What a recession in Charlotte might look like

Wells Fargo settles lawsuit with Navajo; Association health plans get green light in N.C.; Crowds swarm local Popeyes in quest for new sandwich

Good morning! Today is Monday, August 26, 2019.

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Economists say Charlotte seems in better shape than in ’08 — but our fast-growing city isn’t immune from bigger trends

Nobody likes to talk much about the prospects of the dreaded “r” word — recession. They’re psychological and self-fulfilling. If people believe a recession is approaching, they cut back on spending, businesses stop investing, and that makes the economy worse.

But in the last few weeks, hubbub about the next recession seems to have increased:

  • In a survey released last week, 38% of economists predict the U.S. will enter a recession in 2020, and 34% predict it will happen in 2021.

  • One technical measure that has predicted previous recessions — a flipping of the yields on two different kinds of Treasury notes, known as the “inverted yield curve” — has taken place several times in recent weeks, most recently on Friday afternoon.

  • The stock market has been falling. While major indexes are still up for the year, they have lost ground each of the last four weeks — largely over concerns about international trade. The Dow plunged 623 points on Friday.

Charlotte effect: What would a recession look like in Charlotte? The city has seen a recent slew of big job announcements, construction seems to be everywhere, and new shops and restaurants are popping up all over. A crippling recession seems hard to imagine.

Charlotte seems well-positioned to weather any economic downturn, with unemployment unlikely to spike to double digits as it did in the 2008 recession. (Data source: Bureau of Labor Statistics)

The Ledger asked three economists about the local effects of a downturn. They seemed to agree that compared with other cities, Charlotte and its major industries seem in good shape — and they’re not convinced that a recession is inevitable. But if there were a downturn, Charlotte wouldn’t be immune from larger economic trends and the pain of a slowdown, either. Here’s what they had to say:

Mark Vitner, senior economist at Wells Fargo:

On the sources of economic weakness: “What’s unique about this period is that almost all of the uncertainty and weakness is coming from overseas. Charlotte doesn’t really have that much exposure to that. We are not a port city. … Most of what is dragging the economy down right now has to do with what is going on with the global economy.”

On what sectors will get walloped: “One of the things that seems to be constant over the course of recessions is the parts of the economy that grew the fastest tend to get hit the hardest. That’s where the excesses tend to be the greatest.”

On housing: “If we were to have a recession, the housing market would be sideways to down a little bit, but it wouldn’t be ground zero for a recession.”

On commercial real estate: “There’s been a tremendous run-up in value for commercial properties. Buying income-producing property has been one of the more attractive ways to earn yield in a low-interest-rate environment.”

On banking: “In the last recession, it was centered in the financial sector, and Charlotte is a major financial center. … The banking sector is very healthy, and it has been becoming more efficient.”

Michael Walden, N.C. State economist:

On sectors that would see a downturn: “They tend to be those products and services that households and businesses don’t have to buy on a daily basis. So housing, vehicles, furniture and even electronics would experience falling sales. Even though Charlotte may not have manufacturers in all these areas, the region does have retailers.”

On international trade: “Any business that is involved in global trade — as a purchaser of inputs, or selling into foreign markets — they are being challenged right now.”

On signs of a recession: “You would expect to see businesses that had some expansion plans put them on the shelf. Commercial real estate is something to watch. If you start to hear that somebody who announced something a week ago is now holding off, that would be a troubling sign.”

John Connaughton, UNC Charlotte economist:

On banking: “In the last downturn, we suffered pretty badly as a result of Wachovia and the change in ownership there and banks in general. We are less susceptible to that now than we were in 2007 and 2008.”

On why Charlotte has less international exposure than you might think: “In the area, we have hundreds of foreign companies — predominantly European, but also Chinese and Japanese. Most of these companies have set up operations here to make products for the North American marketplace. They are not export companies, with a few exceptions.”

On what a recession would be like here: “It’s not going to be anything like 2008. The next recession we have is much more likely to be like the 2001 recession or the 1991 recession, when unemployment rates peaked around the 7% range. People lose their jobs, things slow down, but they last eight months.”

On Charlotte’s strength compared with elsewhere: “70% of the growth of the U.S. economy since 2000 has come from 30 metro areas. Charlotte and Raleigh are in that 30. … Will Charlotte slow down in a recession? Will the 30 top-growth MSAs slow down? Yeah. Are they likely to contract during that period? Not really. That doesn’t mean you won’t feel the pain. We will still be growing, just not as fast.”

Back to the learning villas

To the delight of parents throughout Charlotte, Charlotte-Mecklenburg Schools starts classes this morning — including in this mobile “villa” at Community House Middle School in Ballantyne. Brace for more traffic.

