What goes up must come down, I am sure you have heard this phrase. We keep hearing on the news about higher inflation reports, consumers keep spending, inflation is not slowing down, and the list goes on and on. We can look at charts and reports that keep coming up, but so much information goes into those reports. I like to talk with business owners, boots on the ground, real-time data and you can get a real sense of what is happening locally and nationally.
When I talk to business owners these days in many different industries from hospitality, retail, luxury, housing goods, marketing, real estate, auto, entertainment, and the list goes on I hear a similar tune. They are starting to see the consumer change or starting to see a slowdown. We were locked up, saved money, paid down debt, could not do anything for a while and then we were let free. The US consumer went out there with a nice arsenal of money to spend from; credit cards, cash-out refi, government stimulus, did not pay bills, high wages, lowered mortgage rate, high cash in the bank, and ready to enjoy life again. Who did not expect the consumer to come out of the gate flushed with all these resources to spend as they have never spent before and of course, this would not last forever?
The way I look at it is simple. If the consumer is slowing, then there is less business, and then businesses need fewer employees. High rates, inflation, and consumer slowing are taking their sweet time to really hit the labor market and the labor market is what the FEDs want to see soften. It seems that if a business is starting to see slowing then it will start to lay-off soon. When will this happen? It seems that this is coming and if the consumer even pulls back more the layoffs are right around the corner. I hear it in so many people these days who have less confidence in the economy which means they have less confidence to spend. The holidays are around the corner which could be a telltale sign of how the consumer is feeling. It seems that business owners are starting to plan and get ready to brace for less income and need to save their money. This will have a trickle-down effect on the economy and hiring/firing.
What could be next? The Fed has made it clear; that they want to see pain in the job market and inflation to come down to pivot. With crazy high rates, consumer slowing, the job market getting softer, and all the other craziness in the world the economy is slowing. Think about it, we consumed on every level over the past 2 to 3 years and our companies overhired for that. How are we not going to have some type of pull-back? 2023 will be the end of the harsh Fed policy and 2024 will be the Feds pivoting so they don’t destroy the economy. That pivot will result in cutting rates and lower rates across the board. It could also mean a recession for the US and job losses.