Small business and Community Leaders discuss how the covid19 pandemic impacted their business and organizations during a listening session with the Federal Reserve board of governors. The discussion as part of an initiative called the fed listens which aims to hear from americans about how Monetary Policy impacts them. Why dont we get started . Good afternoon. Welcome. Its a great pleasure to see you all here in person after a long time of virtual events. Its also, this is the first time weve had a full board of governorsa in nine years, so to have the seven of us are its the first time were convening like this in seven years, in nine years. These sessions started just a few years ago in 2019 in what turned out to be a very different time. They were valuable then and we continue to benefit from them as we have navigated the pandemic shutdown to the path of recovery. H we started with listening sessions around the country that brought together people and organizations representing businesses low and moderate income communities Workforce Development enterprises employee groups and unions continue to colleges retirees and many others. We wanted to hear directly how are Monetary Policy decisions were affecting people daily lives. So then the pandemic comes and updates everything the way we work live learn and conduct business. We kept thesese conversations around fed listens going and without we gain valuable insight which continues to help guide our policy decisions. I also think we delivered good transparency about how the fed works through this process as well. These events have now become aes permanent fixture of our broader outreach and my colleagues and i remember im sure would remove each one of these events we have been part of. The reallife embodiment of our policies and the way that affect the people we serve and they do inform our thinking as policymakers. We continue to do with an exceptionally unusual economic set of disruptions. As policymakers were committed to using our tools are see the economy through what is been a uniquely challenging period the insight you share in the feds help us to home in on the challenges and opportunities that are shaping what might think of as the new normal for the american economy. Mywe colleagues and i are very happy to hear from our participants today to host those of you who are turning and tuning in to listen. Thank you and with that i will turn it over to you. Good afternoon, everyone. Im so pleased to be here with you all today in person to moderate todays discussion. I should want to express my thanks to all of you for your willingness to travel to washington see to be with us here today for this fed listens event. Over the past year weve held a dozen events across the country hosted by our reserve banks. We found these conversation to be very valuable resource for us as policymakers. Hearing directly from people in differentpl communities about hw you are experiencing thee econy helps provide important context for the Economic Data reconsider. These discussions help us develop a richer understanding of how Economic Conditions are impacting people in their businesses and everyday life. It helps us think about how we can best u achieve stability wih support for the economic wellbeing of all american families. Today and in other fed listens events over the coming year our intention is to shift the focus of discussions toward understanding of the pandemic experience has reshaped the economy in the workforce and the challenges and opportunities that people faced during the transition to the post pandemic economy. So with that let me turn to our first set of panelist. Who bring with them direct knowledge and experience of how the economic landscape is evolving for u. S. Businesses. They represent organizations that include small businesses, manufacturing, supply Chain Management and hospitality industries. We know all of you have experienced firsthand the extreme economic and Financial Hardship brought on byth the pandemic. During the economic recovery that has followed you like weve also seen rapid and substantial changes in supply and demand conditions in your industries and in the communities where you live and work. Given those lived experiences as Business Leaders we are especially looking forward to each of youres perspectives. As we are from each of you i like to invite my colleagues toh follow up with any questions they mayay have. So lets start with the first panelist. I will introduce tom, thank you so much for being here with us today. Tom is the ceo of cash we distributing a wholesale distributor of products for Convenience Stores and Food Service Establishments in the midwest and the great plains region. He began delivering candy to local Grocery Stores in kearney nebraska and the company manages and inventory of over 20,000 products. Cash cash we has remained privately held by his family with the second and Third Generation of family members involved in the business today. Tom for our first question could you please describe how the pandemic change the demand for transportation and Warehouse Services . And to what extent are shortages of material and labor still affecting your business . Thank you. The pandemic change demand for transportation and Logistics Services in some matters that were expected. And some that were unexpected. After the pandemic we expected a fair amount of pentup demand that would be released, and it was. In fact, probably that the van that existed out there was greater than what it was prepandemic. But what wasnt expected next before the pandemic hit was the number, the demand for workers would exceed the supply by a larger margin. The size of the workforce became much smaller than it was prepandemic. We also believe that many left the workforce for a variety of reasons. And we were wrong on that, too. We really thought the workforce would grow. There was a shortage of the Truck Drivers and warehouse workers prior to the pandemic, which the pandemic further exacerbate. The shortage of Truck Drivers before the pandemic was estimated at 61,000 drivers. Today the estimated shortage is in excess of 80,000 drivers. The shortage of drivers was an issue then and it will be a much biggerw. Issue now and the be antion is will it issue in the future. We have seen some estimates that the shortage will double by the year 2020. 2020. To give you an idea of the size of the driving force that is out there, universal Truck Drivers today is 1. 53 million drivers. So you think a 5 shortage, six, 7 shortage, its going to be significant out there. As a result the cost of labor has increased significantly. For everyone in the supply chain. With the supply of labor down, competition for drivers heated up immensely. There was an extreme amount of pressure on the transportation and logistics side, and still is and probably will continue to be for the foreseeable future. In order to attract and retain drivers, we raised our wage rate three times in 2022 so far. In 2019 we gave all our employees free healthcare. And then we give all our driver and warehouse workers retention bonuses. If they stayed with us until the end of the year they would get a bonus paid out on the 30th of january, and that did much to solidify the workforce. Then there was the supply chain issues. And the shortages of products we sell every day from our supply chain vendors was significant, and still exists to a high degree today. Prior to the pandemic, we measure our inbound from vendors and we, we have a number of metrics we utilize every week. Our inbound filtrate from her vendors was 99. 2 . 99. 2 . So for every 100 items that we would get in or we would order, weve get 99. 