Kell Kenoyer: I'm here with Mouhcine Guettabi, the regional economist for UNCW: welcome!
Mouhcine Guettabi: Thank you for having me.
KK: So I want to start with the national picture. We recently had this court ruling on tariffs, finding that the Trump Administration's tariff policies were against federal law. So what has the impact been of that on inflation?
MG: Too early to tell – the latest read in on inflation shows that it's still fairly sticky. So two things, one is the initial impact of tariffs on inflation turned out to be a little bit milder than what we had been anticipating. That could have been because some companies were building out inventories in the anticipation of the implementation of the tariffs. It could be that they were concerned about the financial health of the consumer and they didn't raise prices a whole lot, but in either case, inflation, as of the latest reading, is still hovering around 3% which means it's fairly sticky. Whether or not the court ruling has had downward pressure on inflation is an open question at this stage, because I don't know how much behavioral adjustment has occurred. There is still a little bit of uncertainty as to whether there will be some sort of variant of the initial tariffs. So I think it's too early to tell.
KK: Interesting. So still speaking on inflation: more recently, this war in Iran has closed the Strait of Hormuz, and I know that that's had a huge impact on gas prices. Have you seen it driving inflation in other ways as well?
MG: Well, I think that there has been anecdotal evidence that, for example, Amazon now has implemented a tax on shipping. There has been a lot of overnight shipping that now has a gas tax, if you will, added on. And so clearly, the Strait of Hormuz is an incredibly important passage for oil tankers, And that ends up affecting not just gas prices, but think about any product that requires shipping, or any product where oil is being used as an input, so the secondary and tertiary effects are much more pronounced than simply thinking about oil prices specifically.
KK: Speaking of some of these shifts in the costs of things, I know that New Hanover County is currently looking at its budget for next year, and they have noted a distinct drop in their revenue from sales tax. So are you seeing that consumer behavior is being impacted by some of these shifts?
MG: One thing that's really interesting is, when you look at consumer spending at the macro level, it looks really solid. What's happened, however, below the surface is there's been this bifurcation in economic activity. Most of the spending is really being driven by high-income households; lower-income households, middle income households have pulled back. So sales taxes are volatile. I never like to kind of reach any strong conclusions based on short-term sales tax revenues, but clearly they're a really nice barometer of how much people are spending.
The other thing I would caution against, again, just from reaching broad conclusions, is when we're comparing year over year again, we're still anchoring ourselves to really strong years in the past. And so a drop looks softer, and therefore, potentially this pullback, if you will, in spending, but the levels are still so much higher than they were in 2019 or 2018. But from a consumer spending perspective, there is a little bit of nuance there.
KK: Oh, I see, interesting. I want to talk about the housing market. I read recently that it's cooling substantially. The median house price is down about 8% in Charlotte. Are you seeing similar drops here?
MG: Not to the same extent? So we're seeing a decrease in the rate of appreciation, and then we're seeing in some places — so, Pender County, for example, saw the median listing price drop by a fairly substantial amount year over year. New Hanover was barely negative, and then Brunswick was essentially flat. And so I think the term you used is appropriate, which is a cooling right? And so there is no crash happening, but there is certainly this recalibration of expectations. Buyers have been really hesitant to jump in, and it seems like the gap in expectations between buyers and sellers continues to hold. However, the market is slowly shifting towards a buyer's market.
KK: Well, Mouhcine Guettabi, the regional economist for UNCW, thank you so much for joining us.
MG: Thank you for having me.
