Bank of America/Merrill Lynch Walter E. Hoadley Economic Forecast
Join us this new year for new conversations at the Commonwealth Club. Hello. Good afternoon, and welcome to today's Commonwealth Club program. My name is Marcel Tenberge, managing director at Bank of America Merrill Lynch in San Francisco. And I'm also a member of the Commonwealth Club's Board of Governors.
I'm pleased to serve as the chair for today's program. This program is virtual, but the Commonwealth Club has begun in-person programing at its headquarters and we expect to do many in-person programs in the months to come. To learn more about the club's in-person programs and how to become a member, visit the club's website at WW W Dot Commonwealth Club dot org, WW dot Commonwealth Club dot org.
Today's program, the annual Walter e Hoadley Bank of America Economic Forecast, is named in honor of Dr. Walter Hoadley, a former president of the Commonwealth Club's Board of Governors and former chief economist at Bank of America. Bank of America Merrill Lynch is the sponsor for today's program, and we will begin with a macro economic overview from Dr. Michael Boskin, a world renowned economist and former chair of President George H.W.
Bush's Council of Economic Advisers. He will speak for about 20 minutes about the state of the economy and what we might expect in the year ahead. Then, after Dr. Baskin's remarks, we will have a special, in-depth panel discussion focused on key economic issues, including inflation, supply chain and the workforce. There's obviously a lot going on right now locally, nationally and globally, and there will be much to discuss. The conversation will be led by Mary Huss, president and publisher of the San Francisco Business Times.
She will be in conversation with several key professionals who understand these impacts on the economy from different standpoints. Joining Mary for this panel discussion will be Dr. Noel Hasegawa, the deputy executive director of the Port of Long Beach, the second largest port in the United States of America. Hannah Cain, the president and CEO of Olam, a global supply chain company. And Sarah Vaughan, the vice president. And John and Louise Bryson, chair in policy research and senior fellow at the Public Policy Institute of California, who has written extensively on the impact of inflation on California workers and families.
It is now my pleasure to introduce Dr. Bastian, who is the TLIEM Friedman, professor of Economics and Woolford Family, Hoover Institute senior fellow at Stanford University. He served as chairman of President George H.W.
Bush's Council of Economic Advisers from 1989 to 1993. He has advised four presidents, the United States and multiple prime ministers, the United Kingdom, chancellor of Germany and premiers of China. He's also chaired the highly influential Blue Ribbon Commission on the Consumer Price Index, whose report has transformed the way that governmental statistical agencies around the world measure inflation, GDP and productivity are critical to the issues we face today. Dr. Boskin is also the president of the Court Foundation and a research associate at the National Bureau of Economic Research.
His column on economics and politics is syndicated in 145 countries. Before turning it over to Dr. Boskin, a quick note to everyone watching if you have any questions for Dr. Baskin or any of our later speakers. Please put them into the YouTube chat box. All questions will be shared with moderator Mary Huss during the panel discussion portion of the program, and now over to Dr.
Baskin. Thank you for that gracious introduction, and it's always a delight to be here at the Commonwealth club even virtually, and to speak at an event named after my old friend Walter Mosley, who is a terrific economist and a terrific president of Commonwealth Club. What I'm going to do today is we'll see on the next slide is try to convey very quickly with the aid, with the aid of a variety of pictures and slides, which I will go through rapidly but are just meant to be a visual presentation of what I'm talking about.
And you can look at them later on at your convenience. Give you some thoughts on the short and long term economic outlook on growth. Inflation jobs with the effects of COVID might be and I'm a Quran in the new sub variant of I'm a crying baby.
And I also at the end want to talk for a few minutes about America's long run testing in polls, not just recently and not just during the pandemic or during the global financial crisis, but for a couple of decades, Americans have turned from the usual optimism about the future to pessimism, and they're not the only ones, but Americans. Now, I'm a large majority say that they think that their children and grandchildren will be worse off than they have been. Tremendous change from a typical American optimism. And it's not just an America that's going on in many parts of the world. It's particularly true among middle aged and older workers and citizens, but it's also true among the young. America's young are less pessimistic, or they're pessimistic, but not quite as pessimistic as their parents generation.
On the one hand, but they are more pessimistic than those in many other countries, especially developing countries, which tend not to be as pessimistic . So I want to talk about that. And in the course of that, we'll talk about the Fed and its past possible normalization of its balance sheet and starting to raise interest rates.
We'll talk about the problems on the fiscal side with large deficits and a tremendously elevated national debt relative the size of the economy and what most likely happened to that. I'll touch on regulation and trade and geopolitical issues very briefly, because those might affect things as well. So let me just give you a quick rundown of where we are and where we're expected to go. We ended 2021 and began 2022 on what appeared to be a fairly strong note, a very strong jobs report this morning stronger than people expected, given Omicron caused a lot of people to be at home in the week that the survey occurred in January.
We also had a very strong fourth quarter GDP report. The economy grew at a very strong pace, but about two thirds of it was businesses accumulating inventories. In December, consumer spending actually fell. So I think it's fair to say while there's some optimism that the economic recovery will continue pretty decently in the short run, there are some warning signs and then there are some risks. And of course, inflation started to accelerate. We'll go into that in more detail in a few moments.
It's also important to realize that more or less the same thing is going on everywhere. Orange is its last year, this is the flu is the forecast for this year. The International Monetary Fund has been lowering its forecast, particularly for the U.S. and China, but for many other countries, all of whom are expected to grow more slowly. Brazil barely at all in this year.
