In an earnings call Wednesday morning, 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 truly 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 lapping stimulus and things like that. But also the social issues of people returning to mobility after lockdown, working from home and just the change in consumer patterns.”
Three months earlier, during the company’s prior call with analysts, Gibbs said economists who call this a “K-shaped recovery,” where high-income consumers are doing fine while lower-income householders struggle, are oversimplifying the situation.
“I don’t know in my career we’ve seen a more complex environment to analyze consumer behavior than what we’re dealing with right now,” he said in May, citing inflation, rising wages and federal stimulus spending that’s still stoking the economy.
At the same time, societal issues like the post-Covid reopening and Russia’s war in Ukraine are weighing on consumer sentiment, which all “makes for a pretty complex environment to figure out how to analyze it and market to consumers,” Gibbs said.
Gibbs is right. Things are very strange. Is a recession coming or not?
There is ample evidence for the “yes” camp.
Tech and finance are bracing for a downturn with hiring slowdowns and job cuts and pleas for more efficiency from workers. The stock market has been on a nine-month slump with the tech-heavy Nasdaq off 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 nonessential purchases like clothing so they can afford gas and food. The U.S. economy has contracted for two straight quarters.
Downtown San Francisco doesn’t quite have the ghost town feel it did in February, but still has vast stretches of empty storefronts, few commuters and record-high commercial real estate vacancies, which is also the case in New York (although Manhattan feels a lot more like it’s back to its pre-pandemic hustle).
Then again:
The travel and hospitality industries can’t find enough workers. Travel is back to nearly 2019 levels, although it seems to be cooling as the summer wanes. Delays are common as airlines can’t find enough pilots and there aren’t enough rental cars to satisfy demand.
Restaurants are facing a dire worker shortage. The labor movement is having its biggest year in decades as retail workers at Starbucks and warehouse laborers at Amazon try to use their leverage to extract concessions from their employers. Reddit is filled with threads about people quitting low-paying jobs and abusive employers to … do something else, although it’s not always exactly clear what.
A shrinking economy typically doesn’t come with high inflation and a red-hot labor market.
Here’s my theory as to what’s going on.
The pandemic shock turned 2020…
Read More: 2020 changed economy in ways we can’t understand yet