High Inflation, Slowing Growth Raise Risk Of Global Downturn
Yellen cites ‘stagflationary effects’ in a warning ahead of a meeting of leaders of seven wealthy nations.
4 min
The global economy is in danger of entering a period of so-called stagflation, or high inflation and weak growth, policy makers and corporate leaders say, which could erode living standards around the world.
United States Treasury Secretary Janet Yellen on Wednesday became the latest leader to warn of turbulence for the global economy. “Certainly the economic outlook globally is challenging and uncertain,” Ms. Yellen said in Bonn, Germany, ahead of a meeting of leaders of seven wealthy nations. “Higher food and energy prices are having stagflationary effects, namely, depressing output and spending and raising inflation all around the world.”
Growing fears of high inflation rippled through financial markets Wednesday after large retailers reported disappointing earnings due in part to their own higher costs. The Dow Jones Industrial Average fell more than 1,164 points, or 3.6%, as of 4 p.m. ET in its worst day since 2020. The tech-heavy Nasdaq fell more than 4%. Target Corp. shares sank 25%, putting the company on track for its largest single-day percentage decline since 1987.
Ms. Yellen—a former Federal Reserve chairwoman—indicated that inflation, particularly the rising cost of food and energy, is becoming a greater longer-term concern and will be a dominant theme among global leaders in the weeks and months ahead. She added that the strong U.S. economy could help buffer it from the threat.
“The United States in many ways is best positioned, I think, to meet this challenge, given the strength of our labour market and the economy,” Ms. Yellen said.
A day earlier, Fed Chairman Jerome Powell warned that “there could be some pain involved” in the U.S. as the central bank moves to raise interest rates further to tamp down high inflation.
Meanwhile, Wells Fargo & Co. CEO Charlie Scharf said this week there was no question that the U.S. is headed for an economic downturn. “It’s going to be hard to avoid some kind of recession,” Mr. Scharf said Tuesday at The Wall Street Journal’s Future of Everything Festival.
Earlier this week, Ben Bernanke, also a former Fed leader, raised the possibility of stagflation in an interview published in the New York Times. “Even under the benign scenario, we should have a slowing economy,” he said. “And inflation’s still too high but coming down. So there should be a period in the next year or two where growth is low, unemployment is at least up a little bit and inflation is still high.”
Mr. Bernanke wasn’t available to comment, a spokeswoman said.
Inflation fears have risen in recent days because of new pressures that could further push up prices for oil and food from already-high levels. The European Union this week released a plan aimed at ending its dependence on Russian energy within five years. Rising food prices—also linked to Russia’s invasion of Ukraine, a major global producer of crops—are triggering shortages across the developing world. The U.K. government reported this week that inflation hit a 40-year high of 9% in April. That eclipsed inflation in the U.S., which hit 8.3% in April.
Meanwhile, economists have cut their forecasts for global economic growth this year as China and Europe show signs of a slowdown. China reported this week that consumer spending and output fell sharply in April as the government imposed new lockdowns to stem a wave of Covid-19 infections.
Last month, the International Monetary Fund said it sees the world’s economy expanding 3.6% this year, down from 6.1% last year. The most recent forecast was 0.8 percentage point lower than its projection in January and a 1.3 point cut from its October 2021 outlook.
The Bank of England earlier this month warned that the U.K. was likely to enter a recession.
One big factor behind the darkening outlook is signs from the Fed and the European Central Bank of a more hawkish stance to aggressively tackle inflation. The Fed last month raised interest rates by a half-percentage point—the biggest increase since 2000—and is planning additional increases this year.
ECB President Christine Lagarde indicated this month that she would support raising the central bank’s main interest rate in July, which would mark the first such increase in more than a decade. Higher interest rates mean that the cost of borrowing—for homes, cars, business expansions and other items—would go up, and could ultimately force consumers and firms to cut back, slowing inflation but also economic growth.
Even if the global economy avoids recession, many people could feel like they are in one, economists say. With the cost of living rising faster than most workers’ paychecks, consumers are getting less and less for each dollar they spend. Five dollars spent at the local cafe might get them a medium coffee instead of a large, for instance. Three hundred dollars spent on airfare might get someone from San Francisco to Denver, but not to Chicago.
Americans accumulated savings during the pandemic, as many reduced expenses and received government stimulus. That is now reversing. The saving rate fell in March to the lowest in nine years, according to the Commerce Department. Households are increasingly pulling out their credit cards and spending down their savings to keep up. Americans’ debt loads rose quickly in the year through March after stalling earlier in the pandemic, the latest Fed data show. As interest rates rise, monthly payments on that debt would further eat into household finances, economists say.
For now, the fundamentals of the U.S. economy are solid, with households still in a strong position financially as more people get jobs and return to old habits like travelling, dining out and going to concerts. Sales at American retailers—a big chunk of consumer spending, the biggest source of economic activity in the U.S.—rose in April for the fourth straight month, the Commerce Department said this week.
