What a Fed President Hears When He Goes on the Road

This episode explores the insights gathered by Tom Barkin, president of the Richmond Fed, during his listening tours across various southeastern U.S. states.

1. Local economic concerns vary significantly across different regions, especially in response to federal monetary policies.
2. Businesses continue to grapple with post-pandemic challenges such as labor shortages and supply chain disruptions.
3. The importance of understanding grassroots economic conditions to inform broader policy decisions is highlighted.
4. The episode sheds light on the adaptability of businesses in shifting economic climates.
5. Tom Barkin's role in directly engaging with businesses provides a unique perspective on the implementation and impact of federal economic policies.

1. Introduction to the Tour

Tom Barkin begins his listening tour, aimed at understanding the local economic conditions directly from business leaders and community members. Tom Barkin: "It's crucial to hear directly from those on the ground to shape our policies effectively."

2. Visiting Carport Central

Barkin discusses inflation and labor market dynamics with executives at Carport Central, providing insights into the manufacturing sector's current state. Tom Barkin: "Understanding your challenges helps us tailor our monetary policies more effectively."

3. Community Engagement

The episode highlights Barkin's community engagements, where he gathers insights from local leaders about economic challenges and opportunities. Tom Barkin: "Each community has unique economic drivers that are essential to understand."

4. Analyzing Economic Trends

Barkin reflects on the economic data and anecdotes collected, discussing their implications for future Federal Reserve policies. Tom Barkin: "These insights are invaluable for our policy-making process."

5. Conclusion and Reflections

The tour concludes with Barkin summarizing his findings and reflecting on the importance of these tours for informed economic decision-making. Tom Barkin: "These trips are vital for bridging the gap between macroeconomic policies and local economic realities."

1. Engage with Local Leaders: Regularly engage with local business leaders and policymakers to understand the ground-level economic conditions.
2. Monitor Labor Market Trends: Keep a close eye on labor market dynamics to anticipate changes in employment and wage pressures.
3. Adapt to Supply Chain Challenges: Develop strategies to manage and mitigate supply chain disruptions effectively.
4. Stay Informed on Federal Policies: Understand how federal policies affect local economies and prepare accordingly.
5. Foster Community Partnerships: Build strong partnerships within the community to enhance economic resilience and growth.

The Federal Reserve has a lot of official statistics it can look at to try and gauge the state of the overall economy. But there's also room for incorporating on-the-ground anecdotes and real-time color. When it comes to collecting this kind of information, Richmond Fed President Tom Barkin might be the biggest road warrior on the FOMC. In mid-April, Odd Lots tagged alongside Barkin as he undertook one of his many trips around his district, speaking to local businesses about what they're seeing in terms of inflation, consumer demand, and the labor market. We traveled with him to North Carolina, making stops in Mount Airy, Winston-Salem and Yadkinville, to better understand what it is that a regional Fed president actually does when he's collecting info on the ground, and how it informs his thinking. It's a rare inside look at the day-to-day work of a Fed president. In this episode, you'll learn what kind of questions Barkin is asking businesses. And you'll learn about some local businesses themselves — everything from carport manufacturing to producing thermal underwear to spinning yarn. We also take a look at some of the big picture challenges facing America's smaller towns, including shrinking populations, a shortage of housing, and the scarcity of essential services like childcare.

People

Tom Barkin

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Carport Central

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Tom Barkin
As a real estate manager, principal asset management harnesses the power of a 360 degree perspective, delivering local insights and global expertise across public and private equity and debt. Their teams apply local insights and global perspectives to help identify the most compelling investing opportunities. Principal asset management actively invested learn more@principalam.com dot investing involves risk, including possible loss of principal. Principal Asset Management SM is a trade name of Principal Global Investors, LLC. It can be hard to see the challenges that people we work with every day are going through.

Tracy Alloway
I'm Holly Robinson Peet. Join us on the Visibility Gap, a new podcast presented by CignaHealthcare. Download it wherever you get your podcasts.

Bloomberg Audio Studios podcasts Radio News.

Tom Barkin
Thanks for making the talk. Of course, of course.

So we're just getting started on the business. Okay. That's Tom Barkin, president and CEO of the Richmond Fed, one of the twelve regional banks of the federal reserve. He's talking to executives at Carport Central, a manufacturing firm that builds and sells carports, garages, barns, and even homes made out of metal tubing. In addition to being a voting member of the central bank's monetary policy body, the FOMC, Tom's responsible for actually implementing that policy in his district.

Is it nice to prepare some stuff for world areas? Yeah. He's on one of his regular listening tours, traveling by car around the Richmond Fed area, which covers DC and several southeast states, including North Carolina, where we are right now in Mount Erie, North Carolina, to be exact. Tom's invited us to come along as he learns about the businesses in his district and what they're seeing when it comes to inflation, the labor market, consumer demand, and the general economic outlook. Thank you guys for coming out.

First of all, we don't know whatever you guys need from us. We're here to answer the questions and kind of tell you about our industry demand. We're interested in labor markets. We're interested in supply chains. We're interested in pricing.

Perfect. And to understand, you'll get to hear what a Fed president hears as he embarks on one of these research trips. What are the questions he asks to get a better handle on the direction of the economy. And what kind of questions get asked to him? What is it right now that prevents the Fed from lowering interest rates?

Well, technically, nothing. Our next meeting. But I mean, but practically, it's that inflation is too high. We're also going to hear from local businesses themselves and learn about things like carports, thermal underwear and spinning yarn from. Plastic bottles and, well, here's some of the challenges and opportunities facing some of America's small towns.

Things like shrinking populations, housing shortages, and the difficulty of finding childcare. This is odd. Lots on the road.

Tracy Alloway
Historic downtown Mount Airy. There's a candy store. Let's go there. In many ways, Mount Airy really is the quintessential american small town. Sitting in Surry county in the northwest corner of North Carolina.

It was the inspiration for Mayberry, the fictional, idyllic home of the Andy Griffith show. It's also the first leg of Barkin's trip. For this week. We try to go to places that we haven't been. The big cities work themselves.

