KEYNOTE ADDRESS

Dr. John Haveman on Labor Growth and AI, Perceptions vs. Data,
and Why Talking Over People's Heads Can Ultimately Backfire

In his engaging discussion on the state of the economy, Dr. Jon Haveman's message about the Monterey Bay region was more upbeat than the grumblings heard these days around workplace watercoolers and family gatherings.

Despite the gloomy moods of consumers focused on increasing car insurance premiums and the soaring cost of eggs, Haveman said the economy — at the state level and even more so within the Monterey Bay region — is actually in relatively good shape.

Keynote speaker at Monterey Bay Economic Partnership's recent 2024 Economic Outlook, Dr. Haveman is a principal with Marin Economic Consulting, an expert on regional economies and local economic development, a widely published author and media commentator, and also one of California’s leading experts on the economics of seaports, goods movement, and international trade policy. 

Multiple factors contribute to the glaring disconnect between what the actual numbers show and how people feel about the economy, according to Haveman. Topping the list is a dearth of local news coverage and analysis, which means that the perceptions of most consumers these days are shaped by an amplified but distorted view of economic data on a largely national level that may or may not apply to their day-to-day lives.

He also points fingers at fellow economists, who in his opinion, can intentionally muddy the waters with the alienating tendency of "trying to sound a lot smarter than they are and say things in a way that people just can't understand." Haveman describes his approach as "edible economics, economics that's easily digestible...in a way that people can understand."

The economy —based on empirical data —and the people's feelings about the economy are often hard to reconcile, says Haveman, who likened it to people saying they hate Congress but like their own Congressman. So while about 30 percent of people think the U.S. economy is worse off than a year ago, said Haverman, a significant percentage of those same individuals think their state and local economy are in better health.

That disconnect is why Haveman also serves as executive director of the National Economic Education Delegation (NEED), a non-partisan educational non-profit with nearly 600 affiliated Ph.D. economists dedicated to increasing economic policy literacy and empowering voters and future voters by giving them the information they need to critically evaluate and respond to economic claims as they pertain to pressing economic policy questions. It counts among its ranks Janet Yellen, Ben Bernanke, Nobel Prize winners, and a slew of other notable economists who provide free presentations across the country to everyone from high schoolers to business groups and board meetings.

Moving past perceptions, Haveman delved into a nuanced fireside chat with Lori Kletzer, Campus Provost and Executive Vice Chancellor, UC Santa Cruz and a labor economist, touching on immigration and its impact on the economy, AI and labor growth, and how deeply connected childcare and housing are to economic development.Since the 1970s heyday of housing construction, the doors have essentially slammed shut on housing growth, said Haveman, who called out two acronyms with outsized influence on housing construction. "NIMBYism (Not in My Back Yard) and BANANAism (Build Absolutely Nothing at All Near Anything) have carried the day in California for the last three or four decades," said Haveman, "and absent a lot of policy influence, we're going to be in a deep hole for a long time."

“We have an enormous problem — housing is fundamental, we’re not building it, we're not providing it in an affordable way — but hopefully along with a lot of hopeful thinking, we’re getting policy action up in Sacramento that will pretty slowly change that environment, so I am optimistic about housing in California.”At the national level, the U.S. economy is still in relatively good shape, says Haveman, but in a consumer-driven economy, perceptions can drive change. And consumers are by and large skittish about where the economy is headed. The picture Haveman shared is an economy fully recovered from the pandemic, with GDP continuing to show gains, although the first quarter 2024 numbers show that the rate of growth has cooled. Consumer spending is down, as consumers face the combined stew of post-pandemic spending, the end of government stimulus funds, and inflation.

Delinquencies on auto loans, credit cards and home mortgages are all seeing significant increases, and employment growth has seen a dramatic slowdown: The U.S. added 175,000 non-farm jobs in April, down from 315,000 in March and 236,000 in February, Workers aren't quitting their jobs as often as they have over the past few years, which translates to fewer job opportunities and openings.

At this moment, that cooling labor market is actually a good thing. "Part of what's been holding the fed back in terms of reducing interest rates is that labor markets have been going gangbusters, wages have been growing, and they fear that as a source of inflation."Inflation may be top of mind for most consumers these days, but relative to inflation, non-supervisory wages have mostly kept up with inflation. But consumers are pinched by disproportionately high increases in specific areas, particularly vehicle, gasoline and maintenance/repair, and insurance costs. But inflation expectation - the impact of perception and consumer sentiment about inflation worries - can impact future inflation and fuel price increases, said Haveman, as can uncertainties ranging from the Ukraine and Gaza-Israel conflicts, future oil prices and global supply chains, the dip in household balance sheets and the potential for Federal Reserve action in a political year.

"Popular expectations may take a while to catch up with reality," says Haveman. "We're not headed for a recession. Ultimately, there will be one — there always is one — but not on the immediate horizon."