However, Japan and Germany are exceptions because they had such weak 2020 ones touching on negative territory briefly. So that's a broader world outlook. It's important because that affects our trade and financial flows. If there was a Federal Reserve is anticipating, if from the left we see the actual growth from 2016, it's accelerating in 2017, 18 pretty decent 19. And then of course, the collapse in 2020 was COVID.
The lockdowns, government ordered lockdowns and a lot of other restrictions that had people at home and 2021 we grew quite strongly. However, there was a late year inventory build up and consumer spending decline raise issues about what does that mean for the future? Is this temporary or not? The Fed's forecast for this year is for 4% growth. Those bars indicate the range of the forecasts that are presented by individual members of the FOMC meetings, and then they expect growth to fall to 2% in 23 and four. And they actually think that our long run growth prospects are below 2%, as does the Congressional Budget Office. That's down from an historic 3% for most of the World War two period, partly due to slower growth in the labor force, heavily due to demography and very modest expectations of productivity. If that continued for some time, growing at sub 2% after we were used to 3% despite the labor force adjustment, that would be a big telling thing on a very pessimistic future relative to our post-World War two history.
The employment situation has rebounded, I remember at the beginning of all this, I'd be on TV or the radio. People ask me, do I expect a U-shape or a V-shape? And I quipped, I thought we'd have kind of a tilted square root sign recovery that didn't catch on. I think because not many people remember what square root signs look like when any event that's more or less what happened. We had a very strong early recovery in 2020, and then it leveled off in 2021, but continue to grow. And we've as still adding a lot of jobs were currently about 3 million short of the peak in February of 2020, but probably about half of that is due to more, more elderly workers not staying in the labor force. People are unlikely to return as wages rise and more openings occur there.
Most of those won't come back, but maybe about half of them are gettable and we have a chance of having them return to the labor market, which would be good for the firms looking for workers and be good for the overall growth of the economy that we could sustain sizable growth for this year. Starting in the spring of 2021, we have the unusual situation of having a growing yawning gap between the job openings listed by American firms and the number of unemployed people. And of course, as all those unemployed people aren't in the same places with the same skills as all of those jobs.
But many of them are. And so we have ample opportunity, and firms, especially small businesses, are scrambling to stay open or work full shifts. We see, for example, restaurants have reopened and can't staff, so they're only open on weekends or four days a week, things of that sort. And that's partly a supply chain problem, partly a supply of work and workers problem as people are staying home. A bit cautious.
Caution still, because home Akron schools, not for some schools, not fully reopen and the like, but that's a mix that other people will talk about supply chain and so on. It's important to know that a massive fiscal stimulus, trillions and trillions of dollars in the spring of 2020 through December of 2020 was mostly saved . There was a great humanitarian need and of course, in the beginning there was incredible uncertainty about what would happen. We had lockdowns, we had massive numbers of people losing their jobs were at home. They couldn't go out. Only essential workers are supposed to be not on lockdown.
We had this massive, massive number of people who needed help in a very short term. We didn't always get home in time. California's employment development department was a catastrophe in that regard. But we had lots of people needed help, so I'll cut some slack.
Even though I thought some of these programs were poorly targeted and we're likely not to work very well. The massive response was designed to put a floor under things so they didn't really get totally out of hand long term. So cut them a little slack for that, but most of it was saved. We can see the elevated saving rate.
The saving is generally around seven, six or 7%. It's back to that now. But all this area on the center right and right on the graph are those elevated saving rates. We cumulate all. That's a couple of trillion bucks. That excess savings that consumers have that strengthens their balance sheets and enables them to spend going into the rest of this year and next, drawing down that saving if if they choose to do so.
So they have the firepower, that's a good sign for consumers. If we look also at the labor market being strong, those are traditionally good, strong good signs for consumption in the economy, which is two thirds of the economy. But unfortunately, starting in the spring, we had a massive increase in inflation.
Inflation have been so quiescent in the run up to this for years under the Fed's 2% target for its preferred measure of inflation. What do we have? We had a big increase. It's now running 7% overall and with the consumer price index and five and a half percent if we strip out the volatile food and energy part. Although obviously food and energy or people pay at the supermarket, the gas pump every day or every week. And so those are the most salient prices, even if other prices have risen as much. It's hope that energy and food will come down some and will take some of the pressure off.
But the problem is that inflation has now spread to many, many more goods through freight cost. Labor costs lots of other things going up. We've seen inflation become very broad based, so it's unlikely to abate on a widespread basis very quickly. Will it continue? That's a key question the Federal Reserve and other central banks around the world have to ask, and they're all changing their policy or in the process of it.
Is this total assets the Fed chair holds. It has mortgage backed securities and it has Treasury bills and bonds and so on. And it soared during the financial crisis and Great Recession on the far left here shaded areas, meaning recessions, if then, was pretty stable and a little over $4 trillion, and then it's basically doubled since then. In fact, in the last year, when the real estate markets Ben White hot, the Fed was buying $40 billion of mortgage backed securities a month, probably over insuring against the problem.
And the question is what will happen now? They've announced a taper. They started it. They're buying less and less, and then it becomes a question of will they just stay there? Will they roll over the when stuff comes due, when it matures? They sell it off. Selling it off at a modest pace would probably put them in the marketplace and fairly low levels for many years. But that's probably what's going to happen barring a another sharp downturn. The same is true of interest rates. The Federal Reserve lowered its key measure of its key interest rate target, the federal funds rate.
