How’s that for a headline? Or better yet, how’s that for a description of the current economic situation in the U.S.? Confused? You are in good company.
American consumers may not know one “-flation” phase from the next. But they don’t have to be economists to know that the economy seems to be a lot of things at once, and none of them make any sense.
At the end of last year, most economists were predicting a looming recession. As a result, the Fed has been raising interest rates at record-breaking speed to slow economic growth and thus halt rising inflation. At least, that’s the theory.
But is it working? All the normal indicators don’t seem to make any sense at all.
- Inflation was supposed to curb shopper spending. Though it has slowed, consumers continue to spend (the Consumer Price Index rose by 0.2 percent in July).
- Rising interest rates were supposed to blunt the housing market. While housing prices are no longer skyrocketing, they haven’t plummeted. Demand is still strong (available inventory was down by 13 percent at the end of June compared to a year ago).
- Inflation plus rising interest rates were supposed to punish the stock market, yet Wall Street is growing. In July, the S&P 500 was up 3.11 percent and the Dow Jones Industrial Average increased 3.35 percent.
In fact, the U.S. economy not only is strong, but really strong – when we look at it historically. The unemployment rates are near a 55-year low and inflation in most sectors is falling. While the stock market continues to bop up and down, it is still at or near historic highs in nearly all sectors.
When we look at the U.S. economy compared to other developed nations, we have the strongest economy by far. IGA stores in China, by comparison, are struggling with country-wide deflation, unemployment issues and a collapsing real estate market.
And our stores in Western Europe and Africa are reeling from economic crises in supply chain, commodity inflation and stratospheric energy costs – much to do with the localized impact of the war in the Ukraine.
So, if things are so good here, why does it feel so bad? Many Americans think we are in a recession (we are not). Newsweek reported that the latest IBD/Tipp survey found that 58 percent of Americans think the country is in a recession. That number is up from 48 percent in May and 53 percent in June.
How can it be good and bad at the same time?
Well, we are technically in a period of disinflation. It doesn’t happen often, which is why most people don’t understand it.
Disinflation refers to a slowing down of the rate of inflation, where prices are still rising but at a decreasing pace. (It is distinct from deflation, which involves a sustained decrease in the general price level, and from stagflation, which combines high inflation and stagnant economic growth.)
So, what do retailers need to do in a disinflationary environment?
First, understand that consumers are confused. “How can things be good when I feel so bad?” is a real consumer phenomenon. Shoppers are looking for stability and a trusted ally. And trust relies on transparency to help them make sense about food prices. That means retailers need to be transparent about their pricing and communicate often with shoppers.
The reality is that grocery retailers haven’t expanded margin percentage, even as suppliers raised costs. If prices are going up in stores, it’s because of the rising cost of goods, not stores exploiting shoppers.
How do we explain this to consumers? Consider “Why prices are rising” in-store signage and social media posts. But most important, make sure to explain it to associates.
Shoppers are most likely to complain about rising prices at the register. Make sure cashiers and customer-facing teams understand why prices are going up and everything we are doing to combat it. One may be surprised to learn that store associates actually don’t know how prices are set.
Second, we have to better partners with suppliers. The number of retail promotions in the market is still below 2019 levels. That is just dangerous.
Shoppers need discounts more than ever. As the inventory supply chain stabilizes, “I don’t want to promote what I don’t have” is no longer a valid reason for cutting back on shopper promotions.
Finally, expect more confusion, especially as we go into the elections. Social media and political rhetoric are bound to create fear and emotion. This will be true for associates as well.
The reality is the U.S. economy has experienced the largest “seismic quakes” ever seen. From energy, climate instability and public health to social unrest, political upheaval, supply chain disruptions and labor shortages, everything that could shock a system did. And we are coming out of it in amazingly healthy condition.
It turns out the U.S. economic machine is a lot more resilient than any experts thought possible. That is a good thing for businesses, for the country and for the economic health of communities.
Read more from guest contributors at The Shelby Report.