2020 has changed the economy in ways we can’t yet understand

In an earnings call Wednesday morning, Yum Brands CEO David Gibbs expressed the confusion many people feel as they try to understand what’s happening with the US economy right now:

“This is truly one of the most complex environments we have ever seen in our industry operating. Because we don’t just deal with economic issues like inflation and vacuum stimulus and things like that. But also the social issues of returning people. to mobility after the lockdown, to work from home and only to changing consumption patterns “.

Three months earlier, during the company’s previous phone call with analysts, Gibbs said economists who call this a “K-shaped recovery,” in which high-income consumers are doing well while low-income families are struggling, are oversimplifying the situation.

“I don’t know in my career we have seen a more complex environment for analyzing consumer behavior than we are dealing with right now,” he said in May, citing inflation, rising wages and spending. of federal stimulus 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 “creates a rather complex environment for understanding how to analyze and market it for consumers,” Gibbs said.

Gibbs is right. Things are very strange. Is a recession coming or not?

There is ample evidence for the “yes” field.

Technology and finance are bracing for a recession with slowdowns in hiring and job cuts and demands for greater efficiency from workers. The stock market has been in a slump for nine months with the heavily tech 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 consecutive quarters.

Downtown San Francisco doesn’t quite have the ghost town feel it did in February, but it still has vast expanses of empty storefronts, few commuters, and record-breaking commercial real estate offers, as is the case with New York City (although Manhattan looks like a much more like he’s back to his pre-pandemic hustle and bustle).

Then again:

The travel and hospitality industries cannot find enough workers. Travel is back to near-2019 levels, although it appears to be cooling off as summer falls. 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 shortage of workers. The labor movement is experiencing its biggest year in decades, as Starbucks retail workers and Amazon warehouse workers try to use their leverage to win concessions from their employers. Reddit is filled with discussions about people leaving low-paying jobs and abusive employers to … do something else, although it’s not always exactly clear what.

A shrinking economy is generally not accompanied by high inflation and a hot labor market.

Here is my theory of what is going on.

The pandemic shock has turned 2020 into an epoch-changing year. And just like the terrorist attacks of September 11, 2001, the full economic and social effects will not be understood for years.

Americans have suffered the deaths of family and friends, long-term isolation, job changes and losses, persistent illness, urban crime and property destruction, natural disasters, presidential elections that much of the losing party refuses to accept, and a ‘ invasion of Congress by an angry mob, all in less than a year.

Many people are dealing with this trauma – and the growing suspicion that the future holds more bad news – while ignoring the fairness, societal expectations and even the harsh realities of their own financial situations. Instead, they are seizing the moment and following their whims.

Consumers do not act rationally and economists fail to make sense of their behavior. Unsurprisingly, even the CEO of Yum Brands, which owns Taco Bell, KFC and Pizza Hut, can’t.

Call it the great mess.

How could it manifest itself? In a decade, how will we look back on the 2020s?

Perhaps:

  • Older workers will continue to leave the workforce as soon as they can afford it, spending less in the long run to maintain their independence and re-sewing freelance or part-time work as needed. The labor market will remain oriented towards workers.
  • Workers with underpaid 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 lifestyle and personal reasons than to pursue a job. Overburdened workers will continue to flee urban environments to suburbs and countryside, and exurbations of one to three hours’ drive from major cities will see a surge in property values ​​and an influx of residents. Devout city dwellers will find reasons to change cities, creating more neglect and reducing community bonds.
  • The last vestiges of employee loyalty will disappear as more and more people try to be satisfied before pay. As a tech worker who quit her job at Expedia to work for solar technology company Sunrun recently said, “You realize there’s a little more to life than maximizing your comp package.”
  • Employees who have proven they can do their jobs remotely will resist returning to the office, forcing employers to make hybrid workplaces the norm. Spending patterns will change permanently, with businesses catering to commuters and urban workers continuing to struggle.
  • Those with disposable income will spend it vigorously on experiences – travel, restaurants, bars, hotels, live music, the outdoors, extreme sports – holding back the purchase of high-end material goods and home entertainment, including broadband Internet access and streaming multimedia services. The pandemic was a time to hunker down and improve the nest. Now that we have all the furniture and Pelotons we need, it’s time to go out and have some fun.

It is possible that this summer is the cornerstone of this period of uncertainty and that consumers will suddenly stop spending this fall, sending the United States into a recession. Further “black swan” events such as wars, natural disasters, a worsening or new pandemic or more widespread political turmoil could likewise crush any signs of life in the economy.

Even so, some of the behavioral and social changes that occurred during the pandemic will prove to be permanent.

These signals should become clearer in earnings reports as we move away from a year ago comparisons with the pandemic freeze era and as interest rates stabilize. Then, we will find out which companies and economic sectors are truly resilient as we enter this new era.

LOOK: Jim Cramer explains why he believes inflation is going down

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