The banks charge each other on borrowing overnight and close to zero. It did the same in the aftermath of the Great Recession in December of 2028 during the Great Recession, I should say. It lowered it. It was expected to stay there for nine months as the economy recovered, actually stayed there for seven years and then started up again and then back down to zero.
And the question is at what pace? How often? How much? Until the last month or so, markets were expecting three rate increases next year. That's probably up to four and maybe five and several more in 2020. three. Barring a substantial or really slow sluggish economy or tipping into negative territory, a recession, let's go on. Now important and all this is inflation forecast, what is likely to happen in the future for 2022 and 2023, these three bars blue, gold and purple or from the blue chip forecasters, 50 private forecasters sure do this sort of thing for a living and private firms, academe, think tanks, et cetera, agencies and the like. And so the blue is the average, which would be well over 4% close to 5% this year. And
and the bottom is about 3.8 or seven, and the top is quite a bit higher five, five and a half 5.6% projected top ten and bottom ten. Now that's all. A modest range.
Let's hope we're toward the bottom of that. Let's hope it's not above the high end. But if we look at two other sets of information, one is what financial markets are expecting, which we can garner from the relationship of interest rate paid on Treasury inflation protected securities and traditional bonds, which aren't adjusted for inflation and those notes and so on. We take a look at that, and that's about 2.6%, pretty much what the Fed is expecting.
But if we look at what people are expecting, it takes the University of Michigan survey of consumer expectations. They're expecting almost 5% inflation this year. So if that's what they're expecting and they behave accordingly and they start as as workers start demanding enough higher wages above productivity that we wind up in a situation where we get an interaction of wages and prices, firms and people, as consumers and as workers starting to anticipate high inflation, it can be a self-fulfilling prophecy.
That's what's important not to happen. If we want to get inflation under control, if we want to keep inflation expectations in tech and fed techno jargon well anchored at close to 2% or not much above it, let's go on. However, what happened was in March of 2021, the new administration proposed a very large so-called coronavirus relief and rescue plan. President Biden called this American Rescue Plan.
Whatever you think of the components in, it was on top of many trillions of dollars and 2020 at a time when the economy was getting pretty close to its potential output . And so we had a stimulus that was quite a bit larger than the than the output gap that economists look to. And as you start getting close to that output gap shrinking, you're going to get more and more inflationary pressures. As as my former student Larry Summers, Obama's chief economic advisor and President Clinton's treasury secretary, warned that this was too large.
And indeed, it looks like that has been the case or other causes the supply chain. You'll hear more about moment and also also the comparison to low prices during the COVID period for some commodities. That's corn. OK, now let's turn to the longer term. My guess is, or my best judgment, the wide prior.
And whenever I make these kinds of statements, I try to remember the sage advice of America's greatest philosopher New York Yankee legend Yogi Berra, when he said predictions are pretty tough, especially about the future. So, you know, my basic outlook is for the economy doing pretty well, but inflation pressures being stubborn. Some of this is not going to be transitory.
Asking require the Fed to raise interest rates and and do other things, and it's going to require some attention on the fiscal side. Not to add a lot more excess government spending on top of what's already under on and train to try to keep inflation pressures getting out of hand. It's hard to think of something to be worse coming out of this thing, going back into a 1970s style high inflation and for perspective, for those youngsters in the crowd.
President Nixon, a conservative Republican, imposed wage and price controls on the economy when inflation got up to 4%. So inflation in these ranges and snow is a serious problem and caused a lot of distortions and disruptions, particularly for the least fortunate among us. So what's going to happen as we come out of this? What's the exit where we have stubborn inflation, secular stagnation, stagflation, the combination of a recession and inflation that happened in 1980 and cost President Carter his job? You may remember misery indexes that were the sum of inflation and unemployment rates, but deeply important over the coming decade or two. What's going to what you're going to experience later in your life and what your children will experience? Will productivity enhancing technology gains continue to improve the economy, or will they weaken their? Power to increase productivity, that's a big debate going on right now in economics. We have pessimists thinking that all the internet stuff, AI and machine learning, all that sort of stuff is kind of cool, but it's nothing like electricity aviation.
All those things that enable tremendous productivity growth in the first 60 years or so of the of the last century. On the other side are those who think A.I. and machine learning and all these other things are. Will be so revolutionary that they will greatly expand productivity.
They may make some workers redundant, as the technology has in the past, but technology and globalization and hard on labor markets, especially for a less and medium skilled workers, blue collar workers, particularly in the industrial Midwest, the United States and the Midlands in England, and like as millions and millions and millions of workers in previously communist countries, particularly China. After Deng Xiaoping opened it up, we're able to start helping to produce traded goods which put pressure on wages here. I think that's probably in the sixth or seventh inning. It's not in the ninth inning, it's not in the third inning, but that will probably continue a bit. But if you add that to demography, rising life expectancy of the elderly, declining birth fertility rates, the baby boom working its way through now retiring, etc.. Is that going to overwhelm our fiscal and economic and global position? We're going from three workers to 24433 retirees to two for every worker.
Many other countries, Germany and Japan, are going to one to once they have it harder, and China will even be older than we will in terms of the fraction over 65 in a generation . So this is confronting everybody. But will that pressure on labor markets debate? I think we're going to need more workers in the future, as I'll say in a moment. And that gets me to the labor force. We're leaving too many young youngsters behind.
