What’s Ahead for the Economy?

Rich Meagher:

Hey, RVA, you’ve listened to us. Now we want to meet you. The RVAs Got Issues team and I will be hosting our Summer Community Meetup on June 10th at Vasen Brewing. Whether you’ve been with us since day one, or just discovered the podcast, we’d love to meet and discuss the topics that matter most to your community and the future of rva. Again, that’s June 10th at Vasen Brewing. Grab your free ticket at RVAs got issues.vpm.org now on with the show. Welcome to RVAs Got Issues, the show that brings you the people and ideas that are reshaping Greater Richmond. I’m your host, rich Maher. Everyone in America is worried about the economy and RVA is no different uncertainty rules with Forecast down and the Trump administration pursuing tariffs and trade wars. Businesses and consumers, owners and renters, buyers and sellers are all wondering what’s next?

Vox-Pop:

I’m at that age where I really do have to start being financially independent, and so it doesn’t feel like a great time to start doing that.

I’m retired now, so it’s a fixed income situation, and so whatever goes up, I have to figure out a way To afford that.

And also you can’t do but so much to prepare for it because it’s outta your control. That’s, I think, the big frustration about it.

Rich Meagher:

So what are the numbers really telling us and what’s to come? We’re joined now by a local economics expert, Sonya Ravindranath Waddell, a vice president and economist at the Federal Reserve Bank of Richmond. Sonya, welcome.

Sonya Waddell:

Thank you. Thanks for having me.

Rich Meagher:

So, Sonya, you’re not like in charge of the economy, but

Sonya Waddell:

Sure. I’m not

Rich Meagher:

Right, but you do work at an important economic institution, right? Listeners may have heard about the Federal Reserve controlling interest rates or see the head of the National Federal Reserve, currently a guy named Jerome Powell might, he might pop up before Congress to talk about the economy. But what does the Federal Reserve do?

Sonya Waddell:

That is a very good question. Yeah. Rich, let me start broad here. Yeah. So we have a system, right, that is made up of the Board of Governors in Washington, DC and 12 regional reserve banks. It’s actually the system that was set up in 1913 as a system. We do payments, we do supervision regulation, we do monetary policy. That’s kind of the broad picture. Yeah. There are some other things in there as

Rich Meagher:

Well. And so like if I make an online payment to my bank or to like a utility, it, it’s not like you are there checking on my payment, but you set up the system that helped, makes that happen.

Sonya Waddell:

Correct. Correct. And that’s about, you’ve now reached the limit of my understanding of payments. We’ll get somebody else into this interview to cover that. Sure. But

Rich Meagher:

Monetary policy, like what is that? Just real briefly?

Sonya Waddell:

Yeah. And I think actually one important distinction that needs to be made is distinguishing monetary policy from fiscal policy. Right? So fiscal policy is what Congress does, it’s what the president does. It’s taxing, it’s spending. Monetary policy is really thinking about the supply of credit in the economy to make sure that we are, um, sort of promoting the maximum sustainable economic growth that we can have in the economy. But to understand the whole economy, of course we need to understand our regional economies as well.

Rich Meagher:

Yeah. And so Richmond has this Federal Reserve bank, right. And I should say we’re recording in the big white building downtown. Thanks for joining us. Oh, yeah. It’s been great. But there’s, it’s a big deal. There’s only 12 of these things, right? Richmond is the center of this Federal Reserve district that includes, uh, Virginia, dc, West Virginia, and the Carolinas. What does having a bank here in Richmond mean for us

Sonya Waddell:

Here? Yeah, and I think you missed Maryland. Did you miss Maryland? Oh,

Rich Meagher:

I did miss Maryland too. Yes. Yeah,

Sonya Waddell:

Sorry to our friends in Maryland, friends in Maryland. So, I mean, there’s, there’s so much to to get into and in terms of like why we ended up with the, with the Reserve Bank, and I won’t get into that history.

Rich Meagher:

Yeah.

