PSEF Podcast - October 2026

00:00:06 James McCafferty: Welcome to after office hours with the Puget Sound economic Forecaster. Your quarterly update on the Puget Sound economy and the issues impacting it. It's officially fall ish in the Pacific Northwest. Those orange traffic cones are quickly becoming replaced by pumpkins and infused pumpkin spice everywhere and in everything. And that gets us to thinking about pie. Which leads us to pie charts. And suddenly we're back in economics land and we all feel good about it. We published our latest regional report about a month ago, so it's a good time to check in and get some updated guidance, or at least thoughts on where things stand. Wait, maybe you don't actually read our reports yet? And our witty analysis. Maybe the internet algorithms have sent you spiraling into the show. You can learn more about us and our reports at www.economicforecaster.com. So here we are, October 14, 2026 with the warning the passage of time may impact what you're about to hear. And when we say the passage of time, we mean anything from hours to days. For the most up to date information. Be sure to follow us on social media, where we post six to eight things every day. Turns out, you can also find that at www.economicforecaster.com as well. So let's check in with who we convinced to field our discussion points today for this fine economic dialogue. Doctor Hart Hodges, an economics professor at Western Washington University. Hart writes the regional forecast article and will occasionally contribute other articles based on the topics. Hart and I both co-direct the center for Economic and Business Research at Western. Doctor Laurie Trautman is the director of Western Washington University's Border Policy Research Institute. BPRI is a multidisciplinary institute that undertakes research to inform policy makers on matters related to the Canada-United States border, particularly in the Cascadia region. Our always amazing research economist, James Mark Gbeda, Doctor Fauzi Awan and Mac Molnar are behind the microphone and ready to answer all of the hard questions. They maintain our forecasts around a quarterly and monthly update articles while also working with our research teams. My name is James McCafferty, and I serve as the general Manager and publisher for the report. So Hart and James Mark, I got to start with you because in retrospect, what are your thoughts on the forecast we published? Is there anything you think might be in motion since that dataset was created and we might see shifts as we may think about the December report.

00:02:26 James Mark Gbeda: James, as you already know, time series data is always in motion. It's always changing. And what complicates that more is the dynamic, the macro dynamics in terms of policy. So before we a day before so before we publish our September forecast, the fed raised interest rates about twenty five percentage points. That means that that particular decision was not factored in our forecast, for example, but related to inflation, on a short term, we're forecasting about three point seven percent on average. And in the long term we're forecasting around three to three point three to three point five percent of inflation. So that means that inflation continued to be a worry to almost everybody. And that is why the fed is trying to control that by adjusting their fed rates. So on the inflation front for sure. After we publish the September forecast a lot has changed in terms of energy prices. Today I was reading the BLS report about inflation and inflation for the month of September has increased about zero point six percentage point to three point six percent. So in terms of inflation, for sure, a lot is changing and it will continue to change. Even in our next forecast. Another thing that I think it's worth mentioning is about employment growth. In the forecast. We projected a slow to moderate growth in employment across the region and even nationally, and that is likely to continue, given the fact that we are seeing a lot of labors, especially in the tech sector, particularly in the Seattle area. So on the employment side, growth continued to slow. But I think we are also not at a point where we'll be worried that the job market is collapsing. I think the two things that are, I think are swinging most is inflation and job growth in both the region at the national level. And I'll be interested to hear from Professor Hart as well.

00:04:44 Dr. Hart Hodges: No, I think you're summarizing things nicely. I mean, James, you've asked us this question before and we keep talking about how the forecast, the official forecast was really rather positive. We've all got worries about what might be going wrong, and for the last, I don't know, year and a half, the positive forecast has been more accurate than anything we would have put forward if we had said, oh, the sky is falling. You know, inflation is coming in about as we thought. Energy prices are up, as James Marc mentioned. But we've been talking about that and the war in Iran. So we didn't get, you know, since the last forecast, we haven't been hit with surprises that are, new, different big. It's the same story of we're all trying to anticipate an inflection point, strong economy moving up. The only thing that I'll add as a correction is, thinking about basis points rather than percentage changes in terms of, you know, increase in interest rates. But, I don't think we need to really pick nits here. so far, so good on the forecasting front.

