Source: The Wall Street Journal
3 June 2022
By Chip Cutter, Nick Timiraos and Sam Goldfarb
Long stretch of universal strength gives way to muddled outlook on labor, markets and consumer spending
Over the past week, business leaders have laid out in the starkest terms yet that a period of universal strength in the U.S. economy has given way to a muddled outlook in which a labor shortage, soaring stock markets and a healthy consumer are no longer givens.
Technology companies from Facebook parent Meta Platforms Inc. to Uber Technologies Inc. have sharply slowed hiring in recent weeks, and Elon Musk told staff at Tesla Inc. that he plans to cut 10% of its salaried jobs.
Retailers such as Walmart Inc. and Target Corp., whose profits soared in the pandemic, have reported that higher costs have begun to eat into earnings and that some shoppers are beginning to curtail spending. In recent weeks, stores that struggled with too little inventory last year because of supply bottlenecks have reported that they are carrying more apparel, appliances and furniture than consumers want.
“That hurricane is right out there down the road coming our way,” JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said at a conference this past week. “We just don’t know if it’s a minor one or superstorm Sandy. You have to brace yourself.”
Brian Moynihan, CEO of Charlotte, N.C.-based Bank of America Corp., had a more tempered outlook, saying at the conference that his customers still aren’t talking about recession fears. “We’re in North Carolina,” he said. “You’ve got hurricanes that come every year.”
The American economy remains largely healthy. The U.S. added 390,000 jobs in May, and demand for workers remains historically strong, particularly in service industries such as restaurants and airlines. Job openings are close to record highs. Planes are full, hotels are booked and high-end retailers including Lululemon Athletica Inc. are raising prices in the midst of brisk sales.
“There’s a lot of discussion and talk about a recession coming, but if you look at our building or been on an airplane recently you’d never notice it,” Bob Nelson, a senior vice president at Costco Wholesale Corp., told analysts recently. The retailer said sales rose 10.8% during the most recent quarter.
Still, business leaders say they are increasingly preparing for a new normal in which companies’ fortunes start to splinter as inflation persists and consumer budgets tighten.
Wage growth in May slowed from last year’s average, the Labor Department said Friday. Existing-home sales were down 5.9% in April from the previous year, according to the National Association of Realtors. Consumers boosted their spending rapidly in April, but in the midst of indications that many were tapping their savings to do so.
Many large companies, including retailers and consumer-products makers, have been able to raise prices to offset rising costs for staffing and shipping. Recently, companies such as Walmart and Procter & Gamble Co. have signaled that those conditions are changing and that they are bracing for a pullback in spending. They are bringing back more bargains and cheaper store brands in the midst of signs that inflation is taking a toll on lower- and middle-income shoppers.
Mr. Dimon said that U.S. consumers still have some six to nine months of spending power left in their bank accounts as the government’s pandemic stimulus continues to pad consumers’ wallets. At the same time, Mr. Dimon said the economy faces significant uncertainty as that money dries up and during geopolitical tensions.
Russia’s invasion of Ukraine has badly disrupted global energy and commodity markets, sending inflation to high levels across much of the world and risking sharp slowdowns in the U.K. and elsewhere in Europe.
The Federal Reserve is raising interest rates to cool demand and lower inflation, which in the U.S. is running at around a four-decade high. Officials are set to follow last month’s half-percentage-point rate increase, the first since 2000, with additional half-point increases at their meeting this month, on June 14-15, and again in late July.
The Fed is hoping to achieve a so-called soft landing in which demand cools by enough to bring down inflation but not so much that the U.S. economy tumbles into a downturn, marked by declining economic output and rising joblessness.
Fed officials say a soft landing is possible—for example, if the slowing economy causes companies to eliminate excess job vacancies without significant job cuts. But plenty of observers expect or worry that the landing will be painful, and Fed Chairman Jerome Powell has conceded that is a possibility.