Tom Barkin
I'm there, naturally, to give speeches to rotary clubs or chambers of commerce. But the small towns, you have to put them on your calendar. And we picked them out, Eric, as we hadn't been here before and we'd heard some interesting stuff about what they're doing in the workforce. Once the locations are chosen, Barkin and his team generate a list of the region's key employers, then start reaching out to set up interviews and maybe a meal or two with some of the local community leaders. We always want to find whoever the biggest businesses are and try to understand, because they'll have the best input on the labor market.

And then I do try to do a roundtable where I can of whatever the core businesses in that community. It was aquaculture in the northern neck. It's tourism in a place like Mount Erie. I'm trying to understand the core part of every town's economy and how that's performing. Tom's not wrong about the importance of tourism in Mount Airy.

The Andy Griffith Museum and Mayberry themed shops on Main street inspire thousands of tourists to come every year. It's a pretty cute town. There's a downtown area with a store that sells moonshine ice cream, which was delicious. There's Mayberry RFD cop cars parked on the street and a gospel music store selling guitars, which you love. Joe.

I did. But there's also other types of businesses around, too. Take, for instance, carport central. The company makes these outdoor structures that you can use to protect your car from rain or snow or sun, but it also makes bigger things like barn dominiums or prefabricated houses. It's actually one of several companies in the immediate area that manufactures these structures, making the rural county a sort of hub for the industry.

Tracy Alloway
Albert Lara, the president of Carport Central, explains to Tom why that is. My brother and I have been in this industry over close to 24, 25 years. So almost since it first started back in 99 and 97, actually 98, 99, the beginnings of this industry, but it kind of grew in this area. So surry county is pretty much the home town or home place or the birthplace of this type of structure. Now, there's been other structures made out of different, you know, tubing, like round tubes and all that.

Tom Barkin
That's, you know, on the west coast. But to be square tubing and to go into what we're doing now is different. So it started off and you probably drove by. Even where you live, you see little tops and people park their cars or you drive by some kind of dealer that sells outdoor equipment or something. You see a little sign that says a price.

Well, that's how it pretty much started. It's an interesting time to be a fed president, talking to businesses about what they're seeing day to day across the economy. Inflation is still above the central bank's 2% inflation target, but unemployment is still at its lowest level in years. And even though the Fed isn't satisfied with progress on prices, in some respects, the US economy has defied expectations. A lot of people thought things would cool down as the Fed hiked interest rates at the fastest pace in decades.

Tracy Alloway
Many thought we'd be in a recession. By now, but that hasn't happened. And yet there's still a lot of uncertainty over things like consumer demand and the ultimate impact of tighter monetary policy. And in many ways, the carport business is kind of emblematic of a lot of recent trends in the economy. Sales boomed in the aftermath of the pandemic when everyone was buying cars or adding stuff to their houses.

And then there were supply chain issues. And the business has since seen some tailing off in demand COVID hit and. It was like a boom because everybody pretty much got, you know, an influx of. And they bought an rv and they bought. Yeah, they needed this and people were at home.

Tom Barkin
Well, now I need a place to put my stuff. I'm going to redo my bathroom. I'm going to put all my stuff in this building now, which is great. But again, you know, what happened there? Supply chain issues.

And so a lot of the material was delayed and then they came in and it was a higher price and it was just a crazy time. But so for Tom, the big questions right now are what carport central is seeing in terms of pricing, because when stuff was booming, carport manufacturers could all raise their prices. But as things normalize, it's becoming a lot more competitive. So on the carport side, does that mean that your pricing is under pressure? Yes, so we have to compete with an inferior product.

But we, the consumer, at a certain point, they don't really take that into consideration. You know what, I just want the lowest price property. Even if we tell them, well, our product is 30 to 40, 50% stronger than what you're getting. And unfortunately we have to either match the price or in some cases try to undercut it. The thing is, we're paying a whole lot more for our, you know, our materials and of course our designs and everything.

They're just, they're, they're way above what most people are getting. Now to answer your question a little bit, is our pricing, our profits have gone down because of the competitors in the market that are continually doing things wrong. So they've cheapened the product. So we were making more money pre COVID COVID. Now we're the only industry that I know of that the inflation, everybody went up the other way.

Our pricing went down, our pricing went down. Half of the inflation fighting organization, thank you for that. But our labor is still high. Labor costs and availability of workers creates an interesting dynamic. In Surry County, North Carolina has seen its population boom in the years since the pandemic.

Tracy Alloway
In fact, its still one of the fastest growing states in America. But that population growth hasnt been spread evenly. In Mount Airy, there are now about 10,700 residents, not much more than the 10,400 people that were recorded here more than a decade ago, back in 2010. That means the area is having to get creative when it comes to the labor market. For instance, there's an apprentice program called Surrey Yadkin Works.

Tom Barkin
It's been placing hundreds of local high school students into internships and apprenticeships for things like welding, manufacturing and teaching, providing future workers for those businesses and giving young residents a reason to stick around. So many of our small towns have a problem with population growth and workforce growth. And this is an effort to try to get local people meaningfully engaged in the workforce in places where there are lots of good jobs. And I think that's a very interesting thing that other communities might wanna replicate. And businesses like Carport Central have had to get more creative when it comes to their labor too.

It's not as efficient when you get to a large volume production. You have to have faster equipment, you have to have more automation or more people. One of the two right, more people, more regular equipment. But for us, we went with a little bit more automation. We still have to have more people.

But automation has helped us get to where we're at, streamlined. But what we've noticed is that at the beginning, say last year we were working 45, 50, maybe 60 hours, in some cases Saturdays, half Sundays, one shift. We wanted to cut back to 40 hours and we didn't want them to work on weekends. But we still have a lot of demand, so we had to get more efficient in our processes. And the guys, you know, they were very, very hesitant at first because obviously they were used to getting a 50 hours paycheck or 60 hours overtime.

But we told them, look, let's try this. We want you to spend more time with your family. You know, we want you to enjoy, we don't want you have to stress having to come in and finish this, or we don't want you to rush through it where it's not the exact quality we want. That's a good productivity. So, yeah, so now that's changed a lot.

And I think that's probably why, back to Tommy's point is our turnover rate is, isn't as much as it probably is for other manufacturers. So Carport Central has been able to adjust to some post pandemic pressures, but. There are still some restraining factors on its business. Take for instance, banks and the availability of credit. Not only have interest rates surged as the Fed fights inflation, but banks have also been pulling back on some loans.

