The Journal’s page-one headline on Tuesday sounded another recession alert: “Walmart Cuts Outlook, Investors Unnerved.” Amid higher food and gas prices, consumers are retreating, “an ominous sign for the US economy.”
Reaction could be a sign that the next recession will be short-lived and less severe, if it comes at all. In this case, start buying stocks again; they are cheap.
When customers resist a price increase and change their buying habits, Walmart knows immediately, based on up-to-the-minute data from its 4,735 US stores, and can lower prices accordingly. The stationary retailer with the highest turnover in the world is Cut Prices at a time when inflation is roaring. Even the largest retailers lack the power to pass higher costs on to customers who have depended on low prices for 30 years. Such inflation resistance is at work in my expensive butcher shop in Brooklyn, NY, where the owner says he only charges customers a portion of his higher costs to avoid losing them business. This helped it get through two years of lockdown without laying off any of its 20 employees.
Another sign that inflation may be falling: Although the Federal Reserve is concerned about consumer inflation expectations, bond markets are already predicting that the Fed will start cutting interest rates in less than a year.
There are other reasons for optimism. The fact that consumers elsewhere are spending less to pay for higher-priced gas has an anti-inflationary effect. There’s less excess cash for movies, jet skis, and new cars.
Automakers have large inventories of vehicles that didn’t make it to showrooms due to chip shortages — General Motors alone has nearly 100,000. When these cars are ready, they will be set in motion by drastic price cuts, providing another anti-inflationary force.
Even the outlook for oil prices is brighter. Crude oil was $72 a barrel a year ago and is now $97, up 35% – but down 17% since March. The US energy sector can bounce back and become the world’s largest producer in a short period of time if it gets a new administration. Energy prices may go down again, big time.
The Federal Reserve sees job cuts as a key indicator of a recession. But we keep hearing about a lack of workers and not about a lack of jobs. The US has more vacancies (11.3 million) than unemployed people looking to fill (5.9 million). The unemployment rate has been a meager 3.6% for four months.
This is due in part to trillions of dollars in federal government Covid handouts. US households had $4.2 trillion more cash at the end of last year compared to 2019, for a total increase of $14.7 trillion. That’s a 44% increase, and those in the lower income bracket saw their cash holdings increase by 70% to 80% over the same period.
Another boost: Of the $5.7 trillion in “fiscal support” that Congress has enacted since 2020, $800 billion remained to be paid out at the end of January. Allocated money is never returned unused.
In general, consumers can dodge inflation a lot. You can skip the rib eye and swap for hamburger and chicken. My monthly rent remains the same; Your mortgage payment stays the same. Those looking to make big purchases like cars can put them off a bit.
We will be fine, as will the US economy, the strongest and most resilient in the world. The much feared recession is oversold. You can bet on it.
Mr. Kneale is a New York-based writer.
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Published in the print edition on July 28, 2022.
https://www.wsj.com/articles/stop-panicking-about-the-u-s-economy-federal-reserve-inflation-recession-walmart-prices-money-supply-stimulus-covid-gas-crude-11658950550 Stop Panicking About the U.S. Economy