00:05:52 James McCafferty: James Marc, you got anything else further you want to add?

00:05:55 James Mark Gbeda: Yes, yes. One thing I wanted to point out is that, in the September forecast, we had to produce two separate forecasts. One as our regular forecast and the other as an alternative forecast. And the reason being that we wanted to kind of test our model, given the volatility in data we are seeing in recent years and kind of take away the impact of Covid on some of the data we've been producing. And that was interesting to see how it impacted particularly personal income, over the period. So I will say that, you know, things continue to shrink. Things continue to be in motion. As far as time series is concerned, but sometimes how we validate the model is also important. And just as a reminder that our readers should always contextualize the data and as you mentioned, they should remember that, you know, time matter in terms of when they are reading the reports and the interpretation they should be making out of those reports.

00:06:56 James McCafferty: Yeah. And that time matters more and more. It seems like the stuff changes so quick. In fact, thinking about things that are changing so quickly, I want to Laurie, I want you to step up to the mic here because I asked you to to share some thoughts on our September report. And you really delivered talking about the changes, it seems in our relationship with our northern neighbor just continues to be challenged by U.S. policy makers. You released through BPRI a report in the last few days about border crossings, which is a really good read. And we shared that on our social media feed, and you can listeners, you can go grab that. My question today, though, is the changes in behaviors and attitudes among Canadians don't appear to be something that just simply goes away with policy changes. It doesn't seem like the kinds of behavioral changes that we're seeing just go away overnight. If the winds change, how much long term damage do you think has happened with our second largest trading partner? And really, they're not that far behind our largest trading partner. So what are we looking at?

00:07:57 Dr. Laurie Trautman: It's not pretty. James, I will say that, um, we're seeing some shifts that definitely seem like they could be longer term. We've had some kind of bumps like this in the past. In 2016, President Trump at the time put some tariffs on some Canadian goods, and we saw a little bit of pushback from even Canadian shoppers at the local level. But this is a new, dynamic, I think. And I'll say we're seeing it sort of in two different scales, right? One is the Canadian federal government itself reorienting away from US markets and really trying this trade diversification, looking to Europe, looking to some extent to China. And we're seeing this in Mark Carney's very popular initiatives to realign the supply chain and really diversify trade away from the United States. We're also seeing at the at the provincial level, BC Premier Eby, in particular, has made efforts to direct provincial ministries, health authorities, corps crown corporations to cancel or transition away from US based contracts. Really this effort to, again, reduce reliance on American companies. So that's kind of one scale. That's really, I think, a ship that's not going to be necessarily easy to turn around. And then on the other side of that, we have everyday Canadians who are also expressing their anger in a multitude of ways. And we see these, particularly in border economies. So we see this boycott of US products, a boycott of US travel. You mentioned some of the research that we've done here at BPRI. Last year we saw a thirty five percent drop in BC plated vehicles coming in to Whatcom County. That drop has stabilized. So we're closer to maybe five percent year to date this year compared to last year, but it's still dropping. It's not even sort of remaining stagnant. We're still seeing fewer Canadians month over month. And we feel that here since 2024, to give you a little bit of a number in there, we've seen close to about more or less 1.5 million fewer visits by Canadians across the border into Whatcom County. So that adds up. And I'd say we see that in our business sentiment. We interviewed about sixty five businesses in the spring of twenty twenty five, and then again in the spring of twenty twenty six. And we certainly saw a progression in those businesses that have a sort of dependence on Canadians, moving from thinking about maybe making adjustments to really feeling like, okay, this is probably a longer term trend and we're going to have to actually change the way we market, perhaps change our customer base. I think industry trends are a little bit messier because of course, all of this is caught up in inflation and this broader economic uncertainty. Immigration is of course more of an issue as well. It will be interesting to see how the recent approach to H-1b visas and Microsoft may potentially sort of shift high skilled workers in this region across the border, potentially more geared towards going to Vancouver than Seattle. But these are all sort of unknowns. And so it's a little bit hard to sort of put it into a box, but I think we've got a lot of factors. We have a lot of uncertainty. We have, of course, a continued weak Canadian dollar, which we know here in this region does have an impact. But what we do know is that there has been a fundamental shift, I think, in the way that Canadians and the Canadian government now see their relationship with the US. And I think this is a little different from issues we've had in the past, around 9.11 or around Covid, when the border itself was the impediment. Right now, we're looking at something perhaps much more long term, like a loss of trust. And then you combine that with a shift in consumer behavior, as well as this effort to restructure trade relations. And I think we're kind of going maybe into some uncharted waters in the relationship. But I will also say that geography isn't going to change. We are going to remain neighbors, and I think even as Canada reorients, their sort of trade relationship diversifies it away from the United States, it's pretty likely that the United States is going to continue to be Canada's largest trading partner.