2 in. Our inbound fill rates write s of pandemic started drop down to about 55, 60 . By december of 2020, it was up to 90 . And in 2021 we had a pretty good start and then it dropped to 7880 . And this year it was probably in the 80 range, 82 range. Range. And for the last ten weeks it has been running 90 , which is good news. We change our inventory philosophies because we had many customers out there that depended on us for products. So we started loading up our inventories. We used the popular inventory philosophy of jit, just in time. Then we changed it to ji c, which is just in case. [laughing] and so we are over inventory, but those people need products. The restaurant whos got an event planned for friday night and you makey a delivery thursy and the product isnt there, hes in trouble. So our business is all about customer service. As a rule today, most of the time we dontdo know what were going to receive from the vendor. Which is kind of unusual. There are many challenges for the venture unity out there. A lot of it has to do with raw materials. They have labor problems also. Theyve got priorities on certain lines and they are producing, and so anyway, most of the time we dont know what we are not going to get until the truck unloads or we might have a call from that vendor, which is a switch from the norm. And the timing of deliveries is probably not as great as it was prepandemic. Since the pandemic began, our vendors have eliminated over 900 items that we no longer have. And especially in the convenience. Line, thats where we really notice it. Between wages, worker shortages, the price of fuel and the supply chain challenges, our costs have really, really skyrocketed. We believe and have gone through our numbers and looked at the inflation numbers, we have looked at, we look at our inbound freight rates. Understanding that we get probably our products from growers, from shippers, from manufacturers. So they havere freight into ther establishments and their freight costs have increased. We have got freight from their establishments to our warehouse and we have got charges, freight charges basically that are built into our pricing to our customers. We have been trying to calculate what percentage of the food inflation is relative to transportation and logistics. Add we have got kind of a consensus between all of us, that probably 3845 of the food inflation that we are n feeling right now is because of logistics and transportation. It could be greater, it could be greater than that. We do a cost index report on our total product mix and we do that every week. We started doing that about 25 years ago, because obviously youve got to have growth and youve got to have organic growth. At the difference between the growth you are realizing every week and inflation is basically organic growth. So our cost index report, have gotten numbers since i think 19 since 2020, indicate where we have been, the path we have been on. This last week are inflation rate was probably the lowest its been in, im going to guess, probably four or five months. It was down to 10. 3 . But yet compare that to what the inflation rate was the same week the year prior, our total inflationn from your when a 21 s probably 22, 23 , in that range. So were seeing some drop their along the way. Were also seeing some softness in the marketplace which probably is indicative of why the inflation rate is lower. On the other side of the coin we still have increases coming through. We are still struggling with product shortages and labor. Product shortages are occurring for a variety of reasons. One of the big factors thats going to have an impact on inflation probably yet this year and probably next year is the drought we have been experiencing. I can tell you right now when we hear this from the Potato Growers, we have seen the price and what we call bakers potatoes double in the last couple of weeks. This last year the Potato Growers in the idaho area which is really the prime country for growing the kind of potatoes Food Service Establishment likes to have, they knew they were not going to get water so instead of planting potatoes they planted wheat. So now theres going to be plenty of wheat comes out of there but the potatoes are going to be thin. Theres an extreme drought that is hitting california and california is a big producer of food that we consume. One of the products we are not going to have this year is going to be pears. I remember in 2012 when the drought hit and we sell large number to school districts, we imported fruit, fruit mix, we imported peaches from israel, and israel, and that was probably the only place, some of those products were available. So we may be in that same boat here down the road. Tomatoes are a little bit on short supply. The other thing thats happening, we are in the corn belt of the country, along with iowa and illinois, and weve had a lot of drought there. We are finally starting to get some rain. One of the thingshi that happend last year, you read about this and you heard about it, the price because of the war in ukraine, the price of fertilizer, nitrogen, potash just went off the charts. I know for a fact there were many farmers out there that were doing a balancing act. How much less of this can we use and still grow a crop . What does that add to my costs . My guess is we will find our prod the production of maybe corn and soy beans may be down a little bit this year. Depending what happens next year and the experience factors there, may have an impact on whatever some of the Commodity Prices are. The beautiful part in our area of the country is the Cattle Market is good and were starting to get a little bit of rain now, but if you look around the world, you go into south america, you go into china, go into europe, and it seems like every continent is having their share of drought. And so, this might be a factor of all, in the future, for Food Production and especially the near future. Thats just a personal opinion. Labor is still an issue. The driver pool is still far from being adequate. We have a driving force of 250 individuals and we have positions we work to fill every week. There was a time during the pandemic we were short, times we were short 20 and 30 drivers. We have one supervisor for every 10 drivers and they drove all year. They drove vacation routes, time off for other drivers, and the like. Sorry about turn that on. Now, if i can find it. [laughter] weve all been there. Sorry about that. Interesting ring tone. A question about what was your Business Outlook for next year. I was just going to get into that. Great. What other challenging issues you expect to face. Our Business Outlook for next year is good. I wouldnt say its great. First off, we sell commodities. We were in 1934, that was tough times. It was founded in 1934, and the products we sell are really in a recession proof. People have got to eat. So, were looking for were looking for probably a fairly decent year, on the other side of the coin, theres going to be casualties in the marketplace, and we could have some storm challenges out there. And the way were dealing with that is interesting. Were working with were working programs right now to keep our customers profitable and were reaching out there and i mean, theyre the life blood of the organization and i think during the recession, in the 80s, there were a lot of folks that didnt have a lifeline. Communication wasnt great. So, were reaching out to those folks now. We need to see them through this. And its not a matter of extending them more credit. Its not a matter of make them, giving them some type of stimulus along the line, its to help them better manage their business, make it more profitable. So, thats going to be, thats going to be one of the challenging issues we have. The other challenging issue we really have and this is critical. If theres a i think theres rough i cant say exactly theres over two billion trucks in this country, and we have not been able to upgrade our Rolling Stock, or our Rolling Stock for probably two years. We have 250 tractors, we have 400 trailers that we need to make some deliveries. We havent been able to acquire a new tractor since november of 2019. We typically replace 10 of our fleet every year. The last tractors that we purchased in november of 2019 cost 106,000 dollars and its pretty much a standard, standard product that we buy. Weve got five coming next week, theyre 165,000 a tractor. 