Tracy Alloway
What's the biggest constraint on your growth right now? Is it getting the materials? Is it availability of contract? Like what's stopping you from selling even more? I guess for us it's going to be more financial institutions understanding our business more.

Tom Barkin
I think the supply chain issue for us it's okay because we have access to different supplies, but it's more of having a backing of a financial institution for us. So credit. So credit. But our turnaround time in our industry, luckily it is pretty quick, but because of the fabrication time and their time schedules for commercial projects, they don't, they are not able to pay us, let's say within maybe 90 days. And we, our credit terms are say net 30, net 45.

So basically we have to have a reserve of cash. You know, it'll come in, but it's just a delayed situation. So the growth that we're seeing, we're actually being restrained because of not having access to the capital that we need to actually. And what are the banks, we're telling you when you go talk to them and say, I got a business and I got a lot of demand and I just need a little more capital? Well, I think right now it's more mostly because of the way the economy's going.

They're really. They're not as free, you know, telling you, hey, come on in. Let's help. It's more like, let me see if I can. I don't know if I can, you know, that kind of situation.

Not like it was before, but it's access rather than rate, because you could say, oh, they'll give it to me. It's just costing me too much. Yeah, I think it's more access. I think people are good, more reserved with that. And as we've seen before, even as the company gets bigger, that creates a new set of challenges.

But with the other challenges that we're facing, competition, but also the lending part, getting to that, it costs money for an auto. It costs. You have to have a team of cpas. You know, you have to have a financial. You know, it's more money, more, you know, income that's.

That's dedicated to that instead of dedicated to the equipment and, you know, growth. So that's where. And I don't know, maybe you've seen other banks, other, you know, companies like this, internal processes, too, for. On the accounting side, you know, growing so much that we were growing 25, 35% every year for the past five, six years. But then we got to that point where, okay, Quickbooks can only do so much, right?

So we went into an ERP system. You know, going to that ERP system has been a very, very hard struggle over a year now, trying to implement. Nobody enjoys that transition. So that's what also, for those of you wondering, an ERP system is basically software used to organize a company's finances, supply chain management, and a lot more. The reason this is familiar to Tom is because not only does he spend a lot of his days on the road talking to businesses about stuff exactly like this, but he also spent many years at McKinsey, the consulting giant, before he joined the Richmond Fed.

Tracy Alloway
That background is one reason he takes such an interest in the nuts and bolts of local companies. But what does he do with the information that he gets from these meetings? At the end of the first day of his trip, we sat down with Tom to talk about what he'd heard. You know, the town's commerce department says we have to compete with other areas in order to attract developers. Or you speak to the head of a carport company, and they say, well, it's difficult to get financing for what we're building here.

Tom Barkin
Well, sometimes what I learned is confirmatory. Sometimes what I learned is new. We had a dinner where we talked to a bunch of people about the labor market and what they told me, which was news, was that they're still short workers in teaching, in healthcare, in state and local government. And, you know, that's where most of the jobs have been added over the last year. And one of the big questions is, is that cycle complete or not?

They sort of sent the message, it's not yet complete, which is helpful to know. There's still a little bit of juice left in the job market. We had a conversation with a carport manufacturer, and they're feeling significant price pressure. And if you care about inflation, that's good to know. And again, maybe confirmatory that on the good side, there's still price pressure coming.

This housing thing is very interesting in terms of shelter costs. Is housing availability getting plentiful enough that you can imagine shelter costs coming down, or is it still tight enough that we have a challenge? And so I try to bring what I learn in the economy into the room at the FOMC and hopefully am able to build confidence when I do 20 of these conversations, not just one, that I learn something about what's happening to goods inflation and services inflation and shelter inflation, that I know what's happening to the labor market into wages, and I have a real time sense of what's happening to demand. So that's what I'm learning. And you will have noted that I asked 30 of those questions today, many of them off cycle.

You know, as I meet somebody right before a speech or before talk, I'll turn to them and ask how their business is doing and try to see what I can learn. For Barkin, the anecdotes he learns from local businesses help to supplement all the official data that the Fed gets constantly. Things like non farm payrolls, weekly jobless claims, and much more. So it's interesting to ask him if he ever sees or hears things on the ground before they show up in the official data. So you mentioned when we talked about sort of anecdotal learnings from the examples you gave were sort of either confirmatory or maybe informed something at the margins, like, okay, maybe there's still more juice on the public sector for labor side.

How often does it come up where people will start consistently saying something that, oh, this is really not showing up in the data yet, and it's sort of an early signal of something that later on you say, yep, there it is, playing out in the numbers. I'd say every quarter, there's something like that. So in the fourth quarter last year, in October, you may remember the numbers were really, really frothy and I wasn't hearing any of that in the market. I actually came out and said it's just not consistent with what I'm the inflation numbers, no, the demand numbers, the consumer spending numbers, the retail sales numbers were very frothy. That's not consistent, I'd say today.

We just got to retail sales report recently that was quite strong. And I'm hearing decent consumer spending. I'm not hearing that strong because maybe I'll be proven wrong by the time this airs, but that's what I'm hearing. So I do hear things that are different and then I hear some number of things that are in advance. May of 2020 in Bristol, Tennessee, opened, Virginia wasn't open.

It was right at the end of the first part of COVID and I talked to a developer who said, oh my God, the malls are packed. And that was before any of us knew that the opening of the economy would lead to that kind of spending. That's a good example. I'll also get a reasonable amount of, I'll call it segment specific information. How are higher income consumers thinking versus lower income consumers?

Or what's the job market for professionals versus skilled trades? And so the overall number may be the same, but you'll get some insight into what's really, what's really driving it. While Tom is gathering information to supplement his data, the folks he talks to are also learning from him. Something we saw over and over again on our trip to North Carolina is that people are just fascinated by what the Fed actually does and how it works. And at a time when inflation is still running above target and there's still a lot of doubt about the direction of the economy, there are more questions than ever about what the Fed is doing.