00:12:06 James McCafferty: You know, Lori, this is really interesting because, you know, in Whatcom County and Skagit County, it's the B.C. plates are pretty prevalent when you get to Seattle, Tacoma, Everett out on the peninsula, it blends in a little bit more. And you may not be thinking about the, impacts of, fewer Canadians, but it's the trade patterns that that really have my attention more than anything else. Because you think about all of the goods that move across the border, both from a selling perspective from the United States, but also from a just an interdependency. You think about lumber and, and oil and things that we really do depend on in our regional economy that is potentially being impacted by this. So the impacts of this, we're going to put a pin in it, because I think we're going to come back to this conversation a lot over the next few years.

00:12:52 Dr. Laurie Trautman: Yeah, we build a lot of things together. We have a lot of this sort of transportation connectivity. So I think these changes do touch a lot of different parts of our economy. That may not seem obvious from the surface.

00:13:04 James McCafferty: Yeah. Thank you. Lori. Mac, I want to switch to retail sales and, Lori talked about, you know, the, the drop in, people coming across the border. And I know that's impacting the Whatcom County data. And we're not going to dive into details here on that today. but it does impact the state's, tax collection. It does impact the, Puget Sound region's tax collection. But what is going on in general with retail sales, how do consumers feel about what's going on in the world?

00:13:29 Mac Molnar: Oh, consumers think the world has ended. Consumer sentiment continues to be in the absolute pits. But despite that, people are still spending a lot of money. Real consumer spending has stayed pretty steady. Slight upward trend. We're also starting to see that there's still new credit lines being given out. So people are still able to access credit, which is maybe bolstering spending. Where we're starting to see changes, is that the share of consumers with a credit score below 660 who are opening new credit lines is starting to creep up. It's not nearly as drastic as the highest it was about a decade ago, at 27% of all new credit lines was to that group. But we're still kind of seeing that increase. however, we're also seeing that folks are not letting their debt grow. They're tending to pay these off monthly. And so that new credit isn't adding to their revolving credit. It's not something that they're carrying a balance on. And especially with the increase in inflation rates and how that's rippling out from the Fed's decision last month, I think we'll continue to kind of see folks tightening down the hatches on how much debt they're letting accrue, just because they're a little worried that it's going to be harder and harder to pay off. Despite that, though, folks are still spending, not quite in line with what we would maybe hope for going into the holiday season. But also it's not an entirely weak period yet. And so we'll see where things are in three months. But for now, people are still spending money on things.

00:15:04 James McCafferty: You know, it's crazy to me because the consumer sentiment survey that University of Michigan does has been run since the seventies. It's never been lower. You know, and you think about all of the times in history, all the things that have happened in our in our world since the seventies through today. And at no other time people felt less, less confident in their economy. it's pretty crazy. All right. That means that we should talk about housing and construction. And Fauzia, I'm going to put you on the hot seat because I'm assuming that you're going to want to talk to me about interest rates and how that's affecting housing and construction. But maybe there's more, what's on your mind here?

