I pay close attention to the language business leaders and economists use to understand shifts as they occur. Shifting means that very often we see a word or phrase creeping into multiple people’s comments at the same time. It’s as if they’re all reading from the same pre-approved script. This happens because we are social animals and take cues from each other, even if unconsciously.
Two quarters ago consumers were “resilient” and last quarter they were “hanging out there.” Consumers are now “watching out”. you hear this everywhere.
BofA’s Global Commercial Banking president probably won’t be hanging out with Procter & Gamble’s CFO. I don’t think they play golf together or go on family vacations. nevertheless…
“April is still early for now. Probably a little lower than March. Year-over-year growth in total spending has slowed. And that’s because the economy is a little slower than we’re seeing. and, frankly, I think it bodes well for consumers to be more careful with their use of cash.” – Alastair Borthwick, President of Global Commercial Banking, Bank of America ($BAC)
“Another factor we see is more cautious use. – André Schulten, CFO, Procter & Gamble ($PG)
These quotes are taken from a conference call by my friend Scott Krisiloff. transcriptYou’ll hear this phrase at some point as the earnings season continues.
Consumers rightly feel that changes are taking place in the labor market. They don’t comb through government surveys and economic data releases. They are talking to friends, neighbors and colleagues. Stories of people leaving their jobs for an immediate 20% pay increase are now on the decline. They’re superseded by the “I got fired last week” anecdote. As these new stories enter the public consciousness, consumers internalize them and gradually change their behavior. This shows up in unison in the data and colors with which company executives come into contact, and we see a shift in language when discussing the current environment.
Cannacord Genuity’s Tony Dwyer summarizes this current environment and gives the background to all the caution.
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The Jobs Index has never been this weak without signs of a recession. Employment numbers are considered a lagging indicator, but since 1975, every time the Conference Board’s Leading Employment Index has changed by less than -1 in the first 12 months, it has signaled a recession.
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Weekly continued unemployment claim ROC has never been this high without signs of a recession – thanks to Mike Dada Ross/MKM. U.S. Recurring Payroll Billing for the week ending April 7 showed a 52-week rate of change of 22%, with every first reading above 20 for the first time in a cycle signaling a recession. I understand. To remove the distortion of forced pandemic shutdowns, the graph shows his data from 1967 to 2019.
CFOs and CEOs use internal data and comments from their direct reports to formulate these opinions. Consumers use stories and comments from people in their lives.
Everyone comes to the same conclusion, regardless of the source of the information. A recession may not be imminent, but it will feel like it for a growing number of people who live and work in the real economy.
Therefore, “consumers are paying attention” everywhere you look.