Obviously, everyone wants to know where interest rates are heading, but they also want to know what other businesses are saying, what the Fed's hearing, and crucially, how the Fed processes all that information. So these trips are not just a chance for business leaders to tell a Fed president what they think. Theyre also an opportunity to find out whats on his mind and get their own questions answered. More on that in our next segment.

As a leading real estate manager, principal asset management harnesses the power of a 360 degree perspective, delivering local insights and global expertise across public and private equity and debt. Our experienced teams are uniquely positioned to uncover compelling opportunities in today's market, giving our clients an exclusive advantage. Principal asset management actively invested. Learn more@principalam.com Dot investing involves risk, including possible loss of principal. Principal Asset Management SM is a trade name of principal global Investors LLC from.

Tracy Alloway
Silicon Valley to Wall street, the promise and perils of artificial intelligence are playing out on the world stage. But what will the next phase of AI adoption look like? Which companies, from big tech to startups, will dominate, and where do the risks and unintended consequences lie? I'm Emily Chang. Join me at Bloomberg Tech in San Francisco may 9 to answer many of the industry's burning questions alongside Snap's Evan Spiegel, Xbox president Sarah Bond, OpenAI's Brad Lightcap, top researcher doctor Fay Faley of Stanford, and many more.

More details and just a few tickets left@bloomberg.com. Techsfield.

Tom Barkin
I think we'd love it sooner if we could, but. Welcome to the Winston Salem Rotary Club's weekly luncheon. This week's guest speaker is, of course, Tom Barkin. Tracy, I'm glad we finally figured out what a rotary club is. Yeah, I had this sort of vague idea in my mind, but I had to look it up too.

Tracy Alloway
It is a society of, I would say, civic minded people who meet regularly to network and take on some community projects. Learn about the community. I feel like every week I come, I learn something about my city that I didn't know. Yeah, that's cool. The Winston Salem Rotary Club has been going on for more than 100 years, all the way back to when Winston Salem was basically cigarette central.

Tom Barkin
Today, driving around Winston Salem, I'm pretty sure we saw more vineyards and breweries than we did tobacco fields. So please give Tom Barkin a warm welcome. As part of his trips around the Richmond Fed district, Barkin often speaks to local business groups and societies, giving his regular stump speech about the state of the economy. Thanks, Chris. I appreciate that.

Advertisement so it's great to be back in Winston. I'm a proud deacon parent class, but. The reason he enjoys doing it is for the Q and a portion afterwards. Taking questions from the audience members helps reveal what's really on people's minds. I want to know because I do think this two way interchange on the economy is really quite valuable.

Even if you're a regular watcher of the Fed, you can learn a lot from this discussion to the extension, can you give us any flavor of what you all discuss in your interest rate meetings? And secondly, do you have any favorite economic benchmarks you find very useful? You know what I'm mostly interested is real time information. You're trying to figure out what's actually happening in the marketplace. So I get credit card spending every week, year over year.

And during COVID I got pretty calibrated on what that means in terms of retail sales, but that's something I look at closely to try to get a sense of demand. Consumer spending is 70% of the economy on the labor market. The jobs report that comes out every month is clearly the best, most secure thing. But I take some comfort from the weekly jobless claims because it's at least a real time measure of whether layoffs are accelerating, which is what you'd see if the economy turned south. And I think you kind of get the point I'm trying to figure out.

Is there any risk of the economy turning? That's really what I focus on in terms of the meeting. Maybe I'll give you a ten day look at it rather than just the meeting itself, because the weekend before, ten days before the meeting. The weekend, ten days before the meeting, the staff does a 200 page vertical text, greatest analysis of the economy you've ever seen, and it'll include domestic and international and financial markets and lending markets and different scenarios for where the economy might go and different monetary policy operations. And so it's a brilliantly done piece of work.

Tracy Alloway
Joe, wouldn't it be cool to see that 200 page fed staff analysis of the economy? Definitely. But I'll settle for the speeches and meetings at the same time Jay Powell sends around his first draft of what the statement might be. And so we work all weekend and end of the week debating how we want to talk about the economy and whether we like that statement we'll offer Jay. I'm giving this background so you understand the meaning we'll offer Jay our perspective on the statements.

Tom Barkin
He always likes mine best. That's not actually true. I'm making the point. The statement that we issued the Wednesday of the meeting has largely, not always, but largely been pretty well vetted by the time you get to the meeting. So we don't go to the meeting and try to line edit a statement.

For the most part, every time that the chair has a bad press conference, that's because we've line edited the statement in the meeting and we send them out there 2 hours after the meeting to go defend it, which is, I think in my judgment, a little bit of malpractice. But we do it sometimes in the meeting itself. There's often a special topic, and so the staff will present some papers on a special topic and we'll have a debate about it. Then we all go around and talk about economic conditions. So I'll say I've been in the district for the last seven weeks and here's what I think I've learned.

And here's what I take solace from in the recent data, and here's what I think you know, are some interesting conclusions you might not have otherwise thought about. Then we all talk about the statement. Pretty productive meeting. It's a reasonably formal meeting. It's not really flippant.

There's not tons of humor in there. It's a pretty serious meme. But every word is transcripted, so if you're having trouble sleeping, you can go get them from five years ago and read through.

About 30 miles west of Winston Salem, and half an hour's drive south from Mount Airy is Yadkinville. In Yadkin county, population 37,700. And for the better part of the past decade, that population has been shrinking. It's day two of Tom's North Carolina tour, and we're starting off at the offices of textile manufacturer Indira Mills. It's worth a real good look.

Well, one of the ways we pick where we visit is when you hear there's something interesting going on. And we talked to the Sir Yakin works yesterday up in Surry county, and then we thought that would be interesting today. And then we try to find the big employers in a market. Well, we're not a big employer, but we're pretty unique. We've got a good story to tell.

That's John Willingham, the fourth generation owner of Endura Mills in Yadkinville. His company can trace its history back over 100 years, all the way back to Colonel Francis Henry Freeze, who was the first president of Wachovia Loan and Trust, which eventually grew to be one of the biggest banks in the US before being bought by Wells Fargo in 2008. In addition to banking, the colonel started a bunch of textile businesses in the early 19 hundreds. That's right, because North Carolina used to be a global player in textiles. There were mills in almost every single one of the state's counties as recently as the 1990s.

