National Guard troops pose for photographers on the east front of the U.S. Capitol the day after the House of Representatives voted to impeach President Donald Trump for the second time on January 14, 2021 in Washington, DC.
Chip Somodevilla | Getty Images
On an earnings call this week, Yum Brands CEO David Gibbs expressed the confusion many people are feeling as they try to figure out what’s going on with the U.S. economy right now:
“This is really one of the most complex environments we’ve ever seen in our industry to operate in. Because we’re not just dealing with economic issues like inflation and over-stimulus and things like that. Also the social issues of people coming back . to mobility after confinement, working from home and just the change in consumption patterns.”
Three months earlier, during the company’s pre-call with analysts, Gibbs said economists are calling a “K-shaped recovery,” where high-income consumers are doing well while lower-income family members are struggling , are oversimplifying the situation.
“I don’t know that in my career we’ve seen a more complex environment for analyzing consumer behavior than what we’re dealing with right now,” he said in May, citing inflation, rising wages and stimulus spending. federal that is still fueling the economy.
At the same time, social issues like the post-Covid reopening and Russia’s war in Ukraine are weighing on consumer sentiment, which “makes it a pretty complex environment to figure out how to analyze and market to consumers.” , Gibbs said.
Gibbs is right. Things are very strange. Is a recession coming or not?
There is a lot of evidence from the “yes” field.
Tech and finance are bracing for a recession with hiring slowdowns and job cuts calling for more worker efficiency. The stock market has suffered a nine-month slump with the tech-heavy Nasdaq down more than 20% from its November peak and many high-flying tech stocks down 60% or more.
Inflation is causing consumers to spend less on non-essential purchases like clothes so they can afford gas and food. The US economy has contracted for two quarters in a row.
San Francisco’s cable cars return to service after a shutdown due to COVID-19 in San Francisco, California, United States, on September 21, 2021.
Anibal Martel Anadolu Agency | Getty Images
Downtown San Francisco doesn’t have the ghost-town feel it did in February, but it still has large stretches of empty storefronts, few commuters and record-breaking commercial real estate vacancies, which is also the case in New York (though that Manhattan feels a lot more like it’s back to its pre-pandemic bustle).
The travel and hospitality industries can’t find enough workers. Travel is back to near 2019 levels, although it appears to be cooling off as summer winds down. Delays are common as airlines can’t find enough pilots and there aren’t enough rental cars to meet demand.
Restaurants are facing a severe labor shortage. The labor movement is having its biggest year in decades, as Starbucks retail workers and Amazon warehouse workers try to use their power to extract concessions from their employers. Reddit is full of threads about people leave low-paying jobs and abusive employers to… do something else, although it’s not always clear what.
A shrinking economy doesn’t usually come with high inflation and a hot job market.
Here’s my theory on what’s going on.
The pandemic shock turned 2020 into a year of epochal change. And like the terrorist attacks of September 11, 2001, the full economic and social effects will not be understood for years.
Americans experienced the death of family and friends, long-term isolation, job changes and losses, persistent disease, urban crime and property destruction, natural disasters, a presidential election that much of the losing party refuses to accept, and an invasion of Congress. by an angry mob, all in less than a year.
Many people deal with this trauma, and the growing suspicion that the future holds more bad news, by ignoring ownership, ignoring society’s expectations, and even ignoring the harsh realities of their own financial situation. Instead, they are seizing the moment and following their whims.
Consumers do not act rationally and economists cannot understand their behavior. No wonder the CEO of Yum Brands, owner of Taco Bell, KFC and Pizza Hut, can’t either.
Call it the big upset.
How could this be manifested? A decade from now, how will we look back on the 2020s?
Older workers will continue to leave the workforce as soon as they can afford it, spending less in the long term to maintain their independence and picking up freelance or part-time work as needed. The labor market will remain inclined towards the workers.Workers in lower-paid jobs will demand more dignity and higher wages from their employers, and will be more willing to change jobs or quit if they don’t get them. People will move more for personal and lifestyle reasons than to look for work. Stressed workers will continue to flee urban environments for the suburbs and countryside, and exurbs within a one- to three-hour drive of major cities will see rising property values and an influx of residents. Engaged urban dwellers will find reasons to change cities, creating more turmoil and reducing community ties. The last vestiges of employee loyalty will disappear as more people seek fulfillment before paychecks. As one tech worker who left her job at Expedia to work for solar technology company Sunrun recently said, “You realize there’s a little more to life than maxing out your compensation package.” . Employees who proved they could do their jobs remotely will be reluctant to return to the office, forcing employers to make hybrid workplaces the norm. Spending patterns will change permanently, and companies that cater to commuters and urban workers continue to struggle. Those with disposable income will spend it aggressively on experiences – travel, restaurants, bars, hotels, live music, outdoor living, extreme sports – while holding back on shopping. of high-end material goods and home entertainment, including broadband Internet access and streaming media services. The pandemic was a time to hunker down and improve the nest. Now that we have all the furniture and Platoons we need, it’s time to go out and have some fun.
This summer may be the capstone of this period of uncertainty, and consumers will suddenly stop spending this fall, sending the US into recession. Other “black swan” events such as wars, natural disasters, a worsening or new pandemic, or more widespread political unrest could similarly crush any signs of life in the economy.
Even so, some of the behavioral and societal changes that occurred during the pandemic will be permanent.
These signals should become clearer in earnings reports as we move away from year-ago comparisons to the pandemic lockdown era and as interest rates stabilize. We will then discover which businesses and economic sectors are truly resilient as we enter this new era.
I WILL SEE: Jim Cramer explains why he thinks inflation is coming down