Perspectives on the Multi-Speed Macroeconomic Environment: Q&A with Michelle Meyer

Michelle Meyer is Chief Economist, North America at Mastercard’s Economics Institute (MEI). In her role, Michelle leads the development of economic insights across North America. She has nearly two decades of experience as an economist on Wall Street and was named by Forbes Magazine as one of 30 under 30 in finance in 2011 and a Rising Star by the Women’s Forum for Economy and Society in 2012.

We sat down with Michelle to discuss recent and predicted shifts in the macroeconomic environment, in advance of her speaking at our Partner Success Summit this May.

Michelle, can you put into context what’s happening in the macro environment?

This is a big question on which we could spend the next hour! Looking at it from a consumer lens, this has been a highly unusual business cycle coming out of the pandemic. When the pandemic started, the economy was temporarily forced into hibernation and shut down suddenly. People were out of jobs very quickly and in response, the government put in place several policies to support consumers, in terms of their incomes and their spending – attempting to maintain their standard of living.

Once the economy reopened, it did so with a vengeance. We had very strong consumer spending from the reopening. Consumers had solid foundations to spend and reengage because of income accumulation and debt reduction along with savings creation. Labor market opportunities came back a lot faster than anticipated too. This combination of very strong demand coming out of the pandemic coupled with still-restricted supplies of products (due to supply chain issues, which lingered for longer than anticipated) generated a burst of inflation. As a result, throughout last year, consumers faced an unusually high inflationary environment (when looking at the last several decades). We obviously had inflationary periods in the ’70s, early ’80s, but for most of us in recent memory, inflation has been low, particularly for big durable goods.

Last year, it was quite the contrary, with inflation peaking close to 9% last summer. In response, the Federal Reserve hiked interest rates very rapidly. So last year, the consumer faced this one-two punch of high inflation and high and rising interest rates. That they were resilient and continued to spend reflects the strong foundation for the consumer, with solid wage growth in a hot labor market.

Today, things are starting to change; inflationary pressures have eased, particularly for durable goods, like furniture or appliances. Energy prices are down sharply – when you think about what you’re paying at the gas pump, it’s back to what it was this time last year. Food price inflation is finally starting to ease. Consumers are now seeing a softer inflationary environment, but not it’s back to normal inflation. And for certain items, there’s still a lot of inflationary pressure.

Looking ahead, inflation should continue to moderate, and part of the reason is that we’ll be in a moderating growth economic environment. The labor market is likely to slow, the unemployment rate is expected to rise, and slowing wage growth also seems to be in the cards. Granted, these are all slow-moving dynamics. We don’t expect an acute change in the economy as there is still a lot of good news, particularly around the consumer. But we do think this is a year where we’re transitioning from a very high inflationary environment and very high nominal growth environment to a period of cooling inflationary pressures and slower growth. In time, that will also mean a cooling labor market.

In light of all of this, can you talk about shifting consumer baskets and how consumer priorities have changed and are changing, particularly when it comes to healthcare?

Consumers have shifted their basket of spend over the past few years, including on healthcare, based on the BEA’s granular consumer data. During the pandemic, “discretionary healthcare” weakened and then bounced when the reopening occurred. Consumers made different choices when it came to elective, preventative and necessary procedures – for example, the decision to have an elective surgery or go to the dentist versus something that’s more critical to do sooner. This was clear when the pandemic hit, not only because of the financial strain, but also because consumers were worried about the spread of COVID.

This shifted upon reopening and the burst of economic growth. In general, when consumers have greater discretionary income, feel more secure in their finances, there seems to be a greater willingness to invest in preventative care measures. And then in times of more economic uncertainty, dollars are prioritized for those necessities. This dynamic is clear for other items; you can even see this with food consumption. Eating is clearly a necessity, but you can choose whether you want to buy organic or generic. You can choose whether you want to go to a restaurant, and if you do, is it a quick-service restaurant or a full-service restaurant. These shifts are visible at different points in the business cycle.

Spending of course ties back to pain on inflation, which you’ve already addressed, but also on job cuts and/or uncertainties. Can you talk more about the labor market in relation to spending?

We have seen continued expansion in the labor market. For perspective, in a steady-state economy, we would see about 1 to 1.5 million jobs added over the course of a full year. This year, we added over a million jobs in the first three months. So it’s still a very hot labor market by most metrics, particularly net job creation, which is still going very strong.

Another interesting point is that in the last few months we’ve seen a meaningful improvement in the labor force participation rate, which means an increase in the labor supply. This supports job creation because the increase in the availability of workers has accommodated the high amount of job openings.

The pace of job creation in the future should slow; it’s not sustainable to run at three times the pace of a “normal” economy. A labor market that is too hot fuels inflation and is not sustainable. A slowing in job creation is a reasonable expectation and we’re starting to see it in some sectors.

There are differences by sector. For ease, we can divide it into the goods vs. services sides; the goods side of the economy is certainly showing more cracks than the services side – for example, job reductions in manufacturing, in warehousing, in transportation industries. There have also been a lot of announced job cuts in the tech sector. This is more than offset by job creation in sectors like leisure and hospitality, healthcare, and education. There’s still a lot of consumer demand in more cyclical or more discretionary leisure sectors.

Visit our Partner Success Summit page to learn more about the event and the speakers who will be joining Michelle in Denver.


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