40 increase, plus, weve got to well have guaranteed kind of halfway of having probably 20 tractors. We really need 50. Were guaranteed to have 20 tractors in 2023. So were going to spend probably five, six, seven years getting things caught up in our fleet. The cost of putting trucks on the road today is very significant. Its gone up right around 80,000, 80,000. So thats going to have an impact on transportation, and when you look at the number of trucks in the country and the options arent great. We had a number of trucks sit this last year seven, eight days because we didnt have microchips. They were 201718 models. The parts availability, tires, one big things, on trailers, insulation. We had trailers we ordered two years ago that we finally got in the first part of this year. Those went up 40 , so, 40 sounds like probably an average cost increase that were going to see with Rolling Stock for, you know, any operation out there. So i think im getting down to the end. And the cost for necessary replacement items, how does that impact your outlook for Going Forward or changes how you prioritize expenses in other areas . One thing about it, youve got to have the cash flow to do it and youve got to have so that will be the challenge in, you know, development of a plan, a business plan. Which we will. Which we will do. I think in our company and our company is sound and solid and i dont see a problem there, but i do look at other companies in the industry and i think they will have some challenges there along that line. And there are some options out there that they can certainly use. But its going to be its going to be a challenge. We spend more money today on just maintenance. You know . A vehicle gets sold and you have a problem. The other thing we need to do thats going to be important is we need to get the manufacturing of a lot of those Component Parts back here in the country. And i could give you a list of things that we have to source outside of our country that put us, really, in somewhat of a predicament when it comes to keeping your trucks on the road. Thank you. Well follow up with you to learn a little more about that, but id like to ask my colleagues if they have a question. A couple one narrow one. First question, were you able to pass the costs along . Youve been hit by costs across the board. And really, do you feel like were getting through this process. There was an enormous disruption to your business and many others and all of the Cost Increases and shortages, and do you feel like i guess not much progress with the drivers, but do you feel were getting back to a better place with the suppliers and customers yet . Is there a sense of progress . I think theres a sense of progress and i think the moves you make are and i think they will be in the right direction and i applaud you for it. I do think that i do think that were moving maybe a little faster than what i thought, in terms of the economy and everything and so, no, i im confident were going to get there. It we might be the only thing im not confident in, i remember when the pandemic hit us, they said oh, 30, 45, 60 days things are back to normal. I think what were encountering right now is going to take a period of normalcy, its going to be probably, two, three years off, four years off, maybe. Weve got to get caught up. Its not going to happen overnight. And on costs youve been able to pass those right along . Yeah, we have. And the dollars weve worked with are large enough if and the customers really dont have a choice. We cant lock in old pricing unless theyve got contracts out there. We cant lock that in. So they end up having to pay it. Theyre so volumous right now that part of the problem is you dont know what the cost is. You ask me what the cost of eggs were, i could tell you, probably the few minutes because someone just told me what they were paying here a little bit ago, but its fast and furious. Despite higher prices, demand is still there . Demand is still there and i suppose its a question the amount of money that is still floating out there in the economy. The bad thing is, its going to be the lower income people that really take a beating and anyone thats in production, if theyre in sales, if theyre in manufacturing, whatever the case is, their salaries have kept up, drivers and everything. But weve got a layer of people out there that havent had a lot of havent had a lot of opportunities for increases. In fact, right now, one of the things we are doing is taking everyone that hasnt had an increase and figure out how to give them one. How we can give them one thats substantial enough. And so thats going to be a challenge probably for everyone down the road. Thank you very much. We appreciate your perspective and thank you, panelists. The chef and owner of garland, a restaurant and performing artist space, a selftaught chef and semifinalist for James Beard Award southeast, 20172019 and a finalist for the award in each of the past two years. She participated in our board event last year, and where shes shared compelling stories about the challenges that she faced running a Restaurant Business during the pandemic and in the early recovery period. Thank you for being here with us in person this year so we could actually meet you facetoface so you can share also your perspectives on how things have changed since last year. So, our first question for you, is about how your business has changed since we spoke last year. How does customer demand now compare to what it looked like before the pandemic and have you seen changes in dining patterns that you think could be long lasting . Thank you, governor bowman and thank you for having me back. Our restaurant, music venue, bar complex is one building that we have been paying rent on since 2010. And we closed our doors at the end of august. So you know, there were many factors leading to that decision. And most of them are really, you know, i want to say at the outset that im a restaurant owner, im a chef and were working on a new project. I am speaking for my from my perspective as an independent restaurant owner. Restaurants are ubiquitous. You can eat at a fast food chain. You can eat at a fine dining chain, thats in airports and hotels all over the country. Their perspective is going to be very different from mine and i almost wish that we had a different name for our sector of the industry because our challenges are unique and the way we approach those channels are very different because the math is very different. So, for us, so many factors led us to decide to close our doors and the main thing is that dining patterns have changed. Our restaurant has been located in city center of a very small center the capital of North Carolina and were surrounded by government buildings and law offices, a lot of tech companies, architects, small firms of that nature and we relied on presence in that aura. People would come to lunch and whether they ate with us or not, they were aware we were there. And mostly professional white collar workers. Well, they dont work downtown anymore, and they discovered new eating habits. They cooked more at home. They got food from csa farmers, thats awesome. And theyve discovered their Neighborhood Restaurants and they just approach dining out differently and maybe didnt want to make a trek downtown and struggle to find parking and navigate construction ongoing and construction has not slowed down from my perspective. In fact, things take longer to build and i know this because were building out a space right now for our new project. The project starts and then you wait two months for an electrical, you know, breaker switch or whatever, two months or for a meter base which is nowhere to be found or copper, whatever it is. So were not the only downtown that has a lot of construction, just sort of dragging on and on. That doesnt really invite people to come to your restaurant, right . I go to nashville and i see streets are dug up for years and theres a restaurant behind that. Its easy for people to say lets just go somewhere else. They discover a new spot and they go there. There are a lot of options when it comes to dining out and dinner and how you approach