Tracy Alloway
And just 30 years ago, those mills were employing some 280,000 workers. But that started to change as global competition heated up and companies moved production outside of the US. Today, there's just an estimated 39,000 textile workers in the state. We migrated up here in 1998. We were in hundred year old facilities in Winston Salem, and this was a good community.

Tom Barkin
We already had satellite plants up here. So we came to Yakinville and then we got on board with NAFTA and moved our manufacturers manufacturing a lot of our labor work to Mexico. And is that how you managed to survive the whole trauma that happened around here? That's exactly right. So what we kept here in Yakinville is back office functions, design work and distribution.

So all of our labor assembly work is in Mexico. We have plants in Monterey, Mexico. So Yakinville was a big mill town once upon a time, but like lots of places in America, this particular type of manufacturing just got hollowed out. Endira survived in part by outsourcing its production. They also started specializing in thermal underwear.

And, Tracy, I just have to say, I love thermals. Anyway, today you can buy endears thermals at places like tractor supply and dick sporting goods. We realized that to survive, we needed a niche, we needed something that we could control. And that was a very small market and not a very interesting one for a lot of larger players like Haynes or Gildan or brute of the loom. So we picked thermal underwear and we became sort of the go to people in thermal underwear.

It's a highly seasonal business. It requires a lot of working capital because we build inventory all year and that keeps people out of it. And who do you sell into? Do you sell? Do you brand yourself?

Do you sell it? We do mostly our brands, but we also do private label. We like to tell people that we do everybody but Walmart. Now, just like with the carport business, pricing is obviously an issue in the apparel industry, too. If you look at apparel in the consumer price index, you can see clothing inflation basically peaked at more than 6% year on year back in 2022.

Tracy Alloway
But in more recent months, inflation and apparel has been kind of moderating. It came in at 0.40% in March, and that's kind of been the story of inflation across the US recently. Housing costs and services keep going up, but some goods like apparel, aren't seeing quite the same kind of price increases anymore. Indira's experience also says something about post pandemic demand. It's basically ridden a roller coaster here.

Tom Barkin
When COVID struck, it started making face masks. But demand for masks went away as the pandemic petered out. And people aren't buying thermals like they once were, either. We were the very first people to make masks. I mean, we were like the day after the shutdown and we couldn't get off the telephone.

It was everybody from american airlines to Centos, uniforms, they all wanted masks. And so we just did everything we could do. By June, it was apparent that that wasn't going to last. When the economy started to come back, it was so strange because demand was just out the roof. There was a lot of money in the consumers hands and they were buying anything and everything.

They were buying online like crazy. And so there was a surge of business that occurred, and we were all chasing it as hard as we possibly could. We were just, you know, we were blind to the fact that fact that this was an artificial situation and it wasn't going to last. We were riding the wave, and then it caught up with itself, and there was literally a crash. Obviously, inflation had gone crazy.

So now we're in late 21, early 22. Exactly, and demand just fell off. Our largest customer at that time, Amazon, just shut the books. They were so overstocked because they had been chasing it just like all of us. Everybody was up.

They didn't have enough. Joe Endura Mills is also where we learned there's basically a Jones act for textiles. It's called the Berry Amendment. Here's Tom and John talking about that, as well as the company's decision to move their textile production out of the US. I know.

I know the answer to this question, but I'm going to ask because I get asked it a lot, which is, did you consider moving it back to the states? No. Just give us your logic.

The skill level is just not here anymore. When we closed out sewing here in 1994, when NAFTA, I believe it was 94. When NAFTA came in, we had 300 people here in Yakinville sewing, and they were gone instantly. They found other jobs. To bring that labor force back and to train it and to pay not just the base, but all the fringes and all the ancillary costs that go with it, we would not be competitive.

I hate to say it now, you're familiar with the Barrie act, which is products that have to be made in the US because of government requirements, whether it's military or that sort of thing. There are manufacturers of our type of product on a small scale here because of the Barry act. They make flags or they make uniforms. Exactly. Lots of military.

We chose not to get into that, but we would not be able to bring our company, the labor part of our company, back to the States. It's unfortunate. I mean, it broke our hearts when we had to move, but we either moved or when you saw what happened, everybody did. But even after outsourcing production in Mexico, a company like Endura isn't sitting still, and they're currently shifting manufacturing again. We're leaving Mexico.

Oh, to go where? El Salvador. Oh, that's interesting. Yeah. A lot of companies are just now moving into Mexico.

Well, China is Mexico. We were in Mexico 25 years, in Monterrey, Mexico. I don't know if you've ever been there? It's quite a city. You could be dropped in there and you would think you were in Atlanta or somewhere.

But we've seen it grow up in 25 years, from carts and buggies, horse and buggy, to modern highways and everything. Inflation is pretty serious, of course. Everything is unionized there. So you're dealing with an element that we don't have to focus on now. We have maquilador, so we don't.

We just contract for labor. We don't own the labor. We don't pay directly, but inflation is pretty tough there and they've essentially priced us out. So endear has been able to survive in the mill business in part by adapting to these new challenges. But there are still some complications that come from being based in a small town.

Housing shortage here is dramatic and it hurts. It hurts the manufacturers, it hurts the economy. Small town America is a special place to live, and I consider Yakaville small town. I mean, the values are so great, the work ethic, just knowing everybody in town, first name basis, fewer fears of certain things. So it's a cool place to live, small town.

But you've got to be successful as a small town. You need good, progressive government, and you need a base of businesses, a few large businesses, a lot of small, medium sized businesses. You need culture. You need the elements that make life enjoyable. Yadkinville isn't alone here.

Tracy Alloway
We heard similar things in Mount Airy, too. Smaller towns may have cheaper land for construction, but that doesn't mean developers are flocking to them. Here's Tom talking to us about exactly this. You know, every small town is competing for developers, and there's a limited number of developers. I gave a speech on this in November, and developers care a lot about availability of cheap land.

Tom Barkin
Developers care a lot about permitting and infrastructure in the land, and developers have the ability to choose. And so what they told us here is if you go a little bit further south, where it's closer to an Interstate, the developers are prioritizing there now. They had a bit of a roadshow for developers, and they think they're making some progress. So that says something about what a Community can do in terms of proactively seeking developers. And I think that's actually a pretty important thing if you want housing built in your community.