Our schools are not delivering. It's not just the schools, it's parental background. It's resources. It's a lot of other social ills that cause problems.
We're leaving too many of our potential workers and our our fellow citizens behind, not getting a decent education and leaving them more or less permanently disenfranchized from sharing in our growing economy in a significant way. We do a much better job on that and what we have enough workers for our demography suggests we're going to be short workers in the future, which means we're going to have to have an intelligent reform of our immigration system because we're going to have to have some substantial legal immigration, perhaps more greatly focused on skills that we need. And then finally, for a couple more, we have had an energy revolution in North America brought about by fracking and in shale. And while this is controversial, obviously environmental concerns that production of natural gas has actually subbing out. Coal has been the only way we've actually made major reductions in our greenhouse gas emissions. And this revolution has been the biggest geopolitical change in our favor since the fall of the Berlin Wall because it reduced the power of OPEC.
With us at one point, we became the largest oil and gas producer and the marginal supplier, and it enabled us to have an opportunity to export a lot of natural gas and decrease Western Europe's dependency on Russia for natural gas, which is horrible for the world and Western Europe and us. But that is not happening this week for, in my view, legitimate concerns, but overly enthusiastic restrictions have tried to limit this in the United States. I think we need to have a more balanced discussion of that, and that's important for the environment as well as the economy if we don't have a strongly growing economy. Environmental concerns will be at the bottom of the list as there are in every poll that's conducted in poor economic times. The environment falls from being one of the top several to being at the bottom.
So we need to balance our economy and our environment to make the progress we need on both fronts and some sensible way . And then, of course, there are geopolitical tensions, trade balances and the like. It wouldn't take a war, wouldn't take a Chinese invasion of Taiwan. It would. All it would take, for example, would be for the Chinese to launch a cybersecurity attack on the Chintu park, where Taiwan Semiconductor produces a majority of the world's advanced chips. That would cause the current supply chain problems on semiconductors to pale in comparison.
So fingers crossed, nothing like that happens. And then, of course, our democracy and robust capitalism ultimately compatible. Can we get enough people sharing in the growth and performance the economy so that we don't try to have moved to a European style social welfare state and provide such wide liberal benefits in terms of the size and who they apply to that we wind up slowing the growth of the economy with very high taxes to deal with our high debt and the future impending imbalances in Social Security and Medicare. Each of these is too complex to manage.
You know, they sound difficult and they will be. If you look at any time in our past, we've had a similar list go back to 1960 or 1980 or 2000, you'd see a similar list. And we managed to work our way through it because we kept our economy predominantly a flexible market economy, while the hand of government grew from time to time, it did surge into European style levels or those in Scandinavia and the like. We managed to keep that more or less balanced where we constantly have pressure of government, federal, state and local here and around the world, by the way, to be more and more things to more and more people. And increasingly, it's doing that ineffectively, inefficiently and incompetently. In California, sadly a case of point.
We need governments to do the functions we really need them to do and do them well, adequately funded. And that would be my last pitch to say. I'm cautiously optimistic we'll be able to do that. It's something we've always managed to do in the past.
That's no guarantee. In the future, there'll be bumps along the road. But I'm always I always take particular solace in Winston Churchill's deep insight into America when he said, you can count on Americans to do the right thing after they've tried everything else. So we're going to get through this and we're all going to need to participate in doing this and make our economy more equitable, more efficient and able to grow with a modest hand of government, modest taxes and remaining a robust dynamic economy and society. Thank you. Well, thank you, Dr.
busCan, for your insights. They were informative and thought provoking, as always. As Michael mentioned, what makes Michael did not mention, but as was mentioned earlier, I'm Mary Haas, president and publisher of San Francisco Business Times and Silicon Valley Business Journal.
And I'm also proud to serve on the Board of Governors of the Commonwealth Club. I'm going to be moderating the next portion of the program. And also, Dr.
Bascand will come back to you for some of your comments on what our panel has to say. Needless to say, this has been a very challenging time for the American economy, and this pandemic is about to hit its two year mark. Many small businesses, particularly restaurants and the hospitality industry, are still not open or even going out of business. In January, the stock market had one of its worst months in the past several years. And overall, the American economy is growing significantly, but American consumers are experiencing increasing prices across the economy, as we just heard.
Employers are cutting jobs in record numbers, and employers are competing for workers, raising wages, contributing to inflation. So what's going on? From the perspective of some of the folks on our panel on a key part of this story, of course, is inflation. That was a central topic of Dr. Baskins discussion, and we'll continue to focus on this issue with three people who are experiencing this from a real world perspective. So I'm pleased to be joined by our three panelists Dr. Noel Casey Gabbar, who is the deputy executive director of the Port of Long Beach here in California.
Long Beach is the second largest port in the country. Ports and backup at ports that an awful lot of attention in 2021 as the year came to a close. And we look forward to hearing what Mr.
Hussey Garber has to say about the outlook at his port and what it means for the American economy. Hanna Keane is the president and CEO of ALLEM Technologies. It's a global supply chain company that corporations around the globe rely on to get products and materials delivered as we know supply chains for deeply impacted by pandemic and labor related issues in the second half of 2021. So we look forward to hearing from Hanna on how things are going in 2022 and what we can expect in the months to come. And Sarah Bowen Dr.
