Anxious US consumers are
continuing to spend - for now. But consumer confidence surveys, usually a reliable source of advance warning on which way spending is heading, paint a dire picture - though that pessimism has yet to show up in consumer sales.
What happens next depends on the Federal Reserve’s ability to tame inflation without causing a recession.
History suggests a “soft landing” is unlikely. Since the 1950s, the US economy has tipped into recession within two years every time inflation has exceeded 4 per cent and unemployment has fallen below 5 per cent.
Inflation is now running at multi-decade highs and unemployment at multi-decade lows, which means an acute challenge for the US central bank. Our
graphic explainer shows the scale of that challenge, and sets out what previous periods of high inflation can teach central bankers about avoiding a crash today.
As Bill English, former director of the Fed’s division of monetary affairs, puts it: “They want to take the heat off, but not have the economy go into the ditch, and that’s tricky to manage.”
The Fed’s task will be made more difficult by President Joe Biden’s
decision to cancel $10,000 in student loan repayments for millions of Americans earning less than $125,000 a year - a move that will likely boost consumer confidence, but which risks pushing up inflation.
US consumers hold about $1.6tn in outstanding student debt that can take many decades, especially among minority communities, to repay.
Confidence is dire, too, in the UK, where consumer
demand is weak in the face of multiple pressures on households, including high energy prices that have pushed inflation forecasts to
more than 18 per cent by January 2023.
One of the country’s largest energy groups has predicted the effort to protect households from fuel bills will
cost the government £100bn. Scottish Power CEO Keith Anderson told ministers that a rescue plan against rising bills would need that amount to cap bills at £2,000 per household. The UK is facing a “catastrophic winter”, according to a senior executive at EDF, with half of households expected to fall into fuel poverty without intervention.
Companies, too, face a “
cost of doing business crisis” as many commercial energy bills are expected to rise more than fourfold.
Liz Truss, the favourite to become the next UK prime minister, has already expressed her distaste for “handouts”. How she and a prospective government would tackle the multilayered crisis facing the country remains to be seen, but help is likely to be limited.
With the leadership contest having just under two weeks left to run, Truss is already planning her transition to power - including
who will be appointed to cabinet roles and the contents of an
emergency budget.
Elsewhere, Apple’s return-to-the-office order to its staff is
causing resentment among its workforce. Tim Cook believes collaboration is best done in person and that creative advantage would be lost with a scattered workforce.
From September, the company is demanding staff return three days a week. But a group calling itself AppleTogether is
pushing back, demanding “location-flexible work”.
Staff are emboldened by a tight labour market, in which tech skills are at a premium. That has not stopped Elon Musk taking a hardline approach, telling Tesla staff in an email: “If you don’t show up, we will assume you have resigned.”
Dropbox, by contrast, has declared itself a “virtual first” company, allowing staff to work where they like. (FT columnist
Rutherford Hall thinks the time is not yet right for managers to “finally end all this sensitive, caring boss nonsense”.)
One advantage to employees of home working is that they can live wherever they like - and that may mean somewhere other than the big, expensive cities where their employers are based.
In the early days of the pandemic, Sarah O’Connor predicted expensive cities such as London would become cheaper for young renters, with a shift to home working as office workers spread further out from overheated urban centres.
In her column this week, she examines why her predictions were wrong. Housing costs in London - and in many US cities including New York - are higher than ever, despite workers not returning to pre-pandemic working patterns.
The reasons are complicated. But against a backdrop of high inflation, it looks likely that housing costs will soon reach the limits of affordability.
In business news, EasyJet has
brought in new directors to focus on operations, logistics and data after a summer of passenger disruption. Staff shortages have plagued the industry after it cut thousands of jobs during the pandemic. Just this week, the airline was forced to cancel 26 flights to Gatwick because of staff absences at the airport’s control tower.
Disruption has eased in recent weeks - just as airlines are about to be hit by forces beyond their control. Gatwick, one of the UK’s busiest hubs, says the UK’s economic uncertainty
threatens the aviation industry’s pandemic recovery, while BA is to
cut more than 10,000 flights from its winter schedule. Business travel is unlikely to be turbulence-free for some time.