the food for your family and yourself. He so, were very cognizant of that and thats very mercurial kind of situation. And, you know, during the pandemic all restaurants, i think, were faceed with decisions how to pivot. You know, thats the pword that keeps rearing its head and we tried things that were completely outside of our normal way of operating. Fine dining restaurants started doing meal kits and takeout and you could get, maybe you were mailing something from gold belly. So, were doing things that are completely different for us. Were not built out for these operations, but we did them. So you start thinking about ifrp did different ways to operate and the consumer is connecting in a different way. Things are still very much in flux. I dont think that weve settled into what an independent restaurant looks like and what this industry looks like and i dont think that were going to get there for another three to four years, but in this meantime, you know, people who have one or two shops cant really sustain this much change and these many losses for that long. If i had 100 shops, you know, making a very small profit or very small loss, youre kind of its an aggregate. Youre looking at the health of your total business, for us, several weeks or several months of, you know, what are pretty big losses for us, very difficult to navigate. So, were, you know, were trying to live in our footprint within the menu that we are known for, within the type of service that we do, the way our dining room operates, how many people we need to work in the kitchen, how many people we need to prep, how many people we need to get a guest from the door to, you know, the table and then what happens after they place their order and all of those little steps, restaurants are basically dependent on a series of repetitive steps and all of those are very time consuming. Theres no malability, theres no work from home, theres no take your time. If the guest has a bad experience, it will blossom, and you dont know that because as an owneroperator you are working. Youre no longer overseeing, youre cooking, prepping, washing dishes, and hosting and youre going to miss those details. And thats kind of all of these little cuts, kind of cut down your business and they cut down the level in which you really want to be operating at. And that the guest expects. Thats not to say i think we did a really good job, but its exhausting, were two people, were a family operation, and places like ours, you know, our staffing situation has been just like mr. Henning alluded, its always difficult industry to staff, but now it feels impossible sometimes. I do feel like its getting a little better, but, you know, weve lost a lot of our young people who we might have considered as career hospitaltarians. They may get a job in textiles or go back to school, maybe become a nurse, an ideal way to go, but you know, we cant really compete with those kind of benefits. We cant compete with not working at night. We cant compete work from home. Only offer so much paid time off. And that demand kind of gets sucked in by or you know, completely obliterated by people getting covid. You know, so from the start of the pandemic until this may of 2022, we had maybe three people with covid. And between may and august, probably 80 of our staff had covid. At one point or another and myself included, were very careful and we test all the time with masks and everything, and so the way the pandemic is affecting daytoday life isnt as data driven as it is now, its just a reality. So, if a cook is out for seven to 10 days, i mean, in 2019, that would be like, you cant do that. Thats unheard of. Like do you have like the measles . And that never happens, but now, we have to sort of think about how many people we need with those consistencies built in, but yet, the cost of each person, hourly wage, is, you know, 15, 20 higher. Our revenue is unpredictable because of the way our demographic in our part of the city is. And if theres a variant that was raging, that was more of an issue, maybe last year, when it was now its just everybody gets covid all the time, it seems like, its not this wildfire thats, you know, ebbs and flows, but weve had to sustain the losses throughout that time. And so, we have our labor costs going up and you know, your question, chairman powell, was can you pass that increased cost down to the customer. Well, were the customer, were the endgame. We can only raise our prices so much. So, you know, when you go to a restaurant, everybody goes to a restaurant and they see a chicken dish or a pasta or an entree that maybe previously in a nice restaurant was 28, well, now its maybe 34. But youre not going to pay 45 for it. Youre just going to say thats insane. I can make that at home and you know, you think you can. [laughter] some things you can and some things may not be quite as good, but its still dinner and youll survive, you know . So theres, theres sort of this like we reach a ceiling of not being able to have anywhere to push the costs for us down. So, you know, we see fuel surcharges on our invoices from deliveries and again, as an independent restaurant, im a chef operator, i make creative decisions anyway how i cook, what i put on my menu. I work with a lot of small farmers, but theyre leaving, too. You know, theyre getting tech jobs and web design jobs because its hard for them to find somebody to help harvest their crops and bring them to us, you know, its a small oranges. So, yeah, i mean, im not sure if that directly answers exactly your question, but there are so many factors that go into a very simple decision on where am i going to have dinner tonight. And its everything from your location, what happens in your neighborhood, where do you live, what is around you, how much are you prioritizing, supporting locals, are you feeding a family or a young couple with disposable income, and you know, who is able to operate . Its a restaurant you normally go to, and able to have all of their sections open, and did four of the seven servers that they have call out today, and so, you still have to open and you can only sacrifice so much of what you can and cant do. You cant say, hi, welcome to a restaurant. We have three of the nine items from this first section available today and two of the entrees are available, im so sorry. Youre like what is this . Im never coming back here, but in reality i wish we could do that, you know . Because sometimes you just really have to say, can we open or not. Thank you so much for your excellent answer to the first question. It was so good you answered my second question which was about inflation, so if theres anything you would like to talk a little bit more about, you talked about wage inflation, the inflation, how you cant pass it along. Are there other concerns . And i would like to open it up to my colleagues, too. I have a quick thing to ad. I think real estate is such an important component of small brick and mortar places. You know, real estate has been thriving and growing and booming and thats great. But developments are happening everywhere in every city in the country and you know, the starting rent is a certain amount. So as, you know, in previous times, 30 of your revenue food costs, 30 labor, and then you have your operating expenses, blah blah blah. Now, labor is hovering around 48, 50 , your food costs have gone up to 35 so theres 75, Credit Card Processing Fees go up 3 1 2 to 4 off the top. Rent is now, you know, i mean where does it fit . You just after a point you get to 100 and you havent paid all of your bills and now youre operating at a loss for us we were fortunate enough to be able to buy a building and that kind of changes everything, but thats were lucky, you know, we utilized an sba program and worked with a local bank and you know, weve been in business for a dozen years, we have a presence in our city, but thats not the case for everybody and not accessible for everybody. So, you know, rent going up and Everything Else going up and the ability of a small independent restauranteur who has a dream and a vision and really wants to invest in their neighborhood may or may not be able to do that in the future. Thank you for that presentation. A quick question, you said that this is a performance and performance based and restaurant. Most of the conditions you talked about had to do with the Restaurant Business. Are the conditions the same for it seems like, they would be worse during covid for a performance based. They absolutely are. We never actually reopened the Performance Space once the pandemic hit and our space is very small. 