Sarah Brown is the Vice President and John and Louise Bryson, chair in Policy Research and senior fellow at the Public Policy Institute of California. Sarah focuses some of her work on the impact of inflation and price increases on workers and families, so I know she's going to have much to add to this conversation about issues in the labor market are affecting inflation and how this is impacting consumers. So we've asked each of our three panelists to address this question for their opening remarks. So here's the question. Will issues with the supply chain and labor continue to plague the U.S.
economy and contribute to inflation? How will that impact consumers, and what solutions should industry and government be undertaking to mitigate the factors that contribute to inflation? And before we get those answers from each of you, I want to remind the audience if you have questions for the panelists, please write them in the YouTube chat box and the questions will be provided to me and I'll do my best to get to as many of them as possible. So let's start with Dr. Hasegawa and welcome. Well, thank you very much, Mary, and good afternoon to all of you who are watching and my fellow panelists, I want to begin by thanking the Bank of America Walter Hoadley and economic forecast for inviting me today.
For those of you who may not be familiar with the Port of Long Beach, we are the nation's second busiest seaport and together with the Port of Los Angeles, we make up the San Pedro Bay Port's complex, the largest in North America and the ninth largest in the world. The supply chain is typically invisible. In the past, people went to the store. They bought a product labeled made in Japan and didn't really give much thought to how it got there. Today, the supply chain is very visible. In fact, it's a topic of national news these days.
Stories focus on the logjam of vessels and imports, and I'm sure many of you have seen images of disruption to the global supply chain. No major container freight gateway has been immune to the negative impacts of the global disruption. Least of all the nation's largest container port complex here in Southern California. So how did we get here? In one word, it was the pandemic first. Imports dropped when the pandemic shut down manufacturing overseas.
But then, as manufacturing reopened in Asia and U.S. consumption shifted from services to goods, that triggered an unprecedented volume surge. We went from doom and gloom to fast and furious on the turn of a dime. The traditional peaks and valleys of import volume were replaced by a continuous wave of cargo that began in July of 2020 and continued through 2021.
As consumers were confined to their homes, they resorted to e-commerce, which served a 20 47. Consumer oriented instant delivery mindset. This kept demand high and imports coming.
But while order surged, shortages in workers, warehouse space and equipment such as chassis trucks and trains disrupted the supply chain, causing containers to pile up on port terminals and vessels to queue up off the coast of Southern California in record numbers. Speaking of record numbers, 2021 was a record year for the Port of Long Beach. Even as we confront the supply chain crisis, we still managed to move more containers and never before for calendar year 2021. We moved 9.38000000 TEU,
nearly 16% over 2020, which was also a record year. And the San Pedro Bay Sports Complex, L.A. and Long Beach together, we moved 20.1 million TEU in the year 2021. Now let me just give you an idea of what that looks like placed end to end.
20.1 M.A. You would wrap around the Planet Earth three times at the equator, so you can see we moved a lot of cargo, and the total dollar value of that is over $400 billion at the Port of Long Beach, we continue our work to clear the backlog of vessels offshore, which signals that will remain moderately busy into the spring, given our historic volumes in the first half of 2021 will be hard pressed in early 2020 to to see more than slow gains until perhaps the fall. But a key factor in how quickly the supply chain recovers will be the residual effects of COVID 19. The impact this will continue to have on the workforce across every segment of the supply chain will affect the nations goods movement system and the broader economy, and these challenges are not likely to help quell inflation. As long as these challenges persist, consumers will feel the effects of inflation, with supply chain disruptions making front page news.
The Port of Long Beach has received a great deal of attention just in the past few months. We welcome Transportation Secretary Pete Buttigieg. Labor Secretary Marty Walsh. Port Envoy John Fraccari. Governor Gavin Newsom.
And U.S. Senator Alex Padilla to our ports. The visits underscore the high level support that our port has received throughout the first year of the Biden-Harris administration from our federal and state leadership. We welcome the support of our federal and state partners, a clear sign of investment in the nation's most significant container gateway. The historic 1.2 trillion dollar bipartisan infrastructure law
will ensure that ports like ours receive the investments they need to support the supply chain of the future. And as I said, we're seeing investment in the nation's ports here in Long Beach. Our port was recently awarded a $52.3 million grant
from the US Department of Transportation's Maritime Administration. Funding from the program is specifically designed for capital improvement projects at U.S. ports.
This grant will help fund our Peer Beyond Dark Rail Support Facility, which will significantly expand our rail capacity and enable us to move more containers to the Midwest and beyond directly on rail. The Infrastructure Investment and Jobs Act that President Biden signed into law just last November includes another $17 billion for ports and waterways. The funding will allow ports like ours to fast track projects that will speed the movement of goods and allow our ports to grow sustainably. The administration clearly recognizes how important ports, specifically the San Pedro Bay port complex are to the US economy, and these projects are needed. But they will take time, and it's not just infrastructure that needs to be upgraded. This most recent disruption is the latest reminder that the US supply chain isn't as elastic as we need it to be.
It's time that we take a serious look at transitioning the US supply chain to 24-7 operations. Our trading partners in East Asia are already there. It's time for us to match those operating hours to establish a true end to end 24-7 supply chain. And that is why we took the first step here in Long Beach with a first 24 hour terminal operation at our t'ai facility, and we will continue to advocate for 20 47 operations, not just at the port but across the supply chain. There are 160 hours in a week, and for the most part, our terminals are open less than half those hours without expanding our terminals and building new facilities.
