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The Consumer is Getting Squeezed

Consumers are being squeezed by negative real wage growth and inflation at 40-year highs. As a result, consumer sentiment is declining, and personal consumption…

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Consumers are being squeezed by negative real wage growth and inflation at 40-year highs. As a result, consumer sentiment is declining, and personal consumption habits are changing as people struggle to help make ends meet.

With GDP running at -1.5% in the first quarter, a second consecutive quarter of negative growth will signify a recession. Personal consumption accounts for two-thirds of economic activity. As such, we must ask, will the plight of consumers drag GDP lower in the second quarter, resulting in a recession?

To help answer the critical question, let’s consider the state of the consumer and their means to consume. 

Personal Consumption

Per the BEA, Personal Consumption Expenditures is “the value of the goods and services purchased by, or on the behalf of, U.S. residents.”

The graph below shows that over the last 60 years, PCE has slowly risen from about 60% of GDP to nearly 70%. Its contribution to GDP fluctuates very little.

The following graph shows that annual changes in PCE and GDP are highly correlated. There has never been an instance where PCE was down for the year, and GDP rose!

pce gdp consumption

Consumer Sentiment Surveys

With an appreciation for consumers’ outsized role in the economy, let’s consider their propensity to consume goods and services.  

Are they confident in their financial situation and their expectations for the economy? High levels of confidence lead to high levels of consumption and vice versa.

The first graph below compares the University of Michigan Consumer Sentiment Survey and the Conference Board’s Consumer Confidence Index.

The most recent Michigan survey (orange) is well below levels from the spring of 2020, when the economy was shuttered, and unemployment rose to double digits. It is also at levels last seen around the great financial crisis. As they measure it, confidence is currently below readings from the recessions of 1991 and 2001.

The Conference Board’s Confidence Index (blue) is slipping, but it does not paint as grim a picture as the Michigan survey.

consumer sentiment surveys michigan
consumer sentiment

The graph above shows that the difference between the two surveys is the most extreme in at least 30 years. The circles highlight the prior three troughs and the current trough. The previous three troughs occurred right before recessions.

The surveys’ underlying data and commentary point to high inflation and rising interest rates as the primary culprit for the declining sentiment.

In its most recent report, the Conference Board notes the following: Indeed, inflation remains top of mind for consumers.”

Higher interest rates and soaring house prices are crushing consumer home-buying sentiment. The graph below shows it’s currently the worst time to buy a house in the last 30+ years by a long shot.

home buying michigan sentiment

Why does this matter?

The National Association of Home Builders (NAHB) estimates that Housing’s contribution to GDP generally averages 15-18%. Their study includes residential investment and personal consumption of housing services, including rents.

Declining Real Wages

Having established that consumer sentiment is declining, we must ask why. As we note in the prior section, inflation and higher interest rates are weighing on consumers’ purchasing power.

Inflation is not necessarily bad for consumers if their wages keep up or surpass the inflation rate. Unfortunately, that is not occurring. The graph below shows that real incomes (inflation-adjusted) have fallen for over a year. While nominal wages are increasing, its purchasing power is decreasing. As a result, many consumers can afford less today than yesterday. Consumers are essentially getting pay cuts whether they know it or not.

The two spikes in the graph result from the direct pandemic-related government payments to citizens.

real wages

The trend in real wages does not bode well for personal consumption. With inflation remaining in the 8% range and wages growing at about 5%, many consumers are losing. The data is worse for the lower and middle classes, which spend most of their money on food, energy, and rent. The prices of which are rising faster than the inflation rate.

The table below shows the difficult choices consumers are being forced to make.

consumption options

Alternative Monetary Sources for Consumption

Wages drive personal consumption, but other sources of money also contribute to spending.

Savings

When in need, people draw down on their savings to help. The graph below shows that is exactly what is occurring today. Personal savings are down to eight-year lows as consumers become increasingly reliant on additional sources of funds. Now consider the graph below is not inflation-adjusted. A dollar of savings indeed went a lot further in 2014 than today!

personal savings

Drawing down savings has supported consumption, but many consumers are running out of savings, resulting in less future spending or more debt.

Going into Debt

Over the last thirty years, consumers have increased their use of credit cards and mortgage refinancing to consume more than they otherwise could have. These two sources of funds may be greatly limited in the future.