Sonya Waddell:

Um, but, you know, one, we are of course a large employer in the Richmond area, but we also, it’s really important for us to understand what’s happening out on the ground. Um, and so we are out, you know, in the city trying to understand what’s happening on the ground.

Rich Meagher:

Yeah. And so when you say on the ground, right, it’s your job in some sense to monitor the economy, figure out what’s going on, what are you measuring and how do you measure it?

Sonya Waddell:

So one thing that comes out of my unit, actually, we run the surveys of businesses throughout the district. We talk to manufacturers, we talk to service providers. They provide us quantitative information that we use. They also provide us comments, right? So if we wanna understand some of the color or even some of the reasoning behind, you know, a report of an investment decline or an employment decline, we can look at that color. Um, but we also have people whose job it is to understand and connect with businesses throughout the district.

Rich Meagher:

Hmm.

Sonya Waddell:

And bring that back to Tom Barkin, who is our president, who sits, you know, on the federal open market committee to bring that back to him so that he can understand sort of current economic conditions.

Rich Meagher:

And so let’s get a vibe check on, on what you’ve been measuring, right? The outlook for Virginia’s economy. And it seems like the news that we are getting, you know, as a regular folk is that economic indicators are mixed. And the survey data, people are showing a little bit of pessimism, or at least some uncertainty, right? So the latest UVA forecast for the Virginia economy used the word lagging, which is never a good word to hear when you’re talking about the economy, right? But Virginia’s running a, a surplus of tax revenues this year. So how do we interpret all of these like competing numbers that, that sort of come at us in the media?

Sonya Waddell:

Yeah. So it is also a very interesting time in the economy. Mm-hmm. Now I started at the Federal Reserve Bank of Richmond in January of 2008. So two months before Bear Stearns collapsed. Mm. So I’ve always been here for interesting times

Sonya Waddell:

Um, but it is a another interesting time. You know, if, if we look sort of at the US economy, the data that we’re getting big picture, it is a little bit lagged, but that data is still pretty good. Right? So we did see a, a negative, uh, quarter one GDP report, right? Zero point negative 0.3% in the first quarter. Um, but a lot of that was businesses pulling forward, their imports in advance of, of potential tariff policies. We saw consumer spending, business spending still, you know, relatively in line with where it’s been and still pretty solid. We had employment gains in April. Right. 177,000 jobs. For those of you who are interested, um, gained in the US in April, our region has also still, you know, seen some pretty reasonable reports on things like consumer spending or employment. But like you said, we have seen this decline in sentiment.

Rich Meagher:

Yeah.

Sonya Waddell:

We have seen it from consumers through different survey measures that we can look at that are done throughout the country. For us, we see it in our businesses. So expectations for things like shipments or new orders or revenues or services, demand have come down. And, you know, one of the surveys that we actually run out of the Richmond Fed is the CFO survey. It’s a national survey. Um, we do that with the Federal Reserve Bank of Atlanta and Duke’s Fuqua School. And optimism among those survey participants in the first quarter came down. Now, I will say for most of our firms, they’re more optimistic about their own business than they are about the economy.

Rich Meagher:

Yeah. I I was, I was gonna quote your president, Tom Barkin, right? Uh, he said recently this quote, the economy right now is like driving on a highway where there’s fog. People are putting their hazards on pulling over and waiting it out. Does that seem like the right move or is that just what people are doing and again, are they reacting to numbers or they’re reacting to what they think is gonna happen rather than what’s actually happening?

Sonya Waddell:

Yeah. So you know that we’ve got a lot of uncertainty

Rich Meagher:

Mm-hmm.

Sonya Waddell:

Right? And we, one of the things that we hear quite a bit from our survey participants and our businesses that we talk to is around tariffs. I mean, I think the uncertainty around the tariff policy has been weighing on business decisions. Um, I think concerns that prices will go up due to tariffs in 2025. Now, we might not see an increase in inflation ’cause that’s a growth measure. Mm-hmm. But like we might see prices go up in 2025. I think that’s been weighing on the minds of households and businesses. And I think, you know, here in Virginia we have that added layer of the federal government sort of workforce or spending cuts that people are concerned about. That’s true in Maryland and DC as well. So that’s something that we’re trying to understand specific to our district, um, because of that potential impact. So I don’t think people, you could say that people are reacting to the data that we’re seeing right now, but I think that there is a lot of uncertainty in the economy and it’s a, it’s a concern for households and businesses alike.