00:15:40 Fouzia Awan: Yes, James, interest rates are a big part of the story. When rates go up, borrowing costs more. And almost everyone in housing borrows. Families borrow to buy homes, and builders borrow to build them. So higher rates squeeze buyers, builders, and renters all at once. here's where we are. Like in September, the Federal Reserve raised interest rates for the first time in about three years, mortgage rates have climbed too. A typical thirty year mortgage is now a little over 7%, like around 7.3 percent, compared with about 6.3 percent a year ago. So what does that mean for a family? take a typical Seattle home worth about eight hundred and fifty thousand dollars with twenty percent down. The monthly payment today is about four thousand six hundred and fifty dollars at the 3% rates many people got a few years ago, that same house would cost about two thousand eight hundred and seventy a month. That's almost eighteen hundred dollars more every month for the same house. Not surprisingly, buyers are backing off. In mid September, the number of homes going under contract nationally hit its lowest level in nearly three years. The Seattle area had the biggest drop of the fifty largest metro areas, about twenty percent fewer than a year earlier. So why aren't price falling more? Many homeowners are locked in mortgages at three or four percent. If they sell, they would have to take a new loan at seven percent. So many just stay put. So fewer homes for sale keep prices high. The part that people often miss is construction. Builders borrow money too, and when loans get expensive, projects get delayed or cancelled. The people who finance real estate are the most worried they have been in since 2023. Fewer homes started today means a tighter housing shortage, a few years from now. So renters feel this too. When buying is out of reach, people rent longer and that pushes rent up. Zillow found that a household earning one hundred thousand dollars can afford about two thousand five hundred dollars a month in rent, which covers almost rentals in the country, around seventy seven percent. But on the West Coast, that same budget may only get you a small one bedroom apartment. The places with enough housing give renters choices, and the places without it don't. So the problem is both rates and supply. And they feed each other. High rates, slow building and too little building keep prices and rents high. But the hopeful part is this we can't control interest rates, but Washington and communities can make it easier and cheaper to build with foster permits, reasonable fees and allowing more types of home like duplexes, townhomes and backyard cottages all help no matter what happens with rates.

00:18:58 James McCafferty: It's yeah, it's it's the rates. The rates are really going to affect that. So we should talk about rates. And I want to talk about all kinds of rates. I got rates I got a pile of rates to talk about. I want to talk about fed rates. I want to talk about Treasury yields. I want to talk about all these rates that trickle down to US households on mortgages and loan rates and credit cards. Inflation appears to be a sticky wicket, as they'd say across the pond. Should we expect the FOMC to take action? As we've heard from two different fed board governors talk about this week, or will the market drive the boat when it comes to dictating what rates really are going to be? What's your thoughts?

00:19:38 Dr. Hart Hodges: Well, the answer to that either or question is yes. backing up though gosh fed rates, Treasury yields, remembering that the Federal Reserve controls the federal funds rate, which we've historically always thought, when they pushed that up or down, that, you know, the rates up and down the yield curve. Short term rates, long term rates, they all move up or down with the federal funds rate. It's worth asking whether that relationship is as strong as it used to be. So inflation appears to be a bit of a sticky wicket. Yes. whether you think geopolitical, unrest or whatever. Right. I'll say that, those those inflation drivers like high oil prices are going to come down. It's going to take a while because it's not just that there's a gate across the Strait of Hormuz, we've lost refining capacity and so on. So, it's going to take a little time, but those drivers of inflation are going to come down and the fed will lower rates either because inflation has really come back down or the economy has slowed. I wouldn't think right at the midterm, but December and then as you heard Governor Waller talking, hopefully hold there for a while. 2027 is a mixed bag of what people are thinking with inflation and interest rates. some are hoping to see the Fed's target of two percent inflation in twenty twenty eight, not twenty twenty seven. so again, slow timing, but the other half of your question or the or part was. Will the market drive the boat, you know, the longer term rates aren't directly controlled by the fed. And longer term rates include the ten year U.S. Treasury, which is sort of the benchmark interest rate around the world. And Fazia was talking about mortgage rates, which are tied directly to to that. And you were talking about ripple effects, James, of mortgages, loan rates. They all all tie back to the ten year, ten year and longer. we're starting to see some dynamics there that aren't just inflation and aren't just the strength of the US economy. and those are the market forces. We have to ask ourselves if the appeal of U.S. treasuries has changed globally. And we can go back to Laurie's comments about the movement away, or at least the attempt to diversify away from the US. no one's going to go, ignoring the US economy. It's too big, but you don't want to be one hundred percent dependent upon it. and that might mean you don't want to be fully dependent on US treasuries. and then as we look longer out, concerns about debt, are people starting to wonder about the ability of rich Western countries to, pay their bills? And I don't think that's as big of an issue yet in the United States as, say, France. so I'm thinking more about the appeal of US treasuries than I am, the unsustainable budgeting habits. But the rate story is, is huge. And I haven't even mentioned the surge in debt financing from AI build out, which is terribly important. so I'm going to say you're going to get a drop in inflation sometime in twenty twenty seven. you might get a drop in the AI build, in the debt financing there that puts down those things will put downward pressure on rates, especially shorter term rates, longer term rates, I bet, don't fall as much because of those bigger global dynamics.