April’s unemployment rate of 3.6% remained just a shade above the 50-year low set just before the pandemic. Job openings across the U.S. reached a record high of 11.5 million in March.
But the risk of a recession has risen in recent weeks, and certain problems—such as supply chains disrupted by Covid-19 lockdowns in China and the Ukraine war—could be largely beyond the ability of central banks to address.
Diane Swonk, chief economist at the consulting firm Grant Thornton LLP, said one risk is that persistently high inflation would ultimately cause consumers to cut spending and businesses to slow hiring to maintain profit margins. If that happens, there would, for a period at least, be high inflation and rising unemployment—a combination generally known as stagflation that defined the 1970s, when oil shocks, high federal spending and loose monetary policy caused inflation to soar.
Unemployment could rise, as could homelessness, Ms. Swonk said. People could be forced to move in with parents and relatives and do away with healthcare, not to mention vacations and dinner outings.
“Inflation erodes living standards, and especially the kind of inflation we’re talking about—of basic needs—food and shelter and energy, the three pillars of existence,” Ms. Swonk said. “That kind of inflation is an incredible threat to the economy. We’re talking about a humanitarian crisis on top of what’s already been a pandemic and a war in continental Europe.”
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: May 18, 2022.
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Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
U.S. employees are more dissatisfied than they were in the thick of the pandemic
5 min
Americans, by many measures, are unhappier at work than they have been in years.
Despite wage increases, more paid time off and greater control over where they work, the number of U.S. workers who say they are angry, stressed and disengaged is climbing, according to Gallup’s 2023 workplace report. Meanwhile, a BambooHR analysis of data from more than 57,000 workers shows job-satisfaction scores have fallen to their lowest point since early 2020, after a 10% drop this year alone.
In interviews with workers around the country, it is clear the unhappiness is part of a rethinking of work life that began in 2020. The sources of workers’ discontent range from inflation, which is erasing much of recent pay gains, to the still-unsettled nature of the workday. People chafe against being micromanaged back to offices, yet they also find isolating aspects of hybrid and remote work. A cooling job market—especially in white-collar roles—is leaving many professionals feeling stuck.
Companies have largely moved on from pandemic operating mode, cutting costs and renewing a focus on productivity. The disconnect with workers has managers frustrated, and no quick fix seems to be at hand. Those in charge said they have given staff more money, flexibility and support, only to come up short.
The experiences of workers like Lindsey Leesmann suggest how expectations have shifted from just a few years ago. Leesmann, 38 years old, said she soured on a philanthropy job after having to return to the office two days a week earlier this year.
Prepandemic, she would have been happy working three days a week at home. “It would have been a dream come true.” Still, her team’s in-office requirements seemed like going backward, and made her feel that her professionalism and work quality were in doubt. Instead of collaborating more, she and others rarely left their desks, except for meetings or lunch, she said. Negative feelings followed her home on her hourlong commute, leaving her short-tempered with her kids.
“You try to keep work and home separate, but that sort of stuff is just impacting your mental health so much,” said Leesmann, who recently moved to a new job that requires five in-office days a month.
No more honeymoon
The discontent has business leaders struggling for answers, said Stephan Scholl, chief executive of Alight Solutions, a technology company focused on benefits and payroll administration. Many of the Fortune 100 companies on Alight’s client list boosted spending on employee benefits such as mental health, child care and well-being bonuses by 20% over the pandemic years.
“All that extra spend has not translated into happier employees,” Scholl said. In an Alight survey of 2,000 U.S. employees this year, 34% said they often dread starting their workday—an 11-percentage-point rise since 2020. Corporate clients have told him mental-health claims and costs from employee turnover are rising.
One factor is the share of workers who are relatively new to their roles after record levels of job-switching, said Benjamin Granger, chief workplace psychologist at software company Qualtrics. Many employers have focused more on hiring than situating new employees well, leaving many newbies feeling adrift. In other cases, workers discovered shiny-seeming new jobs weren’t a great fit.
The upshot is that the newest workers are among the least satisfied, Qualtrics data show—a reversal of the higher levels of enthusiasm that fresh hires typically voice. In its study of nearly 37,000 workers published last month, people less than six months into a job reported lower levels of engagement, feelings of inclusion and intent to stay than longer-tenured workers. They also scored lower on those metrics than new workers in 2022, suggesting the pay raises that lured many people to new jobs might not be as satisfying as they were a year or two ago.
“What happened to that honeymoon phase?” Granger said.
John Shurr, a 66-year-old former manufacturing engineer, took a job as an inventory manager at a heavy-equipment retailer in the spring in Missoula, Mont., after being laid off during the pandemic.
“It was a nice job title on a pretty rotten job,” said Shurr, who learned soon after starting that his duties would also include sales to walk