Conversation about the economy has centered on COVID-19 the last two-plus years.
Michael Joyce, president of First Merchants Private Wealth Advisors, said every economic presentation since April or May 2020 has included the number of positive COVID-19 cases.
Joyce, who spoke at Noblesville Chamber of Commerce’s State of the Economy May 25 at Purgatory Golf Club, said the pandemic has affected the supply chain and inflation. But there are other issues as well.
Joyce, a Carmel resident, was preparing to deliver a State of the Economy address in December 2021 when it was postponed.
“The crisis in Ukraine was not in my materials in December,” Joyce said. “This is a humanitarian issue and this is a geopolitical issue. I’m not qualified to talk about those two things. I’m mildly qualified to talk about the economic impact of the Russian-Ukraine issue that is going on right now.”
Joyce said Russia is not an economic powerhouse, making up less than 2 percent of global gross domestic product market.
“However, they control some very key inputs for the global marketplace, particularly around energy and broader commodities, particularly in the agricultural space,” he said. “Eleven percent of the world’s wheat comes from Russia.”
Another 2 percent of the world’s wheat comes from Ukraine.
Joyce said wheat is a key input for global supply chains
“You can see the impact the Russia-Ukraine crisis could have in the coming weeks,” Joyce said. “As the planting season has been missed in Ukraine and Russia because of this conflict, the global supply of wheat is about six weeks’ worth. You could start running into some downstream effects of there not being enough wheat in the world.”
Joyce said northern Africa gets more than 8 percent of its wheat from the Russia-Ukraine region.
“Nothing will cause unrest like not being able to feed people,” Joyce said.
Joyce said the Russian-Ukraine crisis has dealt a shock to commodities, particularly energy, grains and select individual metals such as aluminum, nickel and zinc.
The most noticeable is the cost of gasoline.
Joyce said the slowdown in China’s economic growth has created additional issues. He said China is hampered by much stricter COVID-19 regulations, causing shutdowns.
“That is part of what has been driving inflation higher,” he said.
Joyce said unemployment in the U.S spiked to 14.7 percent on April 30, 2020. Two years later, the unemployment rate is 3.6 percent.
“It’s almost historical lows,” Joyce said. “You look on the surface, and that appears to be a good thing. The unemployment rate doesn’t tell us the full scope of the story. You have a low unemployment rate, but then you have a rapidly rising average hourly wage. If you run your own company, you know it’s hard to find people. When you do find people, it’s hard to be able to pay them.”
Joyce said 11 million jobs are open. At the same time, people are quitting at record rates because of the highly competitive labor market and support from stimulus savings.
Joyce said it also could be a factor behind people not working two jobs like before.
Another factor is the aging workforce deciding to retire early during the pandemic.
“There are a lot of mixed messages in the employment market right now,” he said.
Joyce said Indiana’s unemployment figure is similar to the national number.
“By and large, Indiana has weathered the storm slightly better than average,” Joyce said.
Joyce said the recovery in the service section has been slower. Travel, entertainment and restaurants were all severely limited in the early stages of the pandemic.
“The recovery in goods was almost instantaneous,” Joyce said. “We realized we were flush with cash (from stimulus payments), and so what are we going to do? We’re going to buy stuff. The recovery in services has been a little bit slower. We are starting to see this normalize a little bit.”
Joyce addressed core inflation, such as flexible items to overall inflation.
“Things that are flexible like energy, food, we’re used to one week that eggs might be more expensive than the previous week,” he said. “There is always that volatility, but it’s the sticky items that the economy can handle a little less movement because they stick around for a long time. We’re thinking about health care, education and rent. If you look back at the 1970s, you had pressure on both sticky goods and flexible goods. Since the 1980s, we’ve not had that. Economists and the (Federal Reserve) in the last few months are starting to see an increase in the price of those sticky items.”
On the positive side, consumer spending continues to be strong, Joyce said.
“The United States economy is made up of almost 70 percent consumer spending,” he said. “If you adjust for inflation, you can see we are starting to get to the point where it’s there is almost a slowdown in consumer spending.”