Arkansas State Chamber of Commerce Executive Director Randy Zook talks to business leaders – big and small – every day. Through his crystal ball, he expects major headwinds for national and international economic conditions, but sees reasons for optimism in Arkansas if workforce issues can be addressed.
Appearing on this week’s edition of Talk Business & Politics, Zook said the Federal Reserve’s efforts to curb inflation through higher interest rates will eventually tame inflation, but it won’t happen overnight.
“It will work eventually. The problem with Fed policy is that it’s lagging behind,” Zook said. The [economic] the signals are clear, but it takes a long time for many of these new costs associated with higher interest rates to work their way into the economy. We’re already starting to hear about slightly lower real estate prices, longer times to sell homes compared to just a few weeks ago, companies that aren’t as aggressive in their hiring practices or efforts. So there are already early signals, but it will take some time. This inflation will stick around for a while. I’m guessing at least another six to 12 months.’
Zook, who is also CEO of Associated Industries of Arkansas, noted that inflation is a worldwide problem. China, Japan, Germany and other major economies are grappling with inflation for reasons ranging from COVID-19 policies to recovery costs to energy supplies — all symptoms he sees as “headwinds around the world.”
In Arkansas, publicly traded companies report strong earnings and the state has very low unemployment. On a potential inflation-driven recession, Zook said he still expects some businesses to struggle.
“Well-run companies will continue to do well despite headwinds, perhaps with less robust results.” But the fact is that the worst of this is yet to come. We have tough headwinds in just a few months,” Zook said.
“That doesn’t mean the bottom is going to fall out. It doesn’t mean anything will be crazy, but we will have a softening economy,” he added. “It’s a paradox. We have a “delay to full employment”. I want to call it that, instead of a recession, so far.”
“Arkansas is healthy. Our commodity prices are strong. We have energy resources that are kind of dormant right now and need to be harnessed again. We have full employment, we need people, that’s what we need. We have businesses that are constrained because they cannot fully employ staff. And that’s everything from hospitals to poultry farms to steel mills to grocery stores. We don’t have enough people ready, willing and able to go to work,” Zook said.
With the midterm elections less than two weeks away, there is significant polling evidence that Republicans will take back the US Congress and the US Senate is considered a coin toss. With a Democratic president, the results could easily lead to a stalemate in Washington, D.C., if the parties split their representation.
“Personally, I think traffic jams are the most desirable situation that can develop. But you know, we need the heavy hand of government to mitigate, not to play deeper and deeper into the economy. Eventually, the economy will recover. Market forces will prevail. Market forces will lead to a return to something more normal. You know, we’ve spent and blown about $5 trillion in addition to normal federal spending in the last 12 or 14, maybe 18 months. So that’s a big stone to throw in the pond. And we will be paying for it for a long time,” he said.
You can see Zook’s full interview in the video below.