Rich Meagher:

Right. I think the, the big worry, the sort of macro worry is that if enough people withdraw, if they stay off the road in Tom Barkin’s words right. That we could get a recession. Right. Is there some worry about that among economists as well?

Sonya Waddell:

You know, again, the numbers have looked good, right? And so if you take us back to what are we now, we’re May of 2025. So if you think like we’re in 20 22, 20 23, if you take us back a couple of years, um, there was a lot of concern then as well. Um, so, you know, I think it’s hard to look at the numbers and be concerned that we’re about ready to fall into a, you know, a, a low growth or, or a declining situation. But, um, we do have a lot of headwinds on the horizon and it’s something that we’re looking at pretty closely.

Rich Meagher:

So you mentioned that Virginia’s definitely affected by the federal government, and that’s another way to think about Virginia’s economy, right? How federal changes are particularly affecting us here in Virginia and this region, particularly with jobs, right? So the federal workforce layoffs the canceling of contracts, a lot of federal contractors mm-hmm. In Virginia, UVA just downgraded their forecast for jobs saying that Virginia will lose jobs next year. Unemployment was just up this week. What is the outlook for jobs, at least in Virginia? Uh, at least from what you’re hearing?

Sonya Waddell:

I mean, again, there is a lot of uncertainty. I think it’s 20% of the federal government workforce is in dc, Maryland, and Virginia. So I think it is reasonable to think that if we see federal cuts, we’re gonna see, you know, people who are losing their jobs in Northern Virginia. Then the question is what do they do? Right? Like, do they stay in Virginia? Do they stay in Virginia but find a remote job elsewhere? Yeah. Do they move elsewhere? So I think this is something that we also are thinking about in Virginia. I know at at UVA they are and sort of throughout the commonwealth trying to understand what the impact would be if we lose those high paying jobs from Northern Virginia, they go to another state. What does that mean for like our state tax revenues or sort of some of the other ways that we’ve relied on those incomes in Northern Virginia?

Rich Meagher:

Yeah, so here, down in RVA in Central Virginia, we’re getting reports about jobs both ways, right? So a logistics company in South Richmond lays off 50 warehouse workers. Novellas closes a plant. At the same time, CoStar lays off workers, but says they’re also hiring a bunch of workers. Amazon’s gonna open up this new robotic center and Goochland, again, it feels like a bit of a rollercoaster if you’re just trying to follow these job announcements. How are Richmonders supposed to feel about these announcements, right?

Sonya Waddell:

Yeah. I mean, so one thing, you know, I said 177,000 jobs in April, right? That’s a net number. So there’s always churn, there’s always hiring, there’s always firing in, in any economy. You know, in Virginia we saw a positive jobs report this week, but we saw some declines in federal government employment and we saw some declines in professional business services employment, right? So one thing is that there’s always churn. Another is that it sort of depends on the industry mix and where those impacts are coming. So, I mean, here in Richmond, we’ve actually seen in the Richmond metro area post pandemic, some pretty strong job growth. We’ve seen it in transportation and warehousing. We’ve seen it in professional business services. There is churn. It’s hard for me to imagine us not being at least somewhat affected by what’s happening in Northern Virginia, but we have a strong economy unto ourselves. Mm-hmm . As well. Mm-hmm . And we’re also connected to Hampton Roads. We’re connected to other parts of the state. We have state government, which is an important employer in Richmond. So we’re gonna see that churn. Ultimately, it kind of depends on how it plays out.. No, I’m not forecasting very well here for you

Rich Meagher:

You’re not revealing your crystal ball answers. Right? Exactly. That’s right. So businesses are something you have been measuring pretty closely, as you said, right? Yep. And we’re recently hearing a lot about tariffs and worries from businesses about tariffs. We recently heard though, from the Port of Virginia that maybe things aren’t as bad as we thought they might be, at least initially, right? Like what happens in China and tariffs on China might affect the West Coast more than they do us here on the East Coast. What are you hearing from businesses about the effects of tariffs on what they are doing?