We could handle more cargo simply by utilizing more of those hours. We also need truckers and warehouses to be open at night and go 24-7. With the Biden administration's help, the framework for 24-7 supply chain operations has been established, and this concludes my opening remarks. Thank you very much. Thank you very much, Dr Hasegawa. And now let's turn to Hannah.
Welcome, Hannah CEO, President and CEO of ALLEM. Thank you, Mary. I'm glad to be here and thank you for including me on the panel. So answering the question, yes, supply chain shortages and disruptions have come to be with us for a long time to come.
And it is going to impact the economy. So every time you have shortages, of course, it impacts the pricing and that impacts in play inflation. So right now, we are in a seller's market and that drives up inflation. So
I do think, though, that it's a very naive look at the world to say that it's a pandemic, that it's due to the pandemic. So the pandemic made things worse and it certainly started to shift. But it's a long term shift that has a number of consequences. So if you look in long term, our population has grown by about 30% and we didn't invest in infrastructure and we knew we were teetering at the edge of the abyss. But with the infrastructure and with the complexities we're building into the supply chain.
And let me explain what I mean when I say complexities. So the complexities we have start with that. We decided to outsource a lot of products, components and finished goods to other countries, and they again outsourced to other countries. So we have a supply chain that's tremendously complex, spread out over the world with a lot of border crossings, a lot of transportation and transportation. And each time we cross a border, we have a lot of different transactions and a lot of things that can go wrong.
There's complexity we have not really been able to manage. So technology has tried to follow to follow the complexity, but the complexity has outrun the technology. And then again, causes us to have a situation where we can't really control the supply chain sufficiently to to manage what we have built in there.
So the complexity also comes from regulations. The regulations are continuing and the regulations are different in different locations. So that contributes to that.
We need much stronger systems. And then we have got our trade wars, and the trade wars really frankly don't help anything in the supply chain. It's shifting regulations, it's shifting and problems with getting things in and out of countries. And so we are all depending on on that global trade.
And then of course, we have the situation where it becomes very dynamic and certainly it is part of that where, for instance, just last week, we started demanding that if you're a truck driver coming into the U.S. from Canada, Mexico, then you need to be vaccinated. If you come in on a plane, that's not the same requirement. It becomes really an issue that many truck drivers just don't want to be vaccinated. We have a truck driver shortage. If anybody knows somebody who wants to be a truck driver, you can actually get a 5000 dollar policy for getting there.
That's how much of a truck driver shortage we have. Yes, we put yet we put regulations onto them. So what happened was we had as a supply chain system that was already strained and we could see that when we got to holiday season, it said, well, how difficult it was to get products through. And then we experienced a volume increase that was tremendous and that came partially from the pandemic that instead of traveling, we started spending our money on home electronics and lots of other things.
We also had a little bit of that shift in which channel we, we we bought from. We all cutting up corrugated boxes in the weekend these days, right? Because we buy online. But certainly that's that's a big issue. So and so I think once the pandemic gets resolved, there's going to be some relief on the labor side. But overall, the labor side is is has shifted, I think, for very good.
And that I I think that. Many people are rethinking their relationship to the labor market. So while we have had some absences due to COVID, there's also a long term shift where people are rethinking what they want to work with and do they want to work at home? All right, well, thank you, Hannah Caine, for your fascinating remarks, and now let's turn to Dr. Sarah Bowen. And welcome to you.
Thank you. Mary, it's really an honor to be a part of this discussion today. I'd like to bring some kind of insights from my research and that of other colleagues that I see on the experience of kind of individuals and families during this recovery, especially with the inflation challenge in mind.
And like Dr. Boskin, I have been reflecting on the shape of the recovery. I guess this is how economists think about business cycles is to think thinking shapes and letters. I had been thinking it's something of a W that's kind of petering out with the repeated COVID challenges, but improving over time and crossing that with something like an s that that reflects the kind of the diverging realities of of different segments of our economy and our population during the pandemic, which has sometimes inverted.
So, you know, I won't go any further with that metaphor, but I, you know, it brought to mind kind of three insights that I think really shed light on how this recovery has been experienced on the ground and particularly in California. So I wanted to see how these three in the time that I have that the first is this this reality, that economic opportunity has diverged. And you really see that if you think about how inflation has affected different consumers, prices have gone up about 8% and the Pacific part of the U.S. since pre-pandemic. And consumers, of course, have varied ability to cushion against that depending on their income and what they spend their money on. Lower income households tend to spend more of their resources on basic necessities, and especially at the second half of last year, prices of those items were increasing rapidly.
So what we did was look at kind of those spending patterns along with price changes, and calculated that in order to maintain the same level of consumption compared to pre-pandemic, low income families would need to be spending about $3,000 more today for that kind of basic set of set of of goods, and that constitutes about a 10% increase in their spending. Higher income families spend more even on basics like food. But overall, we estimated they would seem more like an 8% increase in their kind of bottom line to kind of maintain their level of spending. So this is to say that lower income families are kind of facing a higher, effective price for the basic goods that they typically purchase. And so they're kind of needing to run faster to keep up as inflation is growing and in California and the rest of the country. The other diverging reality that's prominent on my mind is is the jobs and wages situation in California, in the U.S.,
despite the good jobs report today. Leisure and hospitality jobs are still 10% behind where they were in February 2020, and it's a little bit worse in California. It's important because this is a low wage sector, the largest low-wage sector.
