Retail Problems at Target
I am quoted in Forbes:
I reached out to Dr. David Kass, Clinical Professor of Finance at The University of Maryland for his take on the disruption felt by virtually all of the major retailers that reported this week, and he had some interesting insights regarding consumers’ confidence. Naturally, he sighted inflation being a huge driver, reducing demand.
He also noted that after consumers were in lockdown for the better part of two years, things have changed markedly. Up until recently the sales of all things supporting our “sanctuaries” including computers, TVs, and home improvement items were top of mind and wallets. Now that it feels safe to rejoin society, service sector spending has taking over. “Consumers are suddenly planning trips, going out to restaurants, and being generally more social” he noted. This matches the reported drop in electronics and home furnishings spending which both Target and Walmart WMT +0.1% reported.
The “R-Word”
Dr. Kass also pointed to the fact that with approximately 55% of Americans having investments in the stock market, they are likely to begin to feel less “well off.” Thus, further belt tightening is likely, which is what the Fed is aiming to do anyway. He also noted the tightrope that the Federal Reserve Chairman Powell is walking regarding a “soft landing” as they tighten monetary policy in tandem with consumers already beginning to change their spending patterns.
Naturally, I could hardly engage with a noted economist without asking about the likelihood of a recession. Like a doctor making a prognosis, Dr. Kass noted that we have learned to expect a recession about every 10-years, and it is particularly true when we experience the parallel effects of both monetary and fiscal policy tightening, combined with high inflation.
On a positive note, he stated that the economy is still strong with only 3.6% unemployment rate, closing on the lowest unemployment in 15 years. He believes that there is less than a 50% chance of a full-blown recession. He further postulated that inflation should be down to between 4- 5% by year’s end. I hope he is right.