Sonya Waddell:

For the most part, we’re hearing a lot of, I’m gonna wait and see how this plays out, but some of them say, look, like depending on how this ends up playing out, I might decide to try to source a little differently. Um, or I might decide to move operations from one country to another. Again, those, for a lot of companies, those are big decisions and those are costly decisions. So you wanna make them carefully.

Rich Meagher:

And so is there, uh, any particular sector of Virginia business that might be particularly affected by tariffs?

Sonya Waddell:

Yeah, so we have looked at this by industry, and I think to be safe, I should probably refer you to our website. Yeah. I wanna say that the chemical industry is one that could be highly affected. And then of course, it depends on what sort of chemical manufacturing you’re doing and where it is. You know, one of the things that we’ve done that is on our website is sort of looked at employment concentration in different counties in the fifth district, fifth Federal Reserve district. That is, that’s what where we’re operating, what the employment share is, and then try to understand the concentration of that industry in that county. And then the extent to which the inputs into that industry are sourced from that good country combination.

Rich Meagher:

Right.

Sonya Waddell:

Um, and so the effects could be sort of geographically dispersed. They could be industry wise dispersed.

Rich Meagher:

Yeah. And so what, what you’re saying is because of these global supply chains, right? There might be a company out in Bristol that is importing something from China that could be affected by these tariffs in a way that nobody else in the state or the commonwealth could be.

Sonya Waddell:

Absolutely. Absolutely. And we’re trying to disentangle some of that. So this is where our combination of the data

Rich Meagher:

Yeah.

Sonya Waddell:

The quantitative data to understand the good country imports, right. And the sort of understanding sort of what the tariffs look like, but then also going out to companies so we could look at a particular county and then say, Hey, let’s try to talk to some companies in that county. And so we’re doing that. I, you know, one challenge that we have right now is that the policy environment is changing, right? So what we might have looked at, you know, a couple weeks ago might look very different. Now it’s kind of a, a, a moving environment, which I think is maybe contributing to some of the uncertainty and the concerns that, that our firms are facing.

Rich Meagher:

So bringing it back to folks, uh, you know, residents, consumers, I think one of the big, uh, expenses that people have, and the thing that they’re really worried about is the cost of housing. Mm-hmm. Right? Cost of home buying the prices, the rents. I, is there any news about the outlook for housing prices in this uncertain

Sonya Waddell:

Environment? Yeah, so this is something that we can easily see in the data and that we hear about every single time we go out. And what has been a new thing of the last few years is the extent to which we are hearing about housing costs as a challenge in rural areas in Richmond. You know, we have seen the, the median house price go up considerably. And there are things that are coming up, ways to manufacture houses, ways to do it inside, ways to do it, you know, at a, at a lower price point, lower cost that might bode well for, for the potential of reducing the cost of homes for, for buyers as we move forward. But your point is exactly right, that one of the biggest challenges I think that households and consumers have had in the past few years is not just the increase in the grocery bill, but also, you know, the increase in in the cost to to own a home.

Rich Meagher:

Is there a specific area of the economy that I haven’t touched on yet that is either sending up signals to you folks or that has given you some kind of surprising result that you’re keeping an eye on?

Sonya Waddell:

I don’t know about area of the economy.

Rich Meagher:

Yeah,

Sonya Waddell:

But we just got a really positive CPI report

Rich Meagher:

And CPI is just the consumer price index,

Sonya Waddell:

Right. Had consumer price index. That’s right. Right. So inflation.

Rich Meagher:

Yeah.

Sonya Waddell:

Um, so we are seeing inflation come back to the 2% target. We are seeing employment grow and we’re seeing it in the context of a lot of uncertainty and a lot of concern about the economy. So I think that in itself has been a really interesting feature of the last few months.

