business news in context, analysis with attitude

Interesting piece in the Washington Post over the weekend looking at whether the US is likely to face a recession as a result of federal efforts to deal with the relatively high inflation of the past year.

While the likes of Jamie Dimon, chief executive of JPMorganChase, Tesla chief Elon Musk and Lawrence Summers, a former treasury secretary, "have warned of a looming recession," there also is evidence that "such dire assessments may be wrong. On Friday, the Labor Department said the economy gained 390,000 jobs in May, beating analysts’ expectations, while the unemployment rate remained at 3.6 percent."

The Post goes on:

"The Federal Reserve’s recent change of course on monetary policy is the biggest source of recession fears. After repeatedly assuring investors last year that inflation would prove 'transitory,' Fed Chair Jerome H. Powell this year has steered the central bank on a path of interest rate hikes designed to slow the economy and ease pressure on consumer prices.

"The Fed’s about-face already has been bad news for financial markets. Lifting interest rates from near zero caused investors to rethink their portfolios, sending stocks plummeting and cementing the notion that something about the economy has gone seriously awry.

"But recent indicators suggest that the two-year-old expansion — while slowing from an unsustainable pace of annual growth near 7 percent late last year — shows little sign of slipping into reverse. The labor market is churning out 'help wanted' signs faster than employers can add workers. Consumers and businesses are flush with cash. And by some measures, the bond market appears less worried about inflation than do many pundits … Despite Americans’ sour mood, economists surveyed by Bloomberg in May expect the economy to expand at an annual rate of 2.7 percent this year. That’s down from the 3.3 percent forecast in April, but far from a recession."

Of course, the Post writes, "Continued economic strength is a double-edged sword. It means more people who want work will probably find it. But it raises the chances that the Fed, which already has raised rates twice and signaled plans for two additional half-point increases, might overdo it and trigger a recession."

The Wall Street Journal also has a piece about the current bifurcated state of the nation's economy:

"The American economy remains largely healthy. The U.S. added 390,000 jobs in May, and demand for workers remains historically strong, particularly in service industries such as restaurants and airlines. Job openings are close to record highs. Planes are full, hotels are booked and high-end retailers including Lululemon Athletica Inc. are raising prices in the midst of brisk sales.

"Still, business leaders say they are increasingly preparing for a new normal in which companies’ fortunes start to splinter as inflation persists and consumer budgets tighten.

"Wage growth in May slowed from last year’s average, the Labor Department said Friday. Existing-home sales were down 5.9% in April from the previous year, according to the National Association of Realtors. Consumers boosted their spending rapidly in April, but in the midst of indications that many were tapping their savings to do so.

Many large companies, including retailers and consumer-products makers, have been able to raise prices to offset rising costs for staffing and shipping. Recently, companies such as Walmart and Procter & Gamble Co. have signaled that those conditions are changing and that they are bracing for a pullback in spending. They are bringing back more bargains and cheaper store brands in the midst of signs that inflation is taking a toll on lower- and middle-income shoppers."

KC's View:

If economists cannot come to a broad consensus about what's going to happen with the economy, I'm not sure what I can contribute to the conversation.

But a few things seem clear to me.  Whether or not we go into recession, it seems likely that at some point we're going to see some tightening of spending.  Which means that price-driven formats are .likely to do well.

I still think, though, that there is a lot of room out there for retailers that stress value - which is not the same as low price - in a way that is sensitive to economic concerns but still offers some sense of aspiration and inspiration.  The thing about most people is, they don't really want to give up the things they've gotten used to, and that includes an interest in new and innovative foods.  

This isn't always an easy line to walk.  But I think it will be worth trying in the long run.