Inflation continuing to take a toll on the American consumer-- last week, U.S. GDP contracted for the second quarter in a row.. ushering the country into a so-called technical recession. However, many analysts, officials, and even the White House..... are still hesitant to use the term "recession." So what does all of this mean for the consumer and the broader economy? Mark Hamrick, senior economic analyst at Bankrate.com joined Cheddar News to discuss. 


Opening Bell

What a Technical Recession Means for Consumers

here to discuss is Mark Hamrick, senior economic economic analyst at Bankrate dot com. There, we got it out. But now we need you to clear some things up because it seems like economists are divided on this with so many saying that we are technically not in a recession, but rather a transition. So can you talk to us about this conflict and whether you actually think we're in a recession or not, actually, I don't think economists are divided on the question at all. I think that we need to see some other data points to make such a declaration and ultimately, I think it's largely irrelevant. I know it's you know, the chief candidate for Hot Takes these Days. Uh And obviously the american public feels invested in the question as well. But the issue of inflation is significant enough that we don't need to have the added declaration of a recession To sort of observe that we're in the soup. But but to try to answer your question more directly, uh let's think about where we were when we had two recessions in the past 20 years and we had a peak of Unemployment in October 2009 of 10%, was the peak during the pandemic caused recession. And now as we speak, the nation's unemployment rate is 3.6%. But with the highest inflation in 40 years, we know what is sort of the major ill for the economy. And it's that. And so let's say that we are in a recession. What does that get us? It merely gets us that declaration and it's not going to change policy really, the Federal Reserve is going to continue to be very Laser focused on the inflation issue. That means that interest rates are likely headed from their current status, which is deemed to be neutral into restrictive territory. That probably means another 100 basis points to the upside, maybe more, maybe much more. We just don't know, I don't know that I've encompassed or encountered an issue that's generated as much anger on the part of people as this recession question. Because I think that when we see consumer sentiment so low, many people feel as if they need to have their sort of emotions matched by this declaration. And what I'm trying to say is we don't really require that at this point, because inflation is the major thing that's hanging over the economy. And that's bad enough. Yeah. And you bring up a good point because, you know, a lot of people say that we could scare our own selves into a recession if all the consumers are worried about this, and we keep going around this word, how do you feel about the consumer's outlook on the current state of our economy and what that could mean to us being in a recession or not? I think that's quite concerning because, you know, the latest data indicates that real wages are falling wages have not been keeping pace with inflation and wages probably probably going to see wage growth begin to tail off a little bit as well and it's likely that people who were the chief beneficiaries of that wage growth through the pandemic. Those at the lower end of the wage scale are not enjoying that as much as they were previously. And we're seeing people who are better paid now, getting that benefit of compensation. The other part, of course we're waiting not only the monthly employment report later this week, but also the jolt stat of the job openings and labor turnover survey. And I think that really does raise the prospect of a downside surprise in the sense of, you know, could we see a big decline or at least a noteworthy decline number of job openings? Because we know anecdotally not only are we having reports of companies laying employees off, but we also are hearing about companies that are sort of quietly taking job openings off of their off Of their boards. And so the irony there is to go back to Chairman Powell, the Federal Reserve, he's talked about this mismatch between the official number of unemployed recently, a 5.9 million and the number of job openings most recently at 11.3 million. And so essentially he wants to see a better alignment of those two numbers, which is sort of the opposite of what most workers want to see, but when You think about how that contributes to inflation, we can see how that actually could have a more optimal outcome in the long term. And he's not the only one talking about it. Treasury Secretary Janet Yellen's recent comments about the us creating 400,000 jobs a month suggests that we're not in a recession as well. So what do you say about that? And the fact that we still are looking at, you know, two jobs for every one person who is looking for a job? Well, I think those numbers are set to cool down and as I said, I think the job openings number will probably begin to cool. Uh and you know, we're looking for the consensus 250,000 jobs added on the month on Friday and that would be down from 372,000 of the previous month. So it's reasonable to expect that the job market begins to follow in the trajectory of some of the other economic data. And that also is consistent with what we're seeing with the consumer who really is not in a position to increase spending at a significant level when you factor inflation into the equation. Well, there are some people that don't necessarily understand all this recession technical recession talk, but they do understand their wallet dwindling down. So given that we are in a technical recession, how is that going to impact the average consumer's wallet? Well, I think, you know, we're already seeing that in the sense that we've heard, for example from companies as well as the data on gasoline purchases where consumers might not be filling up the tank, particularly at the peak of those gasoline prices averaging More than $5 a gallon nationally, where they were maybe filling the tank up halfway and then going back to the gas station later in the week, if only because they didn't want to drain their bank account for one fill up. Same with purchases of things like milk, maybe it's a half gallon instead of a gallon. And we heard of course in the earnings from Walmart where people are really focused on purchasing necessities and that's leading to fewer purchases of things that might be a little more optional, such as apparel or clothing. So I think we'll see more of that and the longer that this economic challenge continues meaning meaning the high and sustained inflation and perhaps a further slowing of the US economy, that will simply mean that we see those trends per perhaps accelerate and that's not a positive. You're speaking about those trends, do you think you say it's not a positive, should americans start to change their spending habits? Should they stop being so tight with the wallet and fear that we're going to recession? Should they just spend like normal before? Well, I think, you know, you sort of zeroed in on the ultimate determinant of that question. And that is consumers are in a very good position to know what their own households situation really is. And we are kind of in that case shaped, we have the K shaped recovery at the beginning of the pandemic. Now I think we have a K shaped downturn in the sense of well heeled consumers. Those who have sufficient incomes and wealth are for the most part able to make it through this time. Although they obviously have taken a hit with their stock portfolios despite the re rebound we've seen uh and those who are not significantly exposed to the stock market or have sufficient savings, they're the ones who are most challenged in this environment. And even in the best of times, the majority of american households are living paycheck to paycheck. We know that we have had more savings excess savings during this past 2, 2.5 years. But as long as inflation and wages are sort of misaligned, that's where we're gonna have people draining their savings accounts and uh and turning to credit more often. All right, well just be careful out there whichever route you decide to take, everybody spin wisely. All right. Mark Hamrick at bankrate dot com. Thank you so much for your time