Rich Meagher:

We’ll have more about the state of Virginia’s economy with economists, Sonya Waddell, when we come back on RVAs got issues, this is RVAs got issues, we’re back with economists, Sonya Waddell of the Richmond Fed. Now Sonya, if we’re facing these economic challenges and we’re facing some kind of economic challenges, right? Even if the numbers are, are doing okay, shouldn’t the Fed do something here, right? Isn’t there something the Fed could do to fix these challenges?

Sonya Waddell:

That’s a good question, what can the Fed do to fix the challenges? So like I said, the Fed has a certain set of tools available to us. Um, you know, the target Fed funds rate is a great example, right? So they can use that to sort of lower long-term interest rates, right? But there are a lot of other things that go into the economy that, you know, if you think about sort of the dual mandate of stable prices and maximum employment, right?

Rich Meagher:

That’s what the Fed is supposed to be trying to do, right?

Sonya Waddell:

That’s fed supposed be trying to do.

Rich Meagher:

That’s what a good economy has. It has stable prices and maximum Employment

Sonya Waddell:

corrects. Correct. And by stable prices, I mean, you don’t want high inflation, you don’t want deflation, you don’t want highly variable inflation, right? Right. You wanna be able to predict what prices are gonna do over the next few months, over the next year. So that’s stable prices. What’s maximum employment? So it is the level of employment that’s consistent with maximum sustainable economic growth. It’s not 0% unemployment because there’s always, like we said, churn in the economy, right? But it’s the level that’s consistent with maximum sustainable economic growth. There’s only so much that the Fed can do to impact employment over the long run. In fact, there’s really not much, right? That’s things like population growth, um, productivity,

Rich Meagher:

Yeah.

Sonya Waddell:

Labor force participation, those things. What we can do is try to understand the dynamics, say underlying labor force participation, and that’s what we do. And we try to do that through the data that’s available to us. We also, again, try to do it by, you know, talking to, to businesses, to households, to nonprofits on the ground to understand sort of what are the say challenges to bringing more people into the labor force.

Rich Meagher:

Is there anything the Fed can do to help those who are particularly vulnerable to economic shocks? Like I’m thinking here of low income folks particularly.

Sonya Waddell:

So I think, you know, particularly for the low income folks or the particularly vulnerable populations who spend a much higher share of their income on these critical items, you know, groceries, housing, um, making sure that we have inflation that is low and an economy that is operating well, employment, right? We want jobs. I mean, these are the things that are important to all Americans, and they’re important to our most vulnerable populations as well. The other thing I will say is that in the 1970s, Congress passed the Community Reinvestment Act, which required financial institutions to think about equal access to credit across their footprints. And we do have a community development department as well that is paying attention specifically to our more vulnerable populations and what do we need to think about in the economy and also sort of in our banking or financial structure to make sure that we are accountable to and providing services for all Americans.

Rich Meagher:

So I think regular folks look to experts for guidance or, or maybe reassurance. Can you offer any, like, bottom line, what can you tell listeners about the future of Virginia’s economy?

Sonya Waddell:

Well, rich, I have to say I am an optimist. So, uh, I have a lot of faith in the American business. I have a lot of faith in the American consumer. We are a large economy, you know, our domestic consumer base and production base is, is very broad and wide. Virginia is a highly educated populace. We are also a diverse economy. So I, I am optimistic, I think that we in Virginia can face different shocks than other parts of the country, right? So in the Great recession, for example, in the fifth Federal Reserve District, the highest delinquency rates, housing delinquency rates, mortgage delinquency rates were in Northern Virginia, if I’m remembering correctly, other than maybe, you know, along the coast.

Rich Meagher:

Okay?

Sonya Waddell:

But we never saw unemployment rise as high in some of those northern Virginia counties as we did in other parts of the district, because there is a certain amount of protection that we had because of the federal government presence in that region. But that also means that during sequestration in 2013 and 2014, we were affected more than some other parts of the country, right? I think this is another instance where, um, Virginia just we need to take advantage of our assets, um, and we also need to prepare for the challenges that might come from broad based spending or workforce cuts. But I think, you know, Virginia, Maryland and DC um, need to be thinking about the impacts. And, and I think that we are.