00:22:50 James McCafferty: energy is becoming a huge thing with all of this too, right? We can talk about the AI centers and or data centers, really the data centers and the energy related costs to that. And there's some been some good stuff today, in fact, on just the unprecedented amount of demand and a possible huge shortfall in a number of states because of energy production, oil. We talk about oil and the shocks that that's having and how it's all hitting rates at the end of the day. Bloomberg today had a great article. two thirds of U.S. households get their electricity from investor owned utilities, and they've seen price increases of thirty four percent since twenty twenty compared to the nineteen percent increases that we've seen from publicly owned utilities. And here in our region, we have a mixed bag there. We have some some folks listening to this that have public utilities and some that are in private utilities. And, and there's a very big difference in what they're paying for electricity. But Greg IP from Wall Street Journal had this really interesting piece recently about how the current oil shock may be making the economy stronger. And I'm like, hold up, I thought this was all weakness. So what's what's going on? What what's Greg trying to tell us here in the Wall Street Journal?

00:24:00 Dr. Hart Hodges: Well, I think it's a sort of an add on. there's the disconnect that we've talked about before between headline numbers, GDP up because spending is up. you know, labor market is tight. Things are good. Strong forecast because what's driving the headline numbers, really isn't what the regular consumer sees. Mac mentioned consumer sentiment being so low. And James, you mentioned it being terribly low. There are things that drive aggregate spending. Think AI, that we don't feel on a day to day level right now. And oddly, when you look at the energy market, and this is what Greg was really getting at, when you've got increases in the price of globally priced goods like oil and some of the distillates, it's really good for the exporters. So all the folks exporting think oil producers and some of the refiners, it's a good thing. And those, those increases in exports are in the dollar value of those exports show up as a positive on sort of economy wide descriptors or metrics, you know, because GDP is not adjusted for what you're paying at the pump. So, Greg's point is, you know, we've got some interesting tension between factors pushing up spending factors, pushing up price of oil. And we are a net exporter. We're one of the largest exporters of oil in the world. Right. So those all play strongly into the measures of overall economic activity, even if they're a bit of a pain in the butt for day to day life.

00:25:38 James McCafferty: Well, and yeah, to your point, the US oil companies have record profits. they are making, as I'm sure we'll all be getting a dividend check. I think that's how it works today. We just get dividend checks. I'm running out of places to put all my dividend checks. James Mark I want to.

00:25:53 Dr. Hart Hodges: Are you going to get an old folks check that he was promising.

00:25:56 James McCafferty: Oh I you know, I haven't seen that one coming yet, but we'll you know there's always hope. James. Mark I want to switch gears because you mentioned earlier about the tech sector. And we have seen more layoffs in the Seattle labor market in the last week. or at least announcements of layoffs. in prior conversations, we've noted how the labor market seems to be absorbing people that are being laid off out of these tech sector jobs. are we still seeing that? Or should we be more concerned when we're reading these, these headline numbers?

00:26:27 James Mark Gbeda: Good question. James. the last podcast that we did, my father listened and he asked me why I did not explain some of the terms when I was asked the question. So I want to take a step back and explain what we mean by absorption here. So absorption here basically is saying if, for example, you get laid off from Microsoft as an IT expert, and maybe in the next month or so, you get, maybe an IT manager job in a health sector or somewhere else, then you are being absorbed. So you don't really feel the impact of, layoffs so much. That is what we mean by absorption. James. I believe that is what you are asking me. Is that correct?

