As if the United States didn’t have enough to worry about—geopolitical turmoil, inflation, high prices, supply chain disruptions and the inability to find baby formula—people now need to contend with the possibility of stagflation. The term refers to an exceedingly challenging economic environment in which there is a toxic combination of an uncomfortably high rate of inflation and an economic slowdown and retraction, but unemployment stays stubbornly high.
Ben Bernake, the former Federal Reserve chairman, said in a New York Times interview that central bankers’ policies have put the U.S. on the path of runaway inflation—the type last seen in the 1970s and early 1980s. When stagflation last occurred, it caused massive jobs and income loss, while prices kept going higher.
Bernake said about the prospect of stagflation, “Even under the benign scenario, we should have a slowing economy.” The former Fed chair added, “And inflation’s still too high, but coming down. So, there should be a period in the next year or two where growth is low, unemployment is at least up a little bit and inflation is still high. So, you could call that stagflation.”
We Don’t Need To Panic Right Now, But…
For now, the positive is that although the prices of many goods and services are increasing, the U.S. is not experiencing a rise in unemployment. In fact, in the April jobs report, the unemployment rate was around 3.6%. This level was nearly the same as it was pre-pandemic.
The fear today is that inflation will raise prices across the board. With higher costs, companies will see fewer profits and they’ll feel the pressure to cut costs and lay off workers. The U.S. is already starting to see this happen. An array of tech and other sectors have been downsizing personnel and placing hiring freezes into effect.
Retailers Are Feeling The Pain
On Tuesday, Target reported an unanticipated miss in its earnings projection, and the company’s stock price took a major hit. According to analysts, the decline was due to increased costs, such as freight, transportation and diesel fuel prices. Target chairman and CEO Brian Cornell, told Yahoo Finance, “We never expected the kind of cost increases in freight and transportation that we’re seeing right now.”
Target is not alone. Bloomberg reported, “Walmart Inc. tumbled the most in more than 20 years—and was headed for the worst route since 1987—after cutting its full-year profit outlook due to inflationary pressures, especially in food and fuel.”
The big-box retailing giant said that its profit during the quarter was adversely impacted because of extra costs allocated to hiring, fuel and its supply chain. Walmart also shared that it will lower profit expectations for the year. Now that the federal stimulus packages have run their course, households have less savings. With costs rising sharply, shoppers may be holding back on their purchases.
A concern is that due to Walmart’s size, it offers a glimpse into the mindset and habits of consumers. The current results raise warning signs. The U.S. consumer represents the largest spending sector. If higher prices, due to inflation, force families to pull back on discretionary spending, it could foreshadow difficulties for the economy—and ultimately the job market.
Bank CEOs Are Getting Concerned
Goldman Sachs CEO David Solomon warned that his bank’s wealthy clientele and institutional investors are preparing for a slowdown in growth and a possible decline in asset prices. Solomon said that the country needs to figure out how to get rid of inflation, as it’s “extremely punitive.” The chief executive added that families living paycheck to paycheck will have a tough time. He contends that inflation serves as another form of taxation. It eats away at your income and savings.
Wells Fargo CEO Charlie Scharf said the U.S. is heading for an economic downturn at the Wall Street Journal‘s Future of Everything Festival. Scharf, echoing Solomon, said that a recession will be difficult to avoid and will have deleterious effects, such as increases in costs of banking products, such as mortgages, credit cards and loans.
According to a May Bank of America Global Research study, surveying 331 participants with $986 billion in assets under management, 77% of investment fund managers reported that they see a “below-trend growth and above-trend inflation”—stagflation.
Blowback On CEO Pay
In light of the financial challenges Americans are forced to deal with, they are angry over excessive CEO compensation packages. Jamie Dimon, the CEO of JPMorgan, had his pay package questioned and pushed back upon by shareholders. This was highly unusual, as more often than not, shareholders have supported the pay raises. Similarly, CEOs and executives at companies, ranging from Intel and AT&T to General Electric, saw their compensation packages challenged.
What You Need To Do Right Now
To prepare for tough times ahead, whether it’s a recession or stagflation, you need to take proactive measures. Ensure that your job is safe. It may be uncomfortable, but speak with your boss and bluntly ask about the financial condition of the firm and where you fit in. Directly inquire if things go south, whether you would still have a job or should a job search be recommended.
If you feel that things are not looking too rosy at your organization, don’t hesitate. Commence a job search immediately. This should be your top priority. Although you’re on the hunt, make sure that you are working hard and getting noticed at your company. The goal is that you want to be the one chosen to stay when things take a turn for the worse.
Reignite your relationships with higher-ups in the office. If you are a remote or hybrid worker, make sure to get into the office to be seen and heard. If you are only a box on a computer screen for the weekly roundup meeting, it’s easy to be forgotten. When it comes time to pick who remains and those told to leave, if management forgot about you, it places you in a precarious position.
This is not the time to get involved with YOLO crypto and meme-stock trading. Find other streams of income to diversify away from just your salary. Look into the gig economy for opportunities to earn extra cash. Pay off your credit cards and other loans that carry high-interest rates. Don’t give up hope. The economy regularly swings to excesses.
The U.S. enjoyed a huge run over the last year with record gains in the stock and crypto markets, real estate and procuring new jobs. Now, the country finds itself in a slowdown, bubble-bursting environment. Hunker down and remain strong. Time will pass and the cycle will change again toward growth. Jobs and opportunities will be plentiful, once again.