The graph below shows the annual change in consumer credit card debt is at a 20-year high. Consumers can continue to borrow, but higher credit card interest rates and larger debt balances will limit future usage.

consumer credit

The following graph shows that the MBA Refinance Index is at its lowest level in over ten years. This is not surprising, given that mortgage rates are around 5.50%. Unless mortgage rates come down appreciably, we should not expect mortgage cash-out refinancing to be a significant source of funds for consumers.

mba refi index

Help from Uncle Sam

The graph below charts government transfer payments. Transfer payments are direct payments from the government to citizens. The two pandemic-related direct checks to citizens in 2020 and 2021 stand out like a sore thumb.

fiscal stimulus government

If the consumer struggles continue, can the government support them? The answer is unlikely.

For starters, the political climate in Washington makes fiscal stimulus unlikely. While the Democrats control the House and Senate, their slim one-vote majority in the Senate has already been problematic for stimulus bills. Given the upcoming mid-term elections it becomes more unlikely as we march toward November.  

It appears the Republicans may take the House and possibly the Senate in November. Barring a much larger economic crunch, such a split between the President and Congress will further hamper the odds of substantial fiscal stimulus in 2023.

Summary

  • Falling consumer sentiment.
  • Crushing inflation.
  • Declining real wages.
  • Savings are being drawn down rapidly.
  • Credit card usage is soaring.
  • Mortgage cash-out refinancing is not economical.
  • Fiscal stimulus is unlikely.

Excepting a sharp decline in inflation or a gap higher in wages, it appears the consumer is in a bind. 70% of the economy is tied to the fate of the consumer. Such does not mean a recession is probable, but given the consumer’s predicament, we must assume it’s a distinct possibility.

The post The Consumer is Getting Squeezed appeared first on RIA.

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Government

Why it May be Time to Start Stocking up on Weed

There’s an important change coming that may force users to change their behavior.

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There's an important change coming that may force users to change their behavior.

While inflation has already ruined many people's plans for a summer trip cross-country, the impact of rising prices may soon hit some people where it'll really hurt.

Cannabis, and many of its related products, has so far largely escaped the kind of double-digit increases seen in many food products such as chicken to avocados — one analytics firm even reported that the price of marijuana flowers, edibles and vaping products fell by a respective 16.7%, 11.8% and 12.4% between January 2021 and 2022.

But for interconnected reasons having to do with everything from lack of available materials to supply chain disruption, prices for most things have been rising steadily and at a rate unseen in 40 years. 

Even if the main item hasn't increased in price, rising costs for packaging material has left almost no industry unaffected.

Between June 2021 and 2022, the consumer price index rose by 9.1%.

Has Inflation Finally Come For People's Weed?

And, as the latest report from cannabis industry and accounting firm GreenGrowth CPAs shows, inflation may have finally started coming for the cannabis industry.

Amid rising cost of labor and materials necessary to make ready-to-consume cannabis, one in every four retailers that produce it reported that they have either raised or plan to raise prices by more than 10% in the next year.

"The COVID-19 pandemic had a comparatively limited impact on cannabis operators," reads the report. "According to last year’s data set, the top two reported issues, supply chain and difficulty hiring, affected nearly all sectors in 2021. [...] In addition, the most common issue impacting operators today are supply challenges."

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The survey examined over 700 companies in states where either recreational or medical marijuana use is legal. These include both start-ups and large multi-state operators.

While 70% of operators said they would try to absorb rising costs instead of raising prices, 30% plan to raise prices preemptively to prevent losses.

Pointing the Finger 

The study's respondents split over who to blame for rising inflation, with 40% citing Biden administration policies, and 30% citing carryover effects from Trump administration policies.

Other reasons cited by operators include supply chains, conflicts with countries like Russia and China and impact from petroleum companies' way of doing business.

Nationwide numbers rarely tell the whole picture since cannabis use and production are currently illegal at a federal level. But even with rising prices, demand has been strong both during the COVID-19 outbreak and after. Some online delivery services in California reported a 500% rise in sales since the start of quarantine.

"After two years marked by crisis and uncertainty following a global pandemic, financial operators in cannabis find themselves navigating a list of new complications and business obstacles," reads the report. "But it isn't all bad news. Many operators benefited from a surge of demand and used this new windfall to enact ambitious growth plans."

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Spread & Containment

Sex work is real work: Global COVID-19 recovery needs to include sex workers

Societally, we need to recognize that sex workers have agency and deserve the same respect, dignity and aid as any other person selling their labour.

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Globally, sex workers have been left to fend for themselves during the pandemic with little to no support from the government. (AP Photo/Bikas Das)

During the pandemic, business shifted from in person to work-from-home, which quickly became the new normal. However, it left many workers high and dry, especially those with less “socially acceptable” occupations.

The pandemic has adversely impacted sex workers globally and substantially increased the precariousness of their profession. And public health measures put in place made it almost impossible for sex workers to provide any in-person service.