I find this actually to be kind of a fascinating dynamic because in my mind, you would think of the developers are all competing against each other to find the cheapest land available or whatever it is. But this idea that from maybe a community standpoint, it's the other way around, arguably, that it works in such that they need to basically pitch the developers on coming here. Yeah. So after the great Recession, what happened is a lot of developers went under and left the business. A lot of banks stopped financing development.

We underbuilt housing for a decade. So were light developers. In addition, whats happened during the post pandemic era is theres been so much construction going on, not just houses, but also data centers and warehouses and state and local government educational that we're short construction people too. And so if you took the entire economy, you'd say we're actually really short construction capacity. And that's what leads to it.

It's an adjustment issue. It doesn't mean it's a permanent problem, but it is right now an adjustment issue. And if you're short housing your community, you really need that housing to get launched today. So towns like Yadkinville and Mount Airy are doing what they can here by proactively courting developers and experimenting with new models for childcare to course correct for that ongoing shortage. And there just isn't enough childcare.

When we did the study in 2021, Yadkin county was the third worst in the state for the number of children, according to a think babies report for the number of infants and toddlers per slot were about 19 to one slot. Why is that? There has been a huge, huge reduction in the number of childcare providers. It's like 82% have reduced within the last twelve years. So it's, so it's been shrinking partially because it is difficult to maintain a license to get the star rating.

Star rating is like a quality rating. And here for private providers, we, other than one family home in the western part of the county, there are no four or five star rated childcare providers. That's Sandy Scanelli of the Shallow Ford foundation. She's spearheading a new type of childcare model that would see providers pool and share resources like buildings, playgrounds and operations to help lower their costs. Tom met with her as part of his tour of the county.

So typically speaking, a childcare provider would have to do the legwork of like, finding the location and furnishing it and building it out itself. Right. And so the main thing that this solves, it sounds like, is just like they just have to rent this. They can focus on what they do, taking care of children without having to worry about all these other ancillary things to get the physical. Because licensing is both for the individual as well as for the facility.

And when we did our study. What we found is that. I'll give you an example. One of the playgrounds needed new mulch. It was going to cost $8,000 to replace the mulch.

That's a key licensing factor is you have to have six inches of fluffy mulch. And so every time it rained, they were running outside with pitchforks to fluff up the mulch. Well, those kinds of stresses are a distraction, honestly, from managing that facility. So to have the facility taken care of and maintaining that license really allows more focus on the childcare. But smart starts only doing the facility.

It's not an other shared cost model like HR that sort of. Actually, no. They will also offer back office support to each of those businesses if they are interested in it. So the hope is that if some of the backend can be centralized, then the actual child care providers can focus on what they do best. Providing childcare and reversing the decline in total capacity.

Tracy Alloway
And of course, this isn't just a small town problem. A shortage of child care providers and high housing costs, all of which contribute to inflation, is pretty much the story across America's economy. At our next stop, we talk to one of the largest employers in the county and see how all the things we've talked about labor housing prices have impacted them as well.

Tom Barkin
As a leading real estate manager, principal asset management harnesses the power of a 360 degree perspective, delivering local insights and global expertise across public and private equity and debt. Our experienced teams are uniquely positioned to uncover compelling opportunities in today's market, giving our clients an exclusive advantage. Principal asset management actively invested. Learn more@principalam.com Dot investing involves risk, including possible loss of principal. Principal Asset Management SM is a trade name of Principal Global Investors, LLC.

Hey there, it's Joe Wiesenthal and Tracy Alaway and we are the co hosts of the Odd Lots podcast. And we want to tell you about a new podcast here at Bloomberg. We're really excited about money stuff, the podcast. That's right, friend of the pod Matt Levine is teaming up with our other friend and Bloomberg TV host Katie Greifeld to bring the Money stuff newsletter to life. Every Friday, Matt and Katie will dive into all the Wall street finance and other things that make Matt's newsletter such a hit.

You can listen to money stuff, the podcast on Apple Podcasts, Spotify or wherever you get your podcast. How you doing? Hi. Hi. Thank you very much.

Hi. Welcome. Welcome to Unified. Hi, Tracy Alloy. Tracy.

Eddie, I'm Joe Wisenthal. Great to meet you, Eddie. Eddie Ingram, I'm the CEO of the great.

Tracy Alloway
Just a few minutes away from Endura Mills is the Yatkinville factory for Unifi, a publicly listed manufacturer of polyester, nylon and spandex yarns. It's headquartered in Greensboro, but it has a pretty big facility here in Yadkinville. It is a big facility. There is a huge recycling center where Unifi turns plastic bottles into a recycled fiber it calls reprieve. There are big trucks parked outside that say bottles equal cool stuff.

Tom Barkin
And there's cool stuff inside, too, including a showroom showing off some of unify's material. Absolutely. Reprieve is a product that we have now that we take recycled plastic bottles and it's chopped up almost like plastic cornflakes. At our reasonable facility, it's cleaned. We separate the green and the brown plastic from the clear and the blue.

We use the clear and the blue plastic in our yarn. That's Smith Williams, Unify's HR manager, but everyone calls him smitty. But the clear and the blue plastic is shipped here to our recycle center, where it goes through another process, becomes pet resin. Pet resin. Then we take it and it is in like plastic bb, and it is melted and extruded, goes through large shower heads, and as it falls five floors, it becomes a solid again.

Dead plastic yarn is then sold to companies like Nike, Patagonia, Asics, and others who weave it into their products. In this country, only about 28% of the bottles are collected. And when we get a bale of bottles, we get around 56% yield, because the collection system here is not. And that's Unifi's CEO, Eddie Ingle. Bigger companies like Unifi haven't been immune to post pandemic challenges either.

Tracy Alloway
Eddie describes to Tom how the price of plastic shot up in 2021 and 2022, including the cost of the plastic bottles that they used to make into fabric marketplace. So that price of that bale bottle goes up and down significantly. It's been as low as $0.13 in the last six months. It's been as high as $0.18, but it has been as high as fifty cents two years ago. So with a 56% yield, it can get very, very expensive very quickly.