250 people. So you know, that. A, it wasnt safe for so long. All the touring bands canceled their tours and because were a small space we book small bands and either on the way up or on the way down and thats why weve got them. [laughter] so, you know, its expensive to tour, gas is up, hotels are expensive, its maybe not safe, your record came out, you know, youre not selling records anymore, everything is digital so all of that has changed. You know, maybe people have gone to see their favorite band in an amphitheater and that is different. The small performance venues, thats just, thats really hard, you know, you cant really sustain that kind of business 365 days a year with local bands, just cant do it. Thank you so much for your presentation. I have a question around the work force. You mentioned that you had a team in your prior business thats closed down and now youre transitioning to a new project. Is your strategy to try to retain those workers that youre familiar with such that if theyre thinking about the economic impact, theres some possibility that those people might be redeployed in context or what youre doing so different, its the case the workers are released into the economy, they have to find other engagements and things of that source . Its a little of both. We did retain some folks for a really long time. I mean, weve had some staff that was with us for six years. And but then most of them were in the last nine months. We offered two weeks severance to everybody, you know, that we paid after we closed. We offered, you know, an open door, please come back and work with us and when we reopen. We have a couple of people that weve retained and going to pay through this transition, so, you know, it would be a very different situation and the timeline and how all of that worked would be different if i didnt know that most of my team could go and get another job. In fact, i really helped to place a lot of people with a new job at restaurants that i like, and that i know, you know, operate with integrity and pay their staff well and treat their staff well. If it had been a different time, we probably would have, you know, said were closeening two months and it would have been a lot slower, but i know that most people can find a job very easily, but even still we gave them enough time to find that work, be paid, and then help them find another. Thanks. Thanks, everyone for all of your questions. Well, well move on to our third panelist, jeff, is a senior vicepresident of commercial strategy insights and analytics at a leading Global Hospitality company with a portfolio of 18 brands comprising 7,000 properties and 1. 1 million rooms in 122 countries and territories, a pretty big role. So if your role at hilton, delivers commerce economics to hilton and partners, and the only Global Analytics team in the hospitality industry, brand, call center, new Hotel Development and other key corporate disciplines and born and raised hotelier and committed his career to his passion. And the impact that hospitality has on society. So, wed like to hear about the how this past summer has impacted your business and Hotel Occupancy rates during the pandemic and then, where were those customers coming from . Was it for recreation, business, conferences . First off. Thanks for being here and thanks for all you do on behalf of all of us. An interest between large and small businesses, many of the same dynamics exist in what were seeing in hospitality perspective, and i struggle to imagine an industry that was dealt as difficult of a blow during the pandemic, 80 down plus, in the its been a challenge, but also, i think, at least on the Positive Side for hospitality on our end, you know, starting to see that Real Recovery and it starts with leisure travel, to get to your question. Over the course of this summer, but also, last summer, our industry shifted much more towards a Leisure Focus that ties closely towards disposable income, stimulus. Folks had more money to spend on travel, so, you know, complete opposite of 2020. The dynamic in 2021 summer and 2022 was the concept of Revenge Travel. You had not even your family, you havent seen your friends, you havent been able to go to the National Parks or see much of the country. So Revenge Travel was a very real thing for us and we see this dynamic in leisure markets, so the beach markets, southeast u. S. , you see that dynamic in National Park markets, we see it in long weekends. The holidays become much more compressed from a business demand perspective. And so, over the course of the summer, we saw our demand from leisure travel, and accounts for all seasonality and the other noise, up 10 versus 2019 and thats from an industry overall perspective. Which is great, but he realize theres another 50, 60 of our business that comes from Business Travel and group travel. In order nor our industry to have the compression it needs to be successful nor our independent owners is you need all three parts of that to be successful. What have we seen over the course of this summer . Leisure were doing really well and started to see the initial signs of Corporate Travel come back. You know, starting beginning of this year, Corporate Travel was down close to 25, 30 , now through the summer were 10 down range. Group travel. Obviously, for the reasons that we talk about events and the reasons that group was the most suppressed from a demand perspective, we saw that in our industry, down roughly 35 the beginning of the year. By the end of the year we expect that full year number to be closer to 15, 16 down. So youre seeing the recovery and its very much as we would have predicted it back in april of 2020. We built our first models and said the first thing coming back is potential travel, and folks that needed to travel across the country and we saw leisure travel, small businesses, which needed to travel. And in order to be successful. And we saw a bit of an air pocket there before we saw Large Companies coming back and finally, larger groups. The other dynamic that we see and i often use this story from my own experience, you know, weddings and events. Right . We went from nobody being able to do that in 2020, meant to get married in 2020, first june, september, june of 2021 and finally inept is in september of 2021. And there was compression, everybody had the experience. Went from a saturday on one venue to sunday for another. Thats similar to the pattern that weve seen cutting price. [laughter] and i think may represent babies as well. Which i have a 10 week old at home now. Hopefully hes awake watching this. [laughter] so, yeah, weve seen some of those dynamics from the rest of the market comeback, and so, its not just in about leisure periods, as we get into september. Were seeing some signs of light in all segments, but by the end of the year, were still going to be down overall demand for our industry around 5 and thats when you take into account leisure up 10 and then Everything Else, lower. What does that mean . Ill jump a little how that impacts price because we similarly are downstream, were impacted by labor, impacted by food costs, a variety of other supply chain related things. When we look at our price on a year over year basis, im sure that folks see it if theyre travelling, 20, 25 . On the whole, our industry forecast prices are around 15 , year over year. But when you account for inflation over a threeyear period, so comparing to 2019, our real average daily rates, were still lagging 2019 and its really because of that lack of compression from all of the Market Segments coming