But this is where this kind of inversion occurs is wages are up the most in this low wage sector. They're up 11%. And you know, that's not what you would expect in a recovery in a sector where we're still behind in terms of recovering jobs . So an indication that we're in a tight labor market, as others have alluded to, that's affected not just by kind of the realities of the needs of businesses, but also where workers are choosing to work. The second aspect of this recovery so far that I find important to watch is how these shifts are becoming permanent. You know, we have this idea of a V-shaped recovery of bouncing back or transitory challenges that were occurring, but there are a couple of things that we're watching that suggest that's not the case.
The first I wanted to point out is, you know, in this the strong demand for goods that we're seeing among consumers in the U.S. actually underlying that is is a decline in the demand, the relative a relative decline in the demand for services. Of course, you know, this is driving up prices for goods and durables in particular. And it's not clear to me that we'll return to the pre-pandemic kind of rate of spending on services versus goods. And part that's because of this workforce challenge that we see and service sectors like leisure and hospitality, but also because where people work and live has shifted and we we don't know how much, how much of that will be permanent, but I expect some of it will be. And and at a minimum, that changes where the demand for these kind of service spending will be.
For example, potentially less so in urban business districts compared to kind of where. We were in early 2020, and of course, related to that is the shift to remote work and the the best estimates that I'm aware of suggest 25% of full paid work days after the pandemic will be will be done remotely compared to 5% beforehand. That is a massive shift. And with a relatively tight labor market, I think those shifts in preferences among workers could become more permanent and could put pressure on wages even in sectors, or especially maybe on sectors where the work can't be done remotely, like in the transportation sector. As Hannah Hannah was talking about the challenges there. And the third and last kind of aspect that is in my mind, important to watch and understand in terms of how people on the ground are coping, is the government response that that Dr.
Boskin talks a lot about that really shook up the shape of the recovery that we had. Estimates suggest that poverty actually declined in 2020, about by about 23% in the US and California. That's a massive decline in it and also kind of a massive recession. And the research suggests that the federal stimulus had the largest impact there, followed by the unemployment insurance expansions in 2020 and 2021.
The child tax credit was a major driver there and really created a very different recession and recovery period compared to kind of recessions and business cycles in the past, where usually kind of lower incomes would fall relatively more and take longer to increase, and some of that has been slowed substantially. Of course, most of this kind of direct government support to taxpayers and consumers has ended, which may be good news in terms of that kind of pressure. That it may have been putting on prices and government spending going forward is at least on the face a lot of it directed towards the kind of things that can fuel underlying economic growth, like infrastructure spending or in California, additional investments in training and education.
But, you know, at the same time for lower income workers with the kind of elimination of these programs, their ability to continue to meet the kind of high prices that we're experiencing, especially if that is to continue, is definitely a challenge and in my mind is worth considering. You know what we've learned about targeting through government programs over the past two years in order to address and help cushion for for those in the economy who are kind of experiencing the diverging realities that we've seen over the past two years? And I'll answer. Thank you, Mary. Very well. Thank you, Dr. Bowen. And thanks to all of our panelists now. I'd like to reach out to Dr.
Baskin and ask you to give your comments on what you just heard. And any any questions that you might have. Thank you, Mary, and thank you, Sarah, for some excellent presentations. first of all, for those of us who study the overall economy, including Sarah hearing from people who are actually dealing with it on the ground where we're just kind of trying to guess how the rate at which things will improve, it gives some some solace that the people working their tails off to do this are on top of it and doing everything they can in difficult circumstances.
I make a couple of comments with respect to these presentations. one is there's not just the supply chain issue now and for the next year or 18 months, but we're going to be reconsidering our global supply chains, our firms, our national defense industry, et cetera. And we're going to be looking to diversify. I think many, many firms have found that being either solely or heavily reliant on a sole source supplier or something where they have something that has even a pencil, has lots of parts, but has, you know, several dozen parts and one little thing doesn't show up and they can't actually produce it and they've had they have to do a workaround or they have to find another producer on short notice. So we're going to see a gradual reallocation of the global supply chain, in part away from China for various reasons, sole source and also for some in the defense industry, national security concerns.
And so this is going to be a continuing challenge they'll have to keep an eye on. second thing is, this is the second, the second period in recent times that we've seen a a lessening of some measures of inequality, current market income because we count for cash. The government gave to people and there was a lot of it, and it was proportionately more important for people toward the bottom. A lot of it was saved, but it gave them a cushion. As I said, this humanitarian effort wasn't.
Super helpful in the very short run of the economy and the period in 27 2017 1819 was the first time in decades that the traditional measures of inequality fell another time of a quite strong labor market. So while it's very helpful to run a strong labor market, we don't want to get into situations where we're so focused on that we generate a lot of inflation and then we have lots of problems later because that can wind up as it has in the past, hurting the people who are most vulnerable. If we have a sharp downturn, they're usually the first laid off and we won't, you know, we don't have a huge amount of fiscal capacity left if God forbid, something happened in the relatively short term that required a lot of government intervention. We'd be less able to do it.
And as Sarah indicated, we need to learn from what worked and what didn't and target things a lot more effectively. That was my view, the biggest problem. Things were spread so broadly that for a lot less we could to help the people who really needed it more.
And so we need to learn how to do that better. We also need to learn how to deliver the services, and we need to add to our notions of how much we spend as a measure of what we're doing to how effective that spending is. And you know, we've seen that we have a lot of spending in some schools, for example, that aren't doing very well.
It's not just a school or a teachers fault. It's so multifaceted. So just throwing money at something doesn't mean you're going to improve it or are you going to get a decent bang for the buck? And it's something that will be supportable long term and make sense long term. So that's all I would ask, but I think that adding this kind of kind of getting out the details really, really fleshed out what I had to say and which is a great complement to it.
So thanks to all the power grid connecting all the dots here, so thanks again to all of you as well. So I have a few questions and I see some here from the audience and remind the audience to continue to post their questions. So I'll I'll go to you, Dr Hussey Garber. You know, Hannah was speaking about some of these problems already existent, you know, they were exacerbated by the pandemic and that sort of thing. So I'm curious about investment in innovation, technology and infrastructure.
You spoke to that what is really going to be the most transformative in that sense? And I recall reading something about the supply chain information superhighway program or something. So how how what role is really that innovation going to play here? And thanks for the question. Long term, yeah. first of all, I concur with, you know, with Hannah's assessment, a lot of the issues that we're wrestling with today are legacy issues. The only difference, of course, is the pandemic exacerbated them. It really heightened them.
And we've had disruptions in the past. The difference between past disruptions and this one is that it halted the entire supply chain and all at the same time together to get to your question about transformative, transformative investments. We're very encouraged by the administration's response to the supply chain crisis. Clearly, our ports and our infrastructure across the nation has been severely underinvested in this infrastructure. Law is going to help close that gap so that we can be competitive at a global scale.
But more importantly, be able to handle the volumes that are coming our way. The other piece of that, however, is as technology evolves. one of the key lessons coming away from the supply chain crisis is the lack of visibility, the lack of information sharing. The supply chain is a system of systems, and you've got a number of discrete business entities thousands literally that are crisscrossing each other, intersecting each other to move a container from point A to point B. And one of the things that we really need a fix as we upgrade our physical infrastructure is our digital infrastructure.
So the Port of Long Beach in December announced a new initiative that we believe will get us there. We're building what we call a digital infrastructure. We're calling it the supply chain information highway.
And what this will do, Mary, is it will create a corridor, a common corridor for all existing portals and platforms that are being developed both in the public and private sector for visibility as visibility tools to be able to travel on it. So think of these individual discrete portals as cars carrying data. We're trying to build the digital infrastructure so that all of these different vehicles and their data can travel on it. And the end user, the shipper will have access to that data and they will gain the visibility that they've been wanting all these years.
And it answers a very basic question Where is my cargo? And so far, we've gotten a lot of very positive response, not just from the. Shippers in the supply chain stakeholders, but also from our state and federal partners. That's great, thank you so much.
And, Hannah, I'm just curious anything more that you might want to add to that, but I actually will go on to another question is how do you see maybe supply chain issues causing manufacturers to rethink things like just in time purchasing and and those sorts of things? What are some of the perhaps operational trends that we might see change as a result of? Thank you for the question, and I agree that we need to have both the physical and digital and financial supply chain so all in sync in order to move forward. And today, my main concern for the current supply chain crisis is actually with the American manufacturing industry and especially the small and mid-sized manufacturers, because as I mentioned, it's a seller's market. And and while we want everybody to know their source, meaning moving as much production as we can close to, for instance, a US market, if that's the market we are targeting, reality is that even if we use an American manufactured, they get raw materials from everywhere. And so we need the supply chain to really function and to manufacture now is in a situation where if they place an order anyplace in the world, the terms have changed. So many companies now are forced to place orders way out in advance because the lead time is more uncertain and it takes longer time in the water.
But many manufacturers also are forced to place a purchase order without a fixed price, where the manufacturers overseas can change the price last minute. And so it's a price that's in effect when they ship, and this creates a huge level of uncertainty. And then many manufacturers overseas also demand payment up front. And now the product will sit on the water and maybe sit outside trying to get on a ship from China or wherever that that thing comes from and then getting into the U.S. So the transit time has become much longer. Of course, the freight costs will come down, and now they need to do that with all the components and get everything in before they can convert it to cash.
And the problem here is also that during this time, the demand shifted. So now there's no guarantee that what they got in actually something they can convert to cash. And so, so small and mid-sized manufacturers throughout the US are right now facing a cash crisis. They have to build up inventory.
They have to place those orders, but there's no guarantee that they can convert it to cash and they're sitting much, much longer on inventory. I'm really concerned about this and the long term effect on small and mid-sized companies that may not be able to to to carry this cash. But I think a larger corporations are in a better situation being able to to weather this storm. But I'm concerned here and this, of course, is going to impact our competitiveness and the U.S.
as such. So it's something for all of us to to watch. Thank you. And Dr.
Bowen, what what would you say is where is it and the biggest pain points for consumers? I mean, where where does there need to be the greatest amount of relief? Because pain point is clearly inflation. I think that dominates everything else, especially for the part of the population whose incomes aren't keeping up with inflation. And as Sara indicated, a lot of low income people spend a disproportionate share of their income on the goods that have gone up the most food and energy.
Gasoline is a higher fraction of their budgets, and there's a mine, for example. So. So that's the biggest pain point, and we have to somehow get that under control without without getting it embedded into the economy and people having to deal with that over a long period of time. That usually doesn't happen with a super soft glide path landing that has usually not been the history in the past. So fingers crossed the Fed can engineer that. Also, the fact that we're not going to have at least right now in the short run, a lot of additional spending turns the economy above and beyond. The many trillions already being spent by the government, at least for right n
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