Ever since inflation took hold of our economy in mid-2021 Federal Chairman Jerome Powell has consistently said his desire is to use interest rate hikes to softly land the plane that is the US economy. So far, in this effort I would say he has been successful in this attempt at avoiding a nosedive into the ground. Despite multiple rate increases, unemployment remains low and the stock market remains high.
A case could be made the only reason the plane requires this emergency landing to begin with is the out-of-control government spending that has been made possible by artificially low interest rates Powell himself advocated for long after the financial meltdown of 2008 recovered. Regardless of the wisdom of this past monetary policy, the question we now must ask is how much longer will our economy remain airborne?
As impressed as I have been in how Chairman Powell has slowed down the plane and reduced elevation with very little turbulence so far, I am not at all convinced the wheels are anywhere near touching down without incident yet. There are several reasons I am still quite concerned.
First and foremost is a change that appears to be occurring in the spending habits of American consumers. Last month Walmart announced it would be lowering their profit projections based on reduced consumer spending and mounting inventories. https://corporate.walmart.com/news/2022/07/25/walmart-inc-provides-update-for-second-quarter-and-fiscal-year-2023. Pepsi CEO Ramon Lagurta expressed similar concerns about changes to consumer spending as he said consumers are looking for better deals and are “making adjustments to spending.”
These sentiments being expressed are no surprise to JP Morgan CEO Jamie Dimon who recently said he anticipates slower consumer spending throughout the fall as Americans finally exhaust the remainder of excess savings they had built during the pandemic. https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/investment-outlook/us-economic-outlook/
Corporations are clearly taking note of this fasten seatbelt light which has recently begun to shine. As a result, many are beginning to reduce overall spending on advertising. According to Claire Duffy of CNN Business, Twitter Google Microsoft Apple and Facebook have all reported that shrinking advertising budgets will negatively impact quarterly revenue. During a recent earnings call Facebook CEO Mark Zuckerberg told shareholders that “We seem to have entered an economic downturn that will have a broad impact on the digital advertising business,” https://www.businessinsider.com/mark-zuckerberg-comments-on-economy-new-reality-last-many-years-2023-3
While these reductions in consumer and corporate spending are not by themselves enough for me to start looking for the eject button, it certainly is a cause for concern. If we begin to see corporations further attempt to lighten their loads by eliminating cargo in the form of employees, it may be time to start putting on a parachute to avoid being a part of the fiery crash.
For the time being, my recommendation for your investments is to remain conservative. We simply do not know how much gas is left in the tank for this economy.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)