Although many people depend on sex work for survival, its criminalization and policing stigmatizes sex workers.

Research shows that globally, sex workers have been left behind and in most cases excluded from government economic support initiatives and social policies. There needs to be an intersectional approach to global COVID-19 recovery that considers everyone’s lived realities. We propose policy recommendations that treat sex work as decent work and that centre around the lived experiences and rights of those in the profession.

Sex work and the pandemic

The United Nations Population Fund (UNFPA) recently reported that apart from income-loss, the pandemic has increased pre-existing inequalities for sex workers.

In a survey conducted in Eastern and Southern Africa, the UNFPA found that during the pandemic, 49 per cent of sex workers experienced police violence (including sexual violence) while 36 per cent reported arbitrary arrests. The same survey reported that more than 50 per cent of respondents experienced food and housing crises.

Lockdowns and border closures adversely impacted Thailand’s tourism industry which relies partially on the labour of sex workers.


Read more: Sex workers are criminalized and left without government support during the coronavirus pandemic


In the Asia Pacific, sex workers reported having limited access to contraceptives and lubricants along with reduced access to harm reduction resources. Lockdowns also disrupted STI or HIV testing services, limiting sex workers’ access to necessary healthcare.

In North America, sex workers have been excluded from the government’s recovery response. And many began offering online services to sustain themselves.

A woman stands backlit next to a dimly lit bus that reads 'Thailand' with green lighting.
Sex workers stand in a largely shut-down red light area in Bangkok, Thailand on March 26, 2020. (AP Photo/Gemunu Amarasinghe)

Government vs. community response

Globally, sex workers have been left to fend for themselves during the pandemic with little to no support from the government. But communities themselves have been rallying.

Elene Lam, founder of Butterfly, an Asian migrant sex organization in Canada, talks about the resilience of sex wokers during the pandemic.

She says organizations like the Canadian Alliance for Sex Work Law Reform are working in collaboration with Amnesty International to mobilize income support and resources to help sex workers in Canada.

Organizations in the United Kingdom, Germany, India and Spain have also set up emergency support funds. And some sex worker organizations have developed community-specific resources for providing services both in person and online during the pandemic.

Global recovery needs to include sex workers

The International Labour Organization’s “Decent Work Agenda” emphasizes productive employment and decent working conditions as being the driving force behind poverty reduction.

Sociologist Cecilia Benoit explains that sex work often becomes a “livelihood strategy” in the face of income and employment instability. She says that like other personal service workers, sex workers also should be able to practice without any interference or violence.

In order to have an inclusive COVID-19 recovery for all, governments need to work to extend social guarantees to sex workers — so far they haven’t.

As pandemic restrictions disappear, it is crucial to ensure that everyone involved in sex work is protected under the law and has access to accountability measures.

A woman stands wearing a mask with a safety vest on in front of a collage of scantily clad women and a sign that reads 'nude women non stop'
A volunteer helps out at Zanzibar strip club during a low-barrier vaccination clinic for sex workers in Toronto in June 2021. THE CANADIAN PRESS/Frank Gunn

Recommendations

As feminist researchers, we propose that sex work be brought under the broader agenda of decent work so that the people offering services are protected.

  1. Governments need to have a legal mandate for preventing sexual exploitation.

  2. Law enforcement staff need to be trained in better responding to the needs of sex workers. To intervene in and address situations of abuse or violence is critical to ensure workplace safety and harm reduction.

  3. Awareness and educational campaigns need to focus on destigmatizing sex work.

  4. Policy-makers need to incorporate intersectionality as a working principle in identifying and responding to the different axes of oppression and marginalization impacting LGBTQ+ and racialized sex workers.

  5. Engagement with sex workers and human rights organizations need to happen when designing aid support to ensure that an inclusive pathway for recovery is created.

  6. Globally, there needs to be a steady commitment towards destigmatizing sex workers and their services.

Despite the gradual waning of pandemic restrictions, sex workers continue to face the dual insecurity of social discrimination and loss of income support. Many are still finding it difficult to stay afloat and sustain themselves.

Societally, we need to recognize that sex workers have agency and deserve the same respect, dignity and aid as any other person selling their labour.

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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OU researchers award two NSF pandemic prediction and prevention projects

Two groups of researchers at the University of Oklahoma have each received nearly $1 million grants from the National Science Foundation as part of its…

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Two groups of researchers at the University of Oklahoma have each received nearly $1 million grants from the National Science Foundation as part of its Predictive Intelligence for Pandemic Prevention initiative, which focuses on fundamental research and capabilities needed to tackle grand challenges in infectious disease pandemics through prediction and prevention.

Credit: Photo provided by the University of Oklahoma.

