It’s usually peak season at Asurion Phone & Tech Repair, but Gean Rodriguez says visitor traffic has slowed in recent weeks. The Chicago repairman wonders if the cooler weather is keeping customers home or if people are saving their money for the holidays.
Without the answers, he’s waiting for business to bounce back to more normal levels as the company struggles with botched supply chains and high electronic parts costs.
“We hardly have anything right now,” Rodriguez said. “We hope for more business. Some people might try to save their money for the holidays, gifts, reunions and things like that.”
The slowdown in Rodriguez’s business may offer a snapshot of the country’s economy heading into the final stretch of the year. Hurrying to cool demand and bring inflation under control, policymakers are raising interest rates at the most aggressive pace in decades. Fed officials have lowered their growth expectations for this year and the risks of a recession in the United States and around the world appear to be growing more likely by the week. A number of economists are bracing for a downturn in late 2022 or early 2023.
But new data over the past few days suggests the economy is not quite sputtering just yet and that two of the economy’s main engines are still running at full speed. The job market remains incredibly tight, based on data released on Thursday. On Friday, a new government report showed that both consumer spending and personal income rose in August, although inflation remained high. Another survey showed that consumer confidence has recovered since early summer when gas prices were significantly higher.
Many households and businesses are caught amid these economic tensions, struggling to absorb the high prices, but are not yet experiencing the pain some Federal Reserve officials say will come.
Economic unrest spreads. All major stock indexes ended the month on a dismal note, and the Dow Jones industrial average fell 5.4 percent in the third quarter ended Friday. The housing market is cooling, with the highest mortgage rates in 15 years deterring aspiring buyers. Retailers are already starting to discount items for the holidays, hoping to attract increasingly price-conscious shoppers.
US stocks slid on Friday – with all three US indices down at least 1.5 percent – capping a brutal week, month and quarter. The Dow Jones industrial average fell 500 points on Friday to close below 29,000 for the first time since November 2020. The S&P 500 fell 1.51 percent for its worst month since March 2020. All three indexes are down at least 21 percent for the year.
On Friday morning, an analyst note summed up the chaos titled “Wake Me Up When September Ends.”
There is growing evidence of nervous consumers. Apple shares tumbled this week after it was announced the company was cutting back on a planned increase in production of its latest iPhone. Elsewhere in the tech industry — which is often seen as a frontrunner for the economy as a whole — typically resilient companies said they would enforce hiring freezes. Some analysts believe the industry may be bracing for a slowdown in consumer spending.
“It shouldn’t surprise anyone that stocks have fallen and can’t really go up,” said Tom Essaye, president of Sevens Report Research. “We have good things to happen and we don’t have a lot of good things.”
“We have an economy that is showing signs of slowing down,” he added.
Perhaps the strongest example is the housing market, which has been cooling since the Fed began raising rates this spring. And it clearly cools faster as rates go higher. The average interest rate on a 30-year fixed-rate mortgage, the most popular home loan product, hit 6.7 percent this week, according to data released Thursday by Freddie Mac, a level not seen since July 2007.
According to the closely-watched S&P CoreLogic Case-Shiller National Home Price Index, US home prices fell in July compared to June, marking the first month-on-month decline since January 2019. There are even early signs that rental prices are softening could.
People with lower incomes have been feeling the pressure of inflation for months. More recently, the stock market slump and investors’ fears of a looming recession will be felt by higher earners.
Dick Pfister, CEO of AlphaCore Wealth Advisory, said his clients — who are generally worth between $1 million and $15 million and are often planning for retirement or budgeting with a fixed income — are beginning to budget more proactively than “stocks, Dealing in real estate and bonds all went under together, affecting their fortunes.
“It took them a little longer to feel the pain, but it’s starting to affect them, too,” he said.
But the stock market’s turbulent quarter came as other parts of the economy were churning. The strength of the job market has surprised politicians and economists alike, with employers adding 315,000 new jobs in August. Consumer sentiment has improved since bottoming out in June amid soaring gas prices. And while the economy has contracted for the first two quarters of the year, it doesn’t appear that the economy is in recession — yet.