00:27:05 James McCafferty: Yeah. No, that's just it, right. Because the latest data I saw was that while we're getting all these announcements and it seems like we see them all the time, right? Like I feel like every week we're seeing a new headline getting a new alert that there's been some layoff at some tech company, whether it's Oracle or Microsoft or Amazon or fill in the blank. And yet when we look at the unemployment numbers in those industries, they really haven't gone up. I mean, slightly, but not. So they're finding work. And of course, the big question is, are they finding work of the same caliber? And we don't know. I mean, that that's one of those things we just don't know. but they are finding work. And so they're being absorbed back into the labor market in some in some way. And we have to, I assume we have to think that they're doing something with those skills.

00:27:53 James Mark Gbeda: Yeah, exactly. That is very true. I think it's very true that, we are seeing some absorption in the displaced tech workers. The latest numbers that I saw suggest that in at least the process is becoming more difficult in the sense that even though they are getting absorbed, for some folks, it takes longer for them, for some folks, AI is also playing a role when they are doing some side gig, as you know, to support themselves, which maybe may not even be reflected in the employment numbers we are seeing currently. the bottom line is that other sectors, for example, health sector, other industry, other services and industry sectors are really cushioning the displacement we are seeing in the tech sector, especially in the Seattle area. And that is why we are not really seeing that a huge impact of that. So yeah, the absorption is still going on. It's just a bit difficult to, you know, digest the picture at this point. I would say that the bottom line is that Seattle is not necessarily experiencing a broader employment collapse. It is experiencing a problem, a tech sector adjustment in which employment gains is elsewhere is cushioning the impact. For example, like I mentioned before in the health sector, for me, the bigger question, the next question is whether that kind of cushion we are seeing can be sufficient enough. if you continue to see layoffs in the, in the tech sector across the board.

00:29:23 James McCafferty: You know, it's funny because we think about, oh, it must be, you know, employers are, you know, must be in this great kind of place where they have their choice of people they want to hire because the market's kind of gotten slower and, and things. And the reality is today Walmart this morning announced a huge increase in health benefits to help retain and attract people to come to work in retail jobs at Walmart. I mean, that's the kind of universe we're living in, right? Like you're hearing these layoffs, but at the same time, companies are trying to sweeten the pot to get people to come and work for them. it's, the best of times. Worst of times. I don't know. there's, there's some analogy here. Hart in twenty minutes from now, you remind me of, of the phrase I'm looking for. All right. So James Mark, we create monthly updates. And I know you're getting really close to having those ready to go out, so by the time this gets released, they'll have been out. talk to the audience a little bit about what they should be looking forward to in those updates.

00:30:13 James Mark Gbeda: Yeah. Our monthly updates go out on the fifteenth of every month. So tomorrow the October update will be out on our website. We mainly track, uh, progress or updates on employment across the various industries. Talk about manufacturing, um, retail service professional. So if you really want to get a better understanding of what the trends are in terms of sectoral growth and employment, please get to our website and get those reports. We also track information about our trends in the housing market, uh, inflation for sure. So it's really, really helpful for our folks to get there and get those updates and to know what is happening, particularly in our region. Um, here, uh, in the region.

00:31:03 James McCafferty: Excellent. I want to thank all of you for joining in on this fun discussion today. Um, but that brings us to a close of this edition of After Office Hours with the Puget Sound Economic Forecaster. We'll again encourage you to follow us on social media. It's the great fast pass to the latest economic news from local to international. And who knows, you might actually become the smartest person in the room. you can always reach us via our via our website. That's cebr.wwu.edu or by email [email protected] with questions, comments. And we take this show on the road. So if you have a group of people that would like to have a good interactive discussion about economics that will be lively and keep them engaged, give us a call. We'd be happy to talk to you about that. After office hours with the Puget Sound Economic Forecaster is a production of the center for Economic and Business Research at Western Washington University. I want to give special thanks to Laurie Troutman for joining with us today. It's always a huge gift to your time. Thank you so much for that. And our lovely producer, Jill Poon with concept one sixty eight, which makes us sound really good with a lot of material left on the floor of the cutting room. To learn more about the topics discussed today, you can visit us also at Economic Forecaster dot com where you can subscribe to our quarterly report. You can subscribe to After Office Hours with the Puget Sound Economic Forecaster on Google Podcasts, Spotify, tune in transistor, or wherever you happen to listen to podcasts. From all of us at Western Washington University. We hope you have an amazing fall.