back together, right . So, i think thats going to be the interesting thing to watch is, as we hopefully see demand reach levels across the segments, then prices would fall. Do you think the pandemic experience has reshaped the way the industry operates . Yeah, so i think a couple of things that i talked about that, and kind of to the question, theres a tale of two cities. It interesting because you see resort markets, drivein destinations, theyve been doing quite well. Extended stay hotels have done really well, again, in toms market and other markets like that, that theyve really supported extended stay travel. What we havent seen really is the return to urban markets and the large conventions. Right . Those are the life blood of major cities, right . And so, were starting to see that recovery, right . But theres obviously pandemic risks and other things that folks have been considering. You need the overall return to desire to travel and so were starting to see that come back. And so, las vegas and orlando. Were seeing that turn back up. Markets like San Francisco and chicago not so much. San francisco dependent on the tech market which has been different than the rest of the overall business community. So, were seeing a little bit of that. I also, id like to think about sort of where do we want to get back to normal versus what is a new former . Right . Back to normal is return to normal, folks are getting back to their social weddings and events and students back to School Matter to us, people tend to follow the School Vacation schedule. As we see that come back to some form of normalcy, were starting to see normal travel times come back. From a new normal perspective, there are a couple of things. Emergence of workcations. People can work from anywhere, im not sure thats the case for you guys, but many cases, folks say i cannot be in the office for a week. Used to be called leisure travel. I have a conference in las vegas, stay for a couple of days, the weekend. Its something broader. Were seeing a return to a new customer dynamic they want to have a larger room and stay in a place that they can, you know, work during the day and you know, connected to the internet and that good stuff and then at night they can do the things they wouldnt have been able to do otherwise. It doesnt impact all customer segment, if the families follow the regular school schedules. Hybrid meetings are interesting. I understand you guys were doing this in a remote fashion. We need folks to get together like this, were not sure what the future of meeting like this where half the table is over television and half is in the room. You know, thats an emerging potential trend that, you know, were all going to have to figure out. Everybody has been on Conference Calls and extremely uncomfortable when youre not in the room and everyone else is. Weve got to figure that out and that will lead to something the new normal and call out on this sort of new normal is emphasis on digital tools, right . So for us, thats, you know, folks will try and skip the front desk, right, theres a little bit of a different model how you engage with people in a covid type world. You want your key on your phone, whether youre flying or in a hotel room. Weve had heavy emphasis on that. Were seeing a change in customer dynamics which undoubtedly could shift for the labor model and team members no focus on Service Rather than transactions and touching on labor, similarly, as said, ours has been hit dramatically, were 400,000 jobs less than where we were from a combination sector. And we see it in our hotels and when you think of a demand environment, during the weekend youre busy and during the week youre not. Thats a difficult thing to labor schedule around and dont get the consistency that our team members demand and expect. And inflation, basically doubled, the weve seen across the sectors, across the regions in the u. S. , were seeing some shift in dynamics. Governor cook has a question. Yes, please. Thank you for the visitation. The data youre presenting for the u. S. Or global . U. S. Although weve seen similar trend, if it interests you, one of the interesting dynamic is europe, so much more dependent on cross border travel so obviously that was more depressed when crossborder travel was more. But the major u. S. Cities, lack of travel new york city and San Francisco impacts. Pace preferences kind of things and spenl we see that. Focused on the u. S. From a customer perspective, but, yeah, we see those sort of trend. I would say, obviously, there are countries where its quite different. China obviously is a different sort of customer environment. Yeah, just want today follow up on the labor question. So, you know, if you look at where employment is actually down relative to prepandemic, 1. 4 million inperson services, in leisure and hospitality in your sector, is that because people arent coming back to that sector or because your demand is down so youre not demanding the same level of employees . Undoubtedly a mixture of all things. As somebody who grew up working in hotels and passionate about that sort of Service Economy that we have, its, you know, in some ways, can be less enticing of a job in a covid type world. Right . Essentially they were essential workers having to be facetoface in ways that Corporate Office world were not necessarily have to do. So i think theres an element of that which is we need sort after mind shift back to where we were and the value in facetoface experiences. When i think about what were trying to do from an employment perspective, its hard to get people to come back to work. So i think its a little less of our demand isnt requiring as many folks coming back. I mean, right now, as we said were close to 5 down from the demand, but not necessarily for that level of jobs displacement. A question, so recently we have talked to a large firm, hospitality, and they were entirely related to what said, and the job turnover rate had doubled than prepandemic and even when you can get workers you cant keep them. Is that something that youre seeing in these areas. Were all competing for the same subset of folks, its a smaller pie that were competing for. So you see certain places that people are putting out big bonuses to convince people to come their direction and we have to go back and forth. So, you know, the pie of workers in our industry broadly. So regard less of what we do for demand, youre still going to have demand for labor. Thank you so much and congratulations. We hope youre getting some sleep. [laughter] appreciate you being here with us. Our fourth panelist, carol walton, a director at harbor results, based in southfield, michigan. Leads the manufacturing intelligence business and collects millions of data points from thousands of Manufacturing Companies in north america. Harbor results collects data from more than 600 privately held small and medium sized manufacturers each year. Cara and the team utilize the data and information to help small to medium sized manufacturers improve their competitiveness in the marketplace and studies economics, business, trade and tariff trends impacting the Manufacturing Industry and consults with clients on business impacts. Thank you for being with us today. Can you help us understand what your most pressing concerns are for the small and medium sized manufacturing businesses that you work with. Yeah, absolutely. Firstoff, thank you to everyone, its an honor to be here, we work with small and medium sized Manufacturing Base and small business, 15 people on total for staff so were quite small, but beyond working with those small to medium sized individuals generally theyre all less than 500 million. Some are 5 Million Companies in a year and some are 700, but generally speaking theyre under that range. We did the math in our organization to give awe sense about 30 billion in annual year, that was its 30 billion annually in terms of total output theyre putting out in the market to give you a sense what theyre looking at. Theyre privately held and a tier one or automaker, appliance maker and generally