Tom Barkin
And that's an average number I'm giving you. But it's the fact that we have to take the bottles and we have to take the caps off, take the labels off, make this flake, and then we have to take this flake and make it a chip. And their yield losses are throughout that whole supply chain. But it's what's cool is I say this all the time, but you've never met a savvy cyclist. So what we're doing here attracts young people who want to be sustainable, want to be purpose driven.

And while, yes, this raw material is more expensive and the yields are higher, we are giving the brands what they need. See, Unifi is a lot bigger than many of the other local businesses around it. In fact, it's the biggest private sector employer in Yadkin county. And it's had the sort of secular tailwind of demand for more sustainable fabrics behind it. But it has encountered some similar issues.

Supply chain disruptions are still kind of reverberating and clouding the picture of demand. So I'd say from a demand perspective, there was a lot of over purchasing and stocks of all these brands. Inventory that I quoted. Apparel brands went way up because they basically had this supply chain issue. What used to take 30 days from China was taking three months because the votes were sitting out there.

But everybody started ordering them, not just from China, from Vietnam, from India. So they had not just long supply chains, they over ordered to compensate. And then suddenly, 18 months ago, 1920 months ago, things started freeing up. So all the brands globally just pulled back on as many purchases as they could. And that really impacted us.

We're seeing consumer demand for our products are down about seven or 8%, maybe 6%. So with the destocking, and not only destocking happen, but they said, oh, I don't want to spend any of my cash on inventory. So they're actually tightening up the supply chain. They're going further, taking more risk than they normally would. But I will say, starting really beginning this year, year, most of the inventory seem to be cleared out.

So we are seeing business come back slowly. Consumers are still constrained a little bit as far as what we're reading. You know, that's better than I do. Yeah. You know that when COVID happened, everybody jumped to a casual, and now they're coming back to wearing a bit more formal.

Oh, I got to go to the office. I'm not going to the office. I got to go to the office. So if I thought about that, it was want to please today. Sorry.

Tracy Alloway
And, of course, hovering over this entire conversation, there is still the question of price. But, you know, in my day job, I'm worried about inflation. I think. I think what I take from what you just said is, you know, over the last couple years, we have not been your problem. You know, our prices have been headed down, not up.

Tom Barkin
I mean, I think one person's opinion. So somebody who's very knowledge about this, I think labor always goes up no matter what. Yes, but if you think about energy here, energy in North Carolina was very, very stable for a long time. But as energy companies like Duke have invested in renewables, they've been able to pass that cost on as they should or shouldn't, I don't know, but they pass that cost on. So our energy costs have gone up, not just because crude has gone up, but because the investment in renewables.

So we're heavy. We are very, very energy intensive company. We use a lot of energy here. We're involved in trying to negotiate that with the people. So that took your costs.

That took cost packaging. Labor's taking your labor costs packages. So you're saying prices have actually gone up? Yes, but when 20, 21, 22 happened, we had cost escalations because of bail bottle prices going on the roof. And you had.

And we had record. It was record. Petrochemical prices went up to a record. If you remember, crude was at 122, 123, maybe 130 spiked for a day. So all of that got passed on.

Yeah. Otherwise you wouldn't be here. And then. But as it crashed, and because demand slowed down, there was pressure to drop pricing. So I think we're in this today, this weird spot where everybody knows prices have to go up, and it's just a matter of slowly doing that in a scientific way.

And again, where. Where is the value ring? How do we capture that? How do we price that? It's.

It's. It is very challenging, I have to say, from a pricing point. This is another theme that comes up regularly in Tom's meetings. Big and small companies seem to have experienced a lot of the economy of recent years in very different ways. We asked Tom about this.

Tracy Alloway
Do you notice a big difference between what larger companies are saying versus smaller companies? I do. Smaller companies are still struggling to fill workforce jobs. They're still struggling to fill jobs. And that's in part because there was more capacity to raise wages in the larger companies than there were in the smaller companies.

Tom Barkin
We were with one earlier today. But when you go to a smaller company, you do hear that kind of constraint being much bigger during the supply chain shortage era. You absolutely heard that the big companies had a lot more benefit than the smaller companies. I think when it came to the margin recapture cycle, the big companies have led the way on that. And a lot of small companies are still saying that they're working to recapture margins.

Being able to compete on wages isn't the only edge that larger companies have in the current environment. Many of them have also been able to refinance their debt. Contrast that with the smaller company carport Central, which told Tom that bank lending is becoming a constraint on its business. That might be one reason, according to Tom, that economic growth has so far defied the gravity of higher interest rates. They just haven't flowed through to some parts of the economy just yet.

Well, so the data that I keep coming back to is interest payments is a percent of either personal disposable income or corporate revenue. And those numbers have only now finally gotten back to 2019 levels. And that's because a lot of individuals pay down their credit cards and refinanced their mortgages, and a lot of companies paid down their debt and refinanced their debt. And so the in aggregate impact of having the Fed funds rate at five and a third versus where it was basically at zero, hasn't really flown through the aggregate economy. Now.

It's certainly flown through to individual parts of the economy. And the most surprising things to me, obviously the residential market, where you've got the 3% mortgage holders who don't want to trade into a 7% mortgage and are unwilling to sell their house, but behind that is that 92% of mortgages are fixed rate. Okay, so that's different than what the economy was 15 years ago. In commercial real estate, multifamily, you hear about a set of people who really can't develop anymore, want to turn in the keys, whatever version of it, and another set of people who are owners who are feeling actually just fine. And Unifi's experience underscores that big refinancing trend.

They refinanced their debt in 2022, and have since been investing in new equipment. From a balance sheet point of view, I feel pretty good where we are, but it is impacting us because we knew we were going to take on debt with this new investment. And the investment is based on equipment that was really new and really differentiated. We'd had a spike in capital capex for like three years, and it was on new equipment that was very, very different from what we could have bought a few years earlier. And we've been developing this well.

You guys are great to make the time. We really appreciate it. I just want. I'm going to make it. Sit.

