Ever since covid reared its ugly head (or shall I say, heads) the world has been turned upside down. From the way we spend our money to the way we work (or don’t) to the way we live, it’s all changing.
Think back to when you were last in a grocery store. Or when you went into the office more than 3X per week. I bet your answer is hardly! At least mine is. As many as 7 in 10 American white collar workers are still working-from-home, something I doubt is gonna change anytime soon.
Remote working is now a thing (not just reserved for a cool tech biz) and all this change has made it harder and harder for those guys sitting behind complex models as they try and figure out which way the consumer is headed. Psst: read here why 80% of gen zers wanna switch jobs!
We’re getting harder to predict!
After all, the consumer is the economy, or at least 70% of it! Unhappy consumer = unhappy economy. We’re the key to their hearts. Kinda. And if you’ve seen the news you’ll notice the R-word (‘recession’) squeezes itself into almost every article. Like those pickles in your sandwich you just can’t stand but find they end up there anyway.
Recession is defined as 6 months of a shrinking economy. Aka negative growth which means not only are we not growing, we’re getting smaller. Great.
Though there is something to cheer about – we’ve not yet entered this technical phase. Not yet anyway. But it does seem to be the base case. Want lower inflation? The pill we’ve gotta swallow (and by we I mean everyone since recessions affect us all – read here the 3 simplest ways to boost your financial resilience that anyone can follow). And higher interest rates is what will deliver that recession pill.
What higher rates do, at their basic level, is they force us to save instead of spend. This should mean our appetite for “stuff” (from shopping to travelling to dining out – though those 2 are not slowing down!) comes to a stop, or at least slows down.
But obviously, in this post-covid reality a recession ain’t gonna resemble the previous ones.
Nuh-uh. Too much has changed. So while we’re not yet with a classic recession, we are in a Richcession! What the heck? Well, it’s a recession that affects the well-offs more than the rest. Weird, no?
See, in normal recessions, the poor and lower middle classes are hit the worst since they’re the ones that face layoffs and have way less savings to cushion the blow.
But in our twisted new world, unemployment (on the whole) is still pretty tight. Like that shoelace of yours that just won’t come undone.
Sectors like hospitality and leisure are missing ~ 1 million workers! You know the rule. Low supply (workers) = higher prices (wages). Aka inflation. Employment still hasn’t recovered from the pandemic despite all the “help wanted” signs that you’re seeing everywhere!
The places that are busy firing are tech companies whose workers surprise, surprise earn loads more than someone, say, working at a restaurant. As of 2021 for ex the top-paying company in the S&P 500 was Alphabet (Google’s owner) with an average pay of $296k!! And last month, 12k workers were laid off there. Ouch. Read here how to bullet-proof your finances to survive a layoff.
Lower-income vacancies still need to be filled!
Early in the pandemic, several rounds of government relief allowed Americans in general, and lower-income Americans in particular, to beef up their savings. Then the job market came roaring back and poorer workers found they could get paid a lot more than they did before.
Many white-collar professionals haven’t seen their wages outstrip inflation, but those on lower-paid jobs have and their wealth has risen more as a result. Sure it’s still better to be rich and college-educated than poor and not but after decades of the gap between the two widening, it’s starting to close.
The real winners, I think, will be the ones who are looking to buy their home soon(ish). Real estate is the whopper asset class we tend to forget sometimes. We straight away think of stocks and how they’ll perform but we should be asking ourselves what on earth is gonna happen to bricks ‘n mortar? If you’re thinking of buying a home soon, read along!
Home sales slumped last year, but sales of the most expensive homes were particularly weak. From Aug to Nov last year home sales were down 25% year-on-year for the top 3rd of the market, but just 11% for the bottom 3rd!
The upper middles are tightening their belts
In this richcession, it’s the upper middle class that are facing the real pinch. The super-rich are splashing out like no tomorrow; Rolls-Royce posted their best year ever while Louis Vuitton’s sales (and stock!) is headed for the moon. While the high-earners are facing some problems.
After all, they’re the ones being laid off and they’re the ones who have to adjust their spending. Pronto. The classic entry-level luxury goods space (think Coach, Michael Kors, Kate Spade) are struggling since their classic consumer (aka high-earner in need of some status) is being stretched.
The pinched upper middle class are switching from swanky to affordable! You’ll now find more of them roaming the aisles of Walmart (*gasp*) rather than Cheesecake Factory (which, sadly does not exist across the pond).
Rich people are tightening their belts. And that also comes with ditching their regularly vacays in mountains or beaches. Something that kept Airbnb well and truly alive these past few years. Who who do you think has the money for this stuff? The rich. The high-earners.
The super-rich are too busy yachting to rent someone’s home in St Moritz but these rentals were kept afloat by upper middle class folk. The kind who are now facing a recession of their own.
Rich people problems might not sink this ship but it’s certainly spicing things up. Not that we needed the ezra heat, obvs.
So yeah, it’s a weird one out there. But for once, the gap between the haves and the have-nots is slowly but surely shrinking.
About time, no?
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment