US ‘technically’ enters recession – now what? Lessons from winners in last downturn

“Technically, if you just look at the basic definition of a two-quarters contraction in GDP, we’re in a recession.”​And while consumer spending may not yet fully reflect this shift, they are starting to tighten their wallets, RBC Capital Markets chief executive Nik Modi told attendees last week during a webinar hosted by IRI.

“We think it’s going to get a lot worse”he said, pointing to changes in the way the government, retailers and manufacturers are dealing with inflation and the ongoing fallout from the pandemic.

“Consumers have been really shielded by the inflation we’ve seen since late last year”As the government issued stimulus checks, paused student loan payments and expanded prepayments for child tax credits — all of which have ended or will end soon, he said.

“That’s a lot of money that went into the pockets of consumers”or diverted to other expenses, including groceries, clothing, rent and mortgage, or other necessities like school supplies, he explained.

At the same time, he said, retailers and manufacturers who thought inflation was short-lived or could absorb higher costs by managing other aspects of the business are now realizing they can’t make up for it all and are now enforcing belated price increases.

A “heavy cliff in consumption” is emerging

When these shifts take effect, consumers who have been holding their spending steady will begin to pull back by negotiating down or outright.

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“As consumers, we really don’t want to compromise on our lifestyle until we have to. And I think we’re getting close to that point. My fear… is that no one really expects what I believe will be a severe cliff in consumption, which I believe will happen over the next few weeks and months leading up to the start of the holiday season.said Modi.

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