You walk out there, just see. Unifi's factory was the last stop for us, but not for Tom. As we made our way to the airport, he was already back in the car and on his way to Greensboro for the next leg of his listening tour, Barkin spends about two to three weeks of every month on trips just like this one. Which means that most days, if he's not getting ready for the next FOMC meeting in DC, he's in the car or at another luncheon, or taking one last look at another factory floor.

But if you saw that, you wouldn't. You have to see it.

We make stuff. That's what we do. We make stuff. So after two days on the road with a Fed bank president, what did we learn? Well, on the one hand, there are some businesses that seem to be doing fine in this environment.

Meanwhile, others are struggling with the impact of higher rates and moderating demand. All of these varied individual experiences are one reason why it seems particularly challenging right now to figure out what's going on with the larger economy. One of the questions that I think people are scratching their head is, how did the Fed raise rates so much, and yet the economy hasn't slowed down as fast as people expected? Well, I've done intentionally over the last three months, probably 15 different sessions with commercial real estate groups because they're definitely feeling the impact of rates. And I want to hear from those segments.

When you talk to banks, which I do a good bit, you also hear the same thing. I was very interested because in theory, higher rates should hit the whole economy relatively quickly. It starts with interest sensitive sectors like real estate and banking. But historically, manufacturing has followed pretty closely, and I haven't heard that much on the manufactured side. So it was very interesting to hear these guys talk about how creative availability was constraining their ability to grow.

Now they've had some margin challenges, which they talked about that could be relevant. I do think the banks I talk to will talk quite openly about tightening credit, and part of that is just being prudent in a world of uncertainty. You hear about it, but then you get to see it. So now we have in the economy, it's not just what people are saying might happen. There's some evidence that actually is happening.

Tracy Alloway
Complicating the whole picture is also the overarching weirdness of the post pandemic business cycle and the long term impact that the pandemic experience may have had on businesses. This is something Tom talks about a lot. I'm curious if there are any lessons that businesses you speak to seem to have internalized from the past few years, the post pandemic experience. So we used to talk a lot about the idea of labor hoarding. Everyone was caught short during COVID so they hired a lot.

And they're terrified of having to go through, you know, the same scarcity of labor again, or the experience of raising prices and testing that elasticity of demand. Are those things that people seem to have actually internalized in your mind? Yeah, so maybe three things that come to mind. Supply chain resilience. If you had everything in China before, you have to ask yourself the question how smart that is.

Tom Barkin
And so I see everywhere people diversifying their supply chain, more near shoring than onshoring, but still, or in certainly Thailand and Vietnam and Indonesia playing a role, too. That's very clear. Second is, I think, a new respect for the scarcity of labor. We lived in a world where labor was long for a long time. Now it's short.

You talked about labor hoarding, but I think it's even more than that. It's about investment in benefits and compensation on a continual basis. By the way, on the other side of that, there's investment in automation that's going on as well, but new respect for the scarcity of labor. And then I do think on the pricing side, I've been talking about this for a while, but there's a bunch of businesses that before COVID knew they had no chance to increase prices, and then COVID happened. Supply chain shrunk, labor costs increased.

They had no choice. They went from having no chance to have a no choice. And when they raised prices, there were no consequences. We'd like to be on the other side of that, where they really thought there wasn't any chance to raise prices again. But I'm not sure they're done.

And if they're not done, part of it is they're trying to recapture margins. Part of it is they're just a little more courageous. I talked to a furniture manufacturer a couple days ago who just said, yeah, you know, I used to just give in, but now I'm just a little bolder. I've had the experience of raising prices. I'm a little bolder.

And I think it just takes a while to get from no consequences all the way back to no chance again. And that's ultimately Tom's message. In this part of North Carolina and beyond, economic scars can linger for a long time and play out in unexpected ways. There's still an undersupply of housing in places like Yadkinville and Mount Airy, in part because of the 2008 financial crisis, not just 2020, and the higher interest rates after that. Meanwhile, the hollowing out of manufacturing in this area and other parts of the US has been going on for decades now, companies might be more aware of supply chain disruptions and labor shortages, and they may be more willing to raise their prices to offset them, too, which could add to inflation.

All of that creates difficulties for the Fed, which is still trying to balance inflation and unemployment in both big and small towns across America. It has its data, and it can attempt to assume some relationship between things like prices, labor market tightness, and so forth. But it's hard to know what that lingering psychological effect of the past few years might be, let alone what aspects of the economy still have yet to be normalized. And if you think about somewhere like the Richmond Fed district, which has both booming cities and deep rural areas, trying to gauge the disparate effects that a given policy change might have gets even trickier.

So, Tracy, after seeing all that, I'm not sure how good we would be at the rate setting part of the job of being a Fed president. That seems pretty tough, but I actually think we'd be pretty good at the asking questions of businesses part. Yeah, I would not want to be voting on policy moves, but I did like how odd lotsy, let's say a lot of Tom's questions actually seem to be. I feel like we could do that. Shall we leave it there?

Let's leave it there. This has been another episode of the Odd Lots podcast. You can follow me at tracyallowatt and I'm Joe Wiesenthal. You can follow me at the stalwart. Thank you to Tom Barkin and the Richmond Fed's Jim Straighter and Maya Catello for their help in putting together this episode.

You can follow them at richmondfed. Follow our producers Carmen Rodriguez Armenarman, Dash hillbennetashbot, and Cal Brooks albrooks. And thank you to our sound engineer, Blake Maples. And a special thank you to all the businesses who participated, and let us listen in on their conversations with Tom Barkin, and let us join their meetings and even ask our own questions. If you enjoyed this episode, if you like it when Joe and I go on the road, then please leave us a positive review on your favorite podcast platform.

Tracy Alloway
Thanks for listening.

From Silicon Valley to Wall street, the promise and perils of artificial intelligence are playing out on the world stage. But what will the next phase of AI adoption look like? Which companies, from big tech to startups, will dominate? And where do the risks and unintended consequences lie? I'm Emily Chang.

Join me at Bloomberg Tech in San Francisco may 9 to answer many of the industry's burning questions alongside Snap's Evan Spiegel Xbox president Sarah Bond, OpenAI's Brad Lightcap, top researcher doctor Fei Fei Li of Stanford, and many more. More details and just a few tickets left@bloomberg.com. Techsf.