Click this link to watch the full interview on NH PBS's The State We're In.
Host Melanie Plenda discusses the state of the economy, with Judi Currie, staff writer for Business NH Magazine, Brian Gottlob, the director of the state's Economic and Labor Market Information Bureau, and Mack Bean, an associate professor at Franklin Pierce University.
This content has been edited for length and clarity. Watch the full interview on NH PBS's The State We’re In.
Melanie Plenda: Are we in a recession, or headed into one? And is that a bad thing?
Mack Bean: I don't believe that we're in a recession. I believe that we're moving towards that direction, but we're also in uncharted territories with this scene because of us coming out of the pandemic. We had a lot of money flooded into the economy. A lot of spending is going on and although we've seen the GDP really declined for both the first quarter and the second quarter of this year, the job market is still very, very strong. If we use traditional methods of trying to measure where we're heading, I think that that would be a mistake because everything is so conflicting at this point.
Brian Gottlob: I would agree, I don't believe we're in a recession right now. The recession talk really accelerated when the second quarter was announced as a negative GDP growth. That meant two consecutive quarters of negative GDP growth, and a lot of people assume that's a kind of a rule of thumb. It's not the official definition of a recession but it certainly sparked a lot of discussion about recession. I think the July employment numbers that came out last week clearly suggest that we're not in recession. While negative GDP is a prerequisite for a recession it's not sufficient, and in order to have a recession, you have to have increasing unemployment and a rising unemployment rate. We don't have that.
Judi Currie: New Hampshire tends to lead the country out of a recession, and there have been times when we've been slower to get to that point. Even if we started to slide into that zone, employers are so far behind in their ability to hire, I feel like it would take a long time to use up all of that available job. They've done a lot of things internally to make it easier. Dunkin Donuts has taken the complex things on their menu and gotten rid of them. Restaurant menus around cities like Portsmouth have gone from the old four pages to two pages. Banks are using more automation and they're finding ways to get more done with less people. I think it would be a long time before we'd see significant job losses from any kind of downturn.
Melanie Plenda: Mack, if I can follow up with something that you had said, that we're sort of in an uncharted territory and that we may need to use different metrics to figure out where we are and if we're in our recession. Can you talk a little bit more about that?
Mack Bean: Traditionally we measured a recession based upon two quarters or six consecutive months of zero negative growth in the GDP. We've seen that since the beginning of the year, this downturn, but yet if you use those type of measure metrics and you compare it to what's truly going on with the jobs report, it contradicts the traditional definition of what a recession is. From my perspective, even though there are warning signs out there, I think we have to look a little bit deeper than the traditional definition to see truly what's going on. In my opinion the economy still remains strong, although we've had a little bit of a decline in production. I think we are still quite a ways away from recession-ish measures in this economy.
Melanie Plenda: Let's talk about inflation. Mack, what's driving it and what impact might it have on a recession?
Mack Bean: There are a number of things that are driving inflation right now. We have global conflict around the world that's driving it. Oil prices are driving it. There's a lot of money in the economy, a lot of spending that's going on and all of these factors are really putting pressures on supply. At the same time, even though the supply chain is getting better it has been lagging to meet demand in recent memories. You have these factors that are really pushing up prices and hopefully over time, we'll begin to see these prices fall even farther than what they have over the past few weeks or so.
Melanie Plenda: The government has raised interest rates to try and lower inflation and slow the economy. Brian, was that a good idea? And has it worked?
Brian Gottlob: I do think it's working. If you look at credit conditions they've tightened, mortgage rates have risen, the stock market while it is bouncing back, some of the impact on asset prices has taken some of the talk of bubble out of markets. It's clearly something that needed to happen. My concern with the federal reserve right now is that they are way more concerned with inflation than they are with the labor market. Traditionally the federal reserve looks at two factors. They want to maintain price stability, but they also want to maintain full employment. In the last few months, they've clearly weighted their concerns to inflation. They want to get inflation down. My concern is they've raised interest rates significantly. The risk right now is that perhaps they over-tighten a bit; another 0.7% or 0.5% rate hike in September, maybe another one after that, I think that would go a long way to almost ensuring that the nation does fall into recession sometime in 2023.
