After nearly two years of dire warnings from legions of financial experts, has the whole “recession obsession” turned out to be a false alarm? Today the economy is growing, jobs are prolific, inflation is falling, and wages are rising. That doesn’t sound like a recession; for many, it hasn’t felt like one either.
But that’s only because it isn’t happening to them.
Despite the absence of data determining when the economy is ailing, some consumers exhibit recession-like behavior. It’s a general shift in mood toward austerity that could be with us for some years.
Exhibit “A” would have to be the lush revenue increases that retailers like Walmart (6.7%) and variety store chain Dollar General (10.6%) posted for fiscal 2023. Walmart’s private label merchandise and food products, priced below the competition, have been a big winner.
At a glance, the overall economy may not look like it’s in recession, but consumers are spending differently than before 2020.
Like the Great Recession that began in 2007 and wiped-out millions of retirement dreams, the pandemic and the inflation that followed reminded us how vulnerable we are to events beyond our control. Habits developed during the Covid crisis could inform how whole generations shop for years to come.
Job listings, consumer spending, and small business revenue may have returned to pre-pandemic levels. Still, in the process, roughly a fifth of the US workforce—2.6 million people—never returned to work, most of which were in low-paying service jobs. That’s the conclusion of economist Raj Chetty at Harvard University’s Opportunity Insights lab after looking at and crunching the data.
Chetty reported earlier this year that the bulk of the missing were from the poorest quarter of the workforce, including many of the service workers who lost their jobs when restaurants, bars, gyms, and hair salons had to shut down in 2020.
“It is clear there are large swaths of the population who are still not employed, and these are low-wage workers who lost their jobs in precisely the places where high-income people cut back on spending so sharply a couple of years ago,” he said.
Those high-income consumers, meanwhile, are also exhibiting recession-like behavior. The Wall Street Journal reported recently that “for many richer Americans, it probably feels like a recession has already begun.”
The Bank of America Institute reported this spring that the number of unemployment benefit recipients in households earning $125,000 a year or more was up 40% from a year earlier, or five times the increase in households earning less than $50,000. The Institute also reported that higher-income households' discretionary spending on debit and credit cards trailed year-ago figures, but spending for other households was higher.
And what about those who participated in the Great Resignation or decided to retire early? According to a recent Federal Reserve working paper, some have since had second thoughts. The early retirements looked attractive when real estate values and stock markets rose before inflation erupted.
Now that interest rates are higher and the housing market is cooling off, Fed economist Miguel Faria e Castro says some older Americans appear to be attracted back to work by a strong labor market and wage increases.
All this leads to a more complex consumer base that has changed. Further instability will lead to further adaptions and changes. What is a retailer to do? First, like most organisms that want to survive, you must understand the environment and constantly monitor its evolution.
My suggestion is simple…Ask your customer.