not theyre very small and theyre familyowned sometimes second and Third Generations. And our team took time to come up with an answer to the question and broke it into two core assets, their biggest challenge from our perspective is labor and well talk about that in a little bit and second biggest challenge is the ability to make money. So i could start with the labor piece, frankly many facets to it all of them i cant answer here or else wed be here for a while. Ill do my best for a high level explanation. Number one challenge our people have, they cant find people and they cant keep them. Theyre absolutely getting people into the door and theyre not sticking around. This goes far beyond production workers, absolutely do have clients who have challenges frankly, sometimes starbucks or were in michigan or tim hortons or Something Like that, well give you a 1,000 signing bonus and have companies that are losing employees to that, but also a Skilled Labor challenge, were lacking Skilled Labor and lacking people willing to go into Apprenticeship Programs and lacking office staff. One of the things you talked about you dont have the ability to do work from home, nor do these people. At the end of the day have to make pieces and parts. I want to be clear about one thing as we talk about the labor challenge, our core as a business we focus on making sure the only answer isnt adding people we want the businesses to be efficient and productive, but they cant find enough people to be efficient today. Anecdotally i was talking to a plastics processor who hired 14 people last week, three of them showed up this past monday, one of them left at lunch. So, i mean, and this is not a this is not the only person who says this, i hear these stories and our team hear these stories all the time. Despite Offering High paying jobs and Career Development tracks and theyre paying big bills, to train them. Ill take you tool and die or process packager and theyre not finding people willing to take that level of education and when we look at data, a lot of our manufacturing clients stopping hiring during the great recession, you guys know better than i do, the businesses are were challenged. When a lot of millennials were graduating out of college and frankly that gap is rearing its head. Average age of an owner is over 60 and average own of work force overall and dont have success plans, not for key leaders or other areas of the business, if i have a production manager who is in his late 60s and says hey, i want to retire in the next four years, theres no one there thats even considering being at next person to be the production manager. You lose the production manager your facility isnt run. So beyond that, what were watching in our bottom line is costing you guys a lot of money and what theyre start to go tell us what the data is starting to show us theyre choosing not to grow their businesses, which is a challenge. Theyre saying, hey, im not going to take on more revenue, i dont have the people to do the work or in some cases im going to shrink my business which brings my second point, they cant make money at the rate they used to be able to. You said theres a lot of compounding issues in everything, and theres a lot of compounding in this one, as well. A lot of core pieces despite the businesses increasing efficiently level, doing better through an efficiency perspective theyre not making more money. Theyre not going up, profit margins, theyre going down substantially. Due to a lot of reasons, one the labor piece and we talked about, i wont go into too much more detail. The and the other is overall cost of doing business, Overall Energy prices, rail strike potential rail strike was a challenge for these individuals. Health care costs, and everything from temp agencies upcharges, trying to get temple labor in the door, 30 to 40 higher. Interest rates on loans is a big one. Most do not have cash, they all use lines of credit and impacting them as well. The other piece thats preventing them from being able to make money increasingly, they had a lot of ppp or er funding depending on the type of business, most did get that because theyre privately held and small. Some used it better than others, some use it had as a lifeline and delayed some challenges they were feeling before covid even took its toll and now that that money dried up. Theyre feeling the same challenges again. My final piece on their challenges from a financial perspective, essentially challenging to quantify, but i did my best to put it into numbers is this increased what they felt the past 24 hours, is difficult to make money. Most of the customers and companies i work with dont know the customer demand and dont know the schedule on the shop floor and frankly dont know who is going to show up for work sometimes in a given week and sometimes a day. Periods of time in 2020 they said i went to work today and eight things changed between 7 00 ar 8 00 a. M. They dont know how to do this. At the end of the day whats thats doing, driving up transactional waste. Cost as lot to hire someone even if they dont show up. Costs money to vet them and process them and give them health care and all that. And additionally tying up money in inventory and a massive shift in inventory right now and the final thing its costing them way more cash than it ever did before. Their ability to have flexibility in terms of how they spend their money and how they make money is gone. And at the end of the day, this is a Massive Group of people theyre not all the same, but the viability of many of the businesses longterm are those are difficult challenges that youre dealing with. Could you give us some perspective on how supply chains issues impact the businesses . Absolutely. So, i will flip to a final page of notes. So, some of the supply chain perspective we are based in southfield, detroit michigan so we work a lot in the automotive space, but work in others, i personally came out of the appliance arena and worked and a lot of challenges seem to be around semiconductors, thats a big thing, that seemed to have picked up in the press and its absolutely an issue, im know the going to belittle it, but a lot more problems than just semiconductors. To speak on semiconductors for a second core challenges that were seeing is not only the automotive need semiconductors, but your refrigerator needs semiconductors, a new playstation that came out last year and that needs semiconductors, a lot of people talked about it i dont playstation, xbox, the same to me. And Automotive Companies can get them, which means that this whole demand problem that our customers are facing they have no way to plan when theyre going to get chips in order to put them into the parts that theyre ultimately supplying. The other semiconductors quick, when you think about an electric vehicle coming in, they require 30 more sometimes more than that than an internal combustion does. And beyond the semiconductor challenges, probably more of the concerning things to me and less easier to solve challenges from supply chain, transportation and freight which all of you talked about in different arenas. But a lot of that applies to things much more than automotive as well, right, so you talked about the agriculture business, we work with companies that cant get washers and bolts to make trailer hitch on the back of f150, whatever they need to get when they get it. And the other big supply chain challenge, we dont feel for a ton of natural disasters. You talked with agricultural and theres on the Residential Markets and resin markets, and there are some that allow you to make a dashboard or plastic in the room right now. The capability for them to get that resin even before the most row sent round of natural disasters occurred, some of the major freezes that happened last year, it was already force ma major. They were already looking at it at the crises and had nothing to do with the port challenges or the difficulty of getting a boat out of china or somewhere else, so that was one of the big pieces on the supply chain front. I guess my the bottom line for you guys