Melanie Plenda: Judy, what kind of impact are gas prices having locally?
Judi Currie: KOA does a lot of economic studies and they figured out that in 2021, 40% of all leisure trips were camping and 53% of people polled were going to include camping in their travel, which is great news for New Hampshire because of all of our wonderful tourist places. Now out west, you might have a spectacular natural wonder, but if it takes a day and a half to get there, that's a challenge. You look at New Hampshire and we have the population of Southern Maine, Boston, Vermont, parts of Rhode Island, even millions of people who can get here on one tank of gas. It's custom made for tourism. High prices peaked in the summer and that's not unusual, but this year, people were not wanting to cancel trips, especially if they canceled them in 2020 and 2021. If I filled my gas tank a few weeks ago and I've been avoiding travel and suddenly it's almost a dollar cheaper, I might be thinking about how many weekend getaways I can squeeze in between now and when the kids go back to school.
Melanie Plenda: Brian, another key factor that we've talked about is consumer spending, which isn't cooling as much as some economists would like. Why is consumer spending important and what does risk spending mean for the economy?
Brian Gottlob: Consumer spending is really the largest portion of Gross Domestic Product. About 70% of the economy is dependent upon household consumer spending. When consumer spending falls and falls significantly, it's a pretty good sign that the nation will be heading into a recession. It's remained high and it remained high even during the pandemic because there was a lot of income support. We had stimulus payments, we had very generous unemployment insurance payments, federal plus state. We're seeing consumer spending holding up. It has slowed, but I think one of the most significant aspects of consumer spending is that during the pandemic, a lot of spending was on goods, not services, because you couldn't do things. You couldn't get a haircut, you couldn't travel, you couldn't fly, you couldn't stay in a hotel. That's shifting now.
That had a big impact on inflation because we were buying a lot of things but we weren't producing as much because so much production was cut back. Now what we're seeing is kind of the reverse of that: fewer consumer goods being purchased, but more spending on services. People are traveling, staying in hotels. Travel spending is back to pre-pandemic levels. There's been a beneficial shift from goods to services that will help inflation in squaring the circle here. I think spending will not fall off dramatically, but it will shift in the direction of spending.
Melanie Plenda: What role does politics play in this equation? Is there more the government should be doing in order to stave off a recession or encourage it to reduce inflation?
Brian Gottlob: In terms of stimulating the economy, that's traditionally a role that policymakers have. We're in a position right now where we really don't need any additional stimulus. We're in a different territory. It's not that often where we ask policymakers, what can you do to slow the economy down so that we avoid a more serious inflation situation and ultimately a more severe recession? If I were to have some policy prescriptions, let's not add to the difficulties that we have, primarily inflation, which is the primary threat to economic activity. I'd be cautious about adding spending that might prompt inflation. I don't think that's been the primary reason that inflation has risen, but we should be careful not to do anything to add to that now.The federal reserve obviously is going to have the biggest role, but we certainly need to be cognizant of not adding to whatever price pressures there are in the economy.
Mack Bean: Traditionally in the US, the government has played a part in maintaining economic stability in this country and a large piece of that part is supporting businesses, which allows for hiring and wages to occur. We're currently in a situation where I truly believe that the government maybe shouldn't look to stimulate the economy because we're currently doing well, and any stimulation can cause farther inflation, which leads down that road toward recession. From a traditional perspective, yes, we need the government and policymakers to create the legislation that's needed to support businesses, to keep the economy going. At this point, I think a little less policy, especially in the phase of spending would be a good thing.
Judi Currie: I think we just passed an important measure and I think people would have more respect for continued belt tightening than they would for some sort of stimulus or additional money. We're kind of flipping the equation and looking at how the economy plays into politics as we head into these midterms. It's a bit of an oversimplification, but Andy Smith at the UNH Survey Center once said that people tend to vote with their pocketbook. You pull them about important issues like abortion and gun control and they'll voice very strong opinions but when they get into that voting booth, they may put all that aside and really think what's best for them and their financial stability. We've also seen that the party in office, incumbents in other words, tend to do best in a good economy. I guess we'll see what happens in November, right?
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