Amid uncertainty about next steps, companies are showing signs they are bracing for a potential fall in consumer spending if inflation remains high and the stock market remains rocky.
Bloomberg reported this week that Apple is turning away from a planned increase in production of its latest iPhone. Apple has not confirmed the report or comment.
Bank of America downgraded the stock in the days following the report, saying “weaker consumer demand” could pose a risk to Apple’s business. Apple stock is down more than 7 percent since Monday afternoon, sending other tech stocks plummeting.
Big tech companies are also cutting budgets, especially when it comes to hiring.
Tech companies’ caution could spook other industries waiting to see if consumer spending will slow.
“[The tech giants] don’t do it for fun,” Essaye said. “They do it because they anticipate a drop in demand for anything they model.”
It might just be careful planning. It’s too early to tell if Apple’s reported production cut is a judgment on overall consumer demand, said consumer tech analyst Carolina Milanesi, who noted that Apple is reportedly seeing higher demand for its higher-priced iPhones.
“When Apple sees the impact of the economic recession, it’s really bad news for everyone else because Apple commands such a large chunk of the high-end market,” she said. “But at the same time, I think it’s a bit early to draw any conclusions.”
Target and Walmart are trying to allay consumers’ budget worries by starting holiday sales earlier this year, the big retailers said last week. And Amazon seems to be following suit. The e-commerce giant announced this week that it would be hosting a “Prime Early Access Sale” for members of its subscription program on October 11-12. The sale bears similarities to Amazon’s annual Prime Day, which took place in July. (Amazon founder Jeff Bezos owns the Washington Post.)
Retailers’ early deals could be partially attributed to companies making sure they don’t overstock when consumers are short of cash in the coming months, said Forrester retail analyst Sucharita Kodali. Nike’s shares tumbled this week after the sporting goods retailer said it was increasing discounts and faced overstocking.
Retailers aren’t panicking, Kodali said, and business is still doing well. But they, like other industries, are wary that consumer spending could be “cut” in the future.
“Everyone seems to be huddled in anticipation of a recession,” she said in an email.
Signals from the Federal Reserve help explain why. Last week, the US Federal Reserve hiked rates another 0.75 percentage point, and the bank is expected to hike twice more before year-end. Since the spring, the Fed has raised that rate from near zero to 3-3.25 percent and is expected to hike rates to 4.25-4.5 percent by the end of the year.
Policymakers say they will not reverse their rate hikes until there are clear signs that inflation is slowing, despite recession risks. Economists say such aggressive hikes increase the risk that the Fed will go too far, especially as monetary policy lags and global central banks all hike rates at the same time.
Richmond Fed President Tom Barkin outlined two avenues. If the Fed doesn’t raise rates enough, inflation could swell, forcing the central bank to act more aggressively later. Or, he said, the Fed could step in aggressively now and try to push inflation back closer to normal levels.
“The analogy I’ve been experimenting with in my head is that you have to pull on a stuck door and open the door, and so you keep pulling,” Barkin said in an interview with The Post. “If you pull too hard you might trip, but hopefully stay on your feet. What you don’t want to do is pull so hard that you pull the doorknob out.”
In Santa Monica, California, Bundy Auto Sales has yet to feel the consequences if the Fed pulls on that door. Owner Sylvester Villareal said his company, which specializes in used cars and rentals, has a stable fleet and plenty of bookings, particularly long-term rentals for customers waiting for their Teslas to arrive.
In the city, Villareal sees other signs of an economy that is yet to turn around. Costco is busy. So is a local high end grocery store. Houses are still being sold at high prices.
“The area where I work is not a working-class area, but it’s not a rich area either,” Villareal said. “The houses sell immediately. That’s just supply and demand. Because of the interest rates, the payments are higher. But I don’t see any slowdown.”
Gerrit De Vynck and Naomi Nix contributed to this report.
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