in terms of what were seeing from the supply chain piece of it, automotive specifically, historically has 17 million a year volume in the u. S. This year forecasted to do about 14 Million Units. If you look at oem publicly traded companies unlike my customers, theyre making money and doing quite well and have challenges as do all businesses they dont necessarily have a reason to go back up to 17 Million Units based off of what we see today. The reason why i bring that up is because, this means that we have a lot of people who are supplying to them who are dealing with a much higher mix because Everyone WantsSomething Different in their car today or different in their appliance, and were dealing with much lower volume, but the end of the day, what that does, increases complexity of everyone we work with and within that, makes them challenged to manage the supply chain piece that is we talked about and at the end of the day theyre focused on this week, am i going to run out of cash or am i going to shut down my suppliers lines. These are the decisions that these companies are facing. I dont know if that fully answers it, but thats where were at. Fantastic, id like to open it for anyone. Yes, im curious, if these firms, sound like some of them have more demand than they can handle. If theres a down turn in the economy, how are they going to manage it . Yeah, so, they absolutely have more demand than they handle. From an inventory standpoint were below it. Demand for them go up 30 between 2020 and 2021. Its plateaued a little bit, but relatively high. In terms of that demand lowering, i frankly think some of them would be im not going to say pleased, but would be relieved by that because the intention that have demand lowering would mean, hey, maybe a couple of my 20, 30, 40 open positions i no longer need to hire for, maybe i can take a breath to actually manage my business and focus on continuous improvement. Obviously we dont want demand to shrink too terribly much, but i will tell new automotive specifically theyre pretty hefty demand planned from a tooling and new product perspective so we have a lot of new vehicles coming out in the market in the next couple of years. Really a positive so we absolutely have the demand to do so the challenge is if theyre able to run their businesses to still make money even when the demand is still there. Does that help answer . Yes. I have two questions about the long run. In my previous life i was a professor at michigan state, so, had students from michigan, and in my senior seminar on the current state of the economy, and i taught it for about 15 years or so, the last time i taught it was 2019 and the question that i posed is the beginning of the semester is do you think youre better off than your parents were at this age . And for the first time in 2019, students said, postgreat recession, they said they thought they were better off because they had interesting jobs that their parents had to work on the line and that they thought these were boring jobs, so people dont want to show up for tool and die jobs. My students reaction would be, thats boring, thats not the apple store. So, like that seems longterm, that seems structural. So, how do you address that . I mean, this yeah, how do your businesses say at that they would address Something Like that . Yeah. Making manufacturing sexy. Yeah, thats an endall question we face almost every day with businesses, challenging to make manufacturing sexy, i would tell you that. If you go into the average manufacturing facility there are floors that i would eat off of. Theyre impeccable facilities in this country. Beautifully maintained everything oems and tier one, nice jobs. I walk into 10 million plants, state of the art equipment. 20something on Million Dollar machines and coding that never got a fouryear degree and went to Apprenticeship Program and doing cool stuff. The biggest challenge that we have is encouraging more people to do that. The only way that we found success so far at least our clients have, is theyve focused on actually talking to the parents at very young ages and starting in elementary and middle school about the benefits and Creative Development opportunities in manufacturing, that dont require fouryear degrees. I have a fouryear degree, i know a lot of people here have a lot more than one fouryear degree, i understand the benefits of higher education, but not Everyone Needs one. Im a nerd for it, but its really cool, manufacturing. I have a quick question and this is a longer term question. To what extent . Because of the labor demand challenges, to what extent have businesses adopted automation to fill the labor demand . Yeah, so they absolutely focus on automation pretty clearly all the time. I was at, you spoke about big conferences i was at the International ManufacturingTechnology Show in chicago a couple of weeks ago, actually wellattended so thats a positive, stayed at the marriott, sorry about that. [laughter] but either way we were at that show and the core focus was automation and with everything from automation within the machining, if youre cutting a piece of steel theyre focused how do i have multiple pallets and make sure to do it without people and how do i run this for 24 hours and have some guy sitting on the cell phone to monitor it, they have that technology. Every Machine Company would give awe app on the phone and focused on that piece of it and a lot of automation in terms of lifting and Material Handling and even in terms of some of the warehousing pieces. How do i get a machine to wrap a box and frankly any automation to do what even in manufacturing we may call the less intriguing jobs so we can have people actually making parts and actually designing and actually checking the quality and doing the things that are what ill say more fun than packaging a box of parts. Question. Chris and i are kind of going the same direction on this question. I offer it to you but anybody else can jump in. So in a normal economy, if demand softens a lot, the first thing businesses first thing businesses do they often will lay off workers. This seems like an unusual economy where businesses have been scrambling to get workers for sors long. If demand softens you think it would respond differently this time in terms of those workforces or do you think it would do the kind of usual playbook in terms of trying to shrink . It probably depends on the business. Obviously everyone is different and i dont know all of them but i think they would approach it differently. One of the things they may consider doing is h looking more closely at who is it that may be close to retirement age anyway that we could help them and now feel comfort to leave the workforce and how do we get that knowledge out of that individual before they leave. The big thing with our workforce is going to be that people who may necessarily want to leave at some point. Theyve all of the knowledge on how do every thing. Theres some guy sitting in office that knows exactly how to manufacture thatol part. I dont think they would do massive rounds of layoffs but i think they would potentially strategically say hey, i mean frankly lets rank our a bnc players who add value and who are we hiring because we are desperate for people in this massive demand surge and they may choose to let go some of those individuals. That would always within the nonSkilled Labor. I cant see any circumstance where they would get rid of Skilled Labor and would probably not be a Critical Mass of the workforce for the most part at least than a privately held business i work with. I cant speak as much for the public traded guys. Thanks everyone. Thank you so much to all of our first panel and our panelists time, carl come all information you provided an shared with us today religious helps us better understand the data we look at here at the Federal Reserve. So now well take a quick break and well come back in about ten minutes and vice chair bringer will chair our second panel. Angst everyone thanks everyone. [inaudible conversations] [inaudible conversations] [inaudible conversations]