From munitions to breweries

Ely Portillo of UNC Charlotte’s Urban Institute has a nice profile of Camp North End — a “cluster of old factory buildings, warehouses, missile assembly and munition storage facilities just north of uptown” — that’s quickly turning into a collection of offices and restaurants. It’s north of the Music Factory, off North Graham Street.

He also interviews the site’s developer, who tells Portillo he likes the area’s quirkiness and plans to be patient to find the right tenants.

Expect to hear more about Camp North End as it develops. Portillo writes:

Tucked away behind old warehouses (some of which still have active logistics tenants) and construction sites, Camp North End still feels a bit like a hidden find in Charlotte. But that could soon change. Some of the biggest parts of the overhaul, large blocks of creative office space, are nearing completion. That could mean hundreds of employees heading to Camp North End daily.

Read the full article here.

Chicken-sandwich mania hits Charlotte

Lines were out the door and drive-throughs backed up to the streets at local Popeyes restaurants this weekend, following social media publicity about the chain’s new chicken sandwich.

Waiting for a chicken sandwich: On Wilkinson Boulevard on Sunday, about 40 people waited for Popeyes to open just before noon as another 50 or so sat in the drive-through line. At another location near Sugar Creek, at least 22 cars were backed up onto North Tryon Street, according to a Facebook video posted by CharlotteFive.

Sandra Wright explained to the Ledger that she had seen videos on social media about the sandwich and decided to try it — even though her car was behind several dozen at the Wilkinson Boulevard Popeyes: “They said the pickles taste like chicken and that it’s better than Chick-fil-A. I said, ‘I’ve got to try this chicken.’ It must be bangin’ because all the Popeyes are like this. Popeyes, normally you just drive up and get your food and you’re done.”

In brief:

  • Wells settles with Native Americans: Wells Fargo agreed to pay the Navajo Nation $6.5M to settle claims that the bank preyed on the tribe with shady sales tactics. The suit had alleged that the bank “‘stalked local events’ like basketball games and flea markets to sign up customers for ‘unnecessary accounts’” and that it pressured “elderly citizens who did not speak English to enroll in services they didn’t need.” (CNN)

  • Association health plans OK’d: Gov. Roy Cooper said Sunday that he doesn’t plan to block a new healthcare bill from becoming law. The General Assembly passed a bipartisan measure this month that would allow trade organizations to offer health plans, which supporters say could make “coverage more affordable to people like farmers and small business owners.” (Associated Press)

  • Jewelry lawsuit dropped: Alex and Ani, aspiritual-bracelet company,” dropped its gender-discrimination lawsuit against Bank of America last week. The suit claimed BofA “cut off Alex and Ani’s access to a $50M revolving line of credit after falsely declaring in December 2018 that Alex and Ani defaulted on its $170 million loan. The jewelry company said the move had been the direct result of its December 2017 appointment of a new female CFO, 26-year-old Andrea Ruda.” A BofA spokesman says the bank made no payment in connection to the suit’s withdrawal. (Forbes

  • Consumer watchdog: The Observer comes through with a helpful piece on how to appeal the motor-vehicle tax on your car. Last year, “70% of the appeals succeeded, shaving an average of 34% or $8,349 off the vehicles’ appraised values. That reduction at last year’s tax rates would save a Charlotte resident $109.”

  • Student-loan debt: North Carolina has experienced the second-largest jump in student-loan debt in the country in the last 10 years, according to a new study. “20% of student loan borrowers who live in communities of color have student loans in debt collection, compared with 14% for white residents,” QCityMetro reports.

  • Fun read: Inside Shake Shack’s Innovation Kitchen in Manhattan. “A staff of 5 brainstorms and tests out menu items it plans to roll out regionally or nationally. The team might devote a week to formulating black sesame milkshakes for an opening in Japan, or ‘spend a whole day tasting cuts of bacon.’” (The Hustle)

Taking stock

Unless you are a day trader, checking your stocks daily is unhealthy. So how about weekly? How local stocks of note fared last week (through Friday’s close), and year to date:

Got a news tip? Think we missed something? Drop me a line at editor@cltledger.com and let me know.

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The Charlotte Ledger is an e-newsletter and web site publishing timely, informative, and interesting local business news and analysis Mondays, Wednesdays, and Fridays, except holidays and as noted. We strive for fairness and accuracy and will correct all known errors. The content reflects the independent editorial judgment of The Charlotte Ledger. Any advertising, paid marketing, or sponsored content will be clearly labeled.

The Charlotte Ledger is published by Tony Mecia, an award-winning former Charlotte Observer business reporter and editor. He lives in Charlotte with his wife and three children.