Two groups of researchers at the University of Oklahoma have each received nearly $1 million grants from the National Science Foundation as part of its Predictive Intelligence for Pandemic Prevention initiative, which focuses on fundamental research and capabilities needed to tackle grand challenges in infectious disease pandemics through prediction and prevention.

To date, researchers from 20 institutions nationwide were selected to receive an NSF PIPP Award. OU is the only university to receive two grants to the same institution.

“The next pandemic isn’t a question of ‘if,’ but ‘when,’” said OU Vice President for Research and Partnerships Tomás Díaz de la Rubia. “Research at the University of Oklahoma is going to help society be better prepared and responsive to future health challenges.”

Next-Generation Surveillance

David Ebert, Ph.D., professor of computer science and electrical and computer engineering in the Gallogly College of Engineering, is the principal investigator on one of the projects, which explores new ways of sharing, integrating and analyzing data using new and traditional data sources. Ebert is also the director of the Data Institute for Societal Challenges at OU, which applies OU expertise in data science, artificial intelligence, machine learning and data-enabled research to solving societal challenges.

While emerging pathogens can circulate among wild or domestic animals before crossing over to humans, the delayed response to the COVID-19 pandemic has highlighted the need for new early detection methods, more effective data management, and integration and information sharing between officials in both public and animal health.

Ebert’s team, composed of experts in data science, computer engineering, public health, veterinary sciences, microbiology and other areas, will look to examine data from multiple sources, such as veterinarians, agriculture, wastewater, health departments, and outpatient and inpatient clinics, to potentially build algorithms to detect the spread of signals from one source to another. The team will develop a comprehensive animal and public health surveillance, planning and response roadmap that can be tailored to the unique needs of communities.

“Integrating and developing new sources of data with existing data sources combined with new tools for detection, localization and response planning using a One Health approach could enable local and state public health partners to respond more quickly and effectively to reduce illness and death,” Ebert said. “This planning grant will develop proof-of-concept techniques and systems in partnership with local, state and regional public health officials and create a multistate partner network and design for a center to prevent the next pandemic.”

The Centers for Disease Control and Prevention describes One Health as an approach that bridges the interconnections between people, animals, plants and their shared environment to achieve optimal health outcomes.

Co-principal investigators on the project include Michael Wimberly, Ph.D., professor in the College of Atmospheric and Geographic Sciences; Jason Vogel, Ph.D., director of the Oklahoma Water Survey and professor in the Gallogly College of Engineering School of Civil Engineering and Environmental Science; Thirumalai Venkatesan, director of the Center for Quantum Research and Technology in the Dodge Family College of Arts and Sciences; and Aaron Wendelboe, Ph.D., professor in the Hudson College of Public Health at the OU Health Sciences Center.

Predicting and Preventing the Next Avian Influenza Pandemic

Several countries have experienced deadly outbreaks of avian influenza, commonly known as bird flu, that have resulted in the loss of billions of poultry, thousands of wild waterfowl and hundreds of humans. Researchers at the University of Oklahoma are taking a unique approach to predicting and preventing the next avian influenza pandemic.

Xiangming Xiao, Ph.D., professor in the Department of Microbiology and Plant Biology and director of the Center for Earth Observation and Modeling in the Dodge Family College of Arts and Sciences, is leading a project to assemble a multi-institutional team that will explore pathways for establishing an International Center for Avian Influenza Pandemic Prediction and Prevention.

The goal of the project is to incorporate and understand the status and major challenges of data, models and decision support tools for preventing pandemics. Researchers hope to identify future possible research and pathways that will help to strengthen and improve the capability and capacity to predict and prevent avian influenza pandemics.

“This grant is a milestone in our long-term effort for interdisciplinary and convergent research in the areas of One Health (human-animal-environment health) and big data science,” Xiao said. “This is an international project with geographical coverage from North America, Europe and Asia; thus, it will enable OU faculty and students to develop greater ability, capability, capacity and leaderships in prediction and prevention of global avian influenza pandemic.”

Other researchers on Xiao’s project include co-principal investigators A. Townsend Peterson, Ph.D., professor at the University of Kansas; Diann Prosser, Ph.D., research wildlife ecologist for the U.S. Geological Survey; and Richard Webby, Ph.D., director of the World Health Organization Collaborating Centre for Studies on the Ecology of Influenza in Animals and Birds with St. Jude Children’s Research Hospital. Wayne Marcus Getz, professor at the University of California, Berkeley, is also assisting on the project.

The National Science Foundation grant for Ebert’s research is set to end Jan. 31, 2024, while Xiao’s grant will end Dec. 31, 2023.


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