Rich Meagher:

Sonya Waddell is a vice president and economist at the Federal Reserve Bank of Richmond. Thank you. Thank you, rich. This episode, we’re shining our community spotlight on a group that wants to bring people together. Through the unlikely method of square dancing, there are pickers, fiddlers, and callers, sure, but also just regular folks of all ages drawn to this old time. Good time. We recently visited Studio two three in Richmond to find out more.

Grant Honeycutt:

Hey, I’m Grant Honeycutt. I’m one of the organizers for RVA Square dance.

Caroline:

So couple, one, you are in the hot seat, but that also means they get to show you all how it’s done and they got to practice it.

Grant Honeycutt:

So right now, our caller, Caroline from DC is giving a lesson and she’s just going through the basic moves that are kind of in part of every dance,

Caroline:

This dance is called Duck for the Oyster. So here’s how it goes. Uh, couple number one, take your partner and go, go to couple two, and then with them make, make a circle of four people and turn it just about halfway around until couple. One is sort of facing the next couple through. Couple two,

Grant Honeycutt:

I got into square dancing because I was hanging out with a lot of the Richmond old time musicians. Uh, they used to be a great old time jam down at Cary Street Cafe back in the day, and it was a blast. I had so much fun, and I went up to some of the folks, I said, Hey, when’s, when’s the next dance? So like, we don’t really do this anymore when, uh, uh, they told me they, they didn’t really organize anymore, I kind of started to take it on myself and got some callers from Charlottesville to come down and call sometimes a caller from Blacksburg, who’s a friend of mine. Uh, until I eventually started calling, when we were first starting out back in like 2012, we’d maybe get like 50, 60 people a dance. Something about after the pandemic. And just through social media and getting in touch with the right people, the stuff started to click, more people started getting into it. There’s been a, there’s kind of a new generation of old time pickers too, in Richmond now, and that some of the younger people who are picking were also, you know, getting, getting their friends into the dance and, and everything else. So, uh, really just because we have, we have so many great pickers and fiddlers and folks in Richmond, it just makes sense to have a dance.

Vox-Pop:

Trying to find your first partner. A couple partners is a little awkward and nerve wracking. Um, and like when I walked in tonight, it’s like, oh, you need a partner. And everyone’s looking at me. So yeah,

Everybody’s nervous and it’s always gonna be a little bit awkward, but then you’re gonna go home and then you’re gonna feel really good about like, interacting with so many people and you’re gonna want to go back. So it’s worth it. You gotta get over the hump. It’s good for your social anxiety. If you have social anxiety.

I mean, I’ve done tango and Swing before, and people who are doing tango or swing are very, very serious about what they’re doing. And if you mess up, you know, you feel bad about it. Whereas here, nobody really cares. So it’s like, there’s, there’s no pressure.

Grant Honeycutt:

I just kind of hope it continues to do what it’s doing, which is bring out a diverse group of folks and all walks of life and support the musicians. And just be a place where people can come together and meet new people who are interested in traditional Appalachian dance and music. And if nothing else, you’re gonna hear some good music, meet some new people, dance with someone you’ve never danced with before, and just have a good time.

Vox-Pop:

Oh yeah, I’m coming back.

Rich Meagher:

You can find out more about Rva squared dance at RVAsquareDance, one word on Instagram, or find the group on other social media platforms, forms. That’s our show. Thanks to our guests, Sonya Waddell and Grant Honeycutt. Find out more about our show and tell us about your issues at our website, rvas.issues.vpm.org. Remember to tell your friends about us, share a social media post or leave a review on your favorite podcasting platform. This episode of RVAs Got Issues is produced by Max Wasserman and Cate McKenzie. Script editing by Rachel Dwyer. Audio mix by Steve Lack. Our theme music was composed by Alexander Kitchens. Meg Lindholm is our executive producer. Steve Humble is VP’s Chief Content Officer. I’m your host, Rich Meagher Thanks for listening.