Is such and such going up or down, what are employment prices like, etcetera. And one of the questions we ask about is business activity.”

Bram noted that over the past six years, particularly around the start of the pandemic and the Russian invasion of Ukraine, business owner sentiments trended negative. Their views are ranked on a scale of 1 for the most positive sentiments to negative 1 for the other end of that spectrum.

“Now, a little small bit of good news is that in February both our surveys reported an uptick in sentiment,” Bram said. “But it’s still below zero. So, you still have more businesses saying that things seem to be getting worse than things seem to be getting better.”

“Knowing what people and what businesses expect for inflation is very important because it colors their decisions,” he added. “It can actually be a self-fulfilling prophecy in the sense that if you think your prices are going to go up, or you’re more likely to pay more for wages and other inputs, that’s going to create conditions for this sort of inflationary spiral.”

The quicker bounce back of the service industry, where employees earn less per hour, offset the net productivity gains in white collar roles, which represent a smaller segment of the workforce.

“It’s not that these workers are less hardworking or anything,” Bram said. “It’s just productivity levels tend to be much lower. If you look at the revenue people generate per job per hour worked, it is much lower in say the leisure and hospitality sector than it is in say, the information sector or the finance sector.”

Bram also pointed to the pandemic as a catalyst for major changes in housing trends and office use.

“The housing market has benefited I think from the pandemic in a long-term sense,” Bram noted. “If people are spending 30% more time working at home, they may not need 30% more space, but they’re going to want a little bit more space.”

According to Bram, housing will remain a sought-after commodity in Fairfield County as those seeking more space continue to filter out of the city while those who still desire the advantages of New York City take up their leases.

“But while we hear about housing shortages, office is the very opposite,” Bram stated. “Gradually more people were already working remotely, a few were doing flextime. I think the pandemic accelerated what would’ve maybe been the next 20 years of more and more people working remotely into like a month.”

Bram also predicted the shift to remote work to eventually be “a lot higher than 8%” of all workers, with a 16% figure seeming somewhat likely, noting that would mean roughly 80% of workers will not see a major reconfiguration of their workplace in the long term.

Overall, Bram anticipated a slow but steady improvement across much of the economy in the Second District, though warned of long-term challenges.

However, looking at the long term, guest speaker Tim Pierotti painted a grimmer picture. Pierotti is the chief investment strategist at WealthVest, a financial services firm with New York City offices.

“There are things that are out of the Fed’s control,” Pierotti warned. “The extent that the lower elasticity of supply we have seen recently could become more common due to challenges such as demographics, de-globalization, and climate change. It could cause a shift to an environment characterized by more volatile inflation compared to the proceeding for a few decades.”

Pierotti stressed this was, to some extent, the result of the end of a period he called “the great moderation” where many factors contributed to keep inflation low. However, he pointed out that geopolitical tensions driven by and stemming from conflicts for energy resources ”” including both fossil fuels and the raw materials ”” and underinvestment by extraction companies spurred by high inflation will likely only broaden the gap between supply and demand.

“We all have enjoyed this disinflationary bull market of the last 40 years and we’ve all learned to stick to our knitting, and my argument is you probably shouldn’t do that” Pierotti concluded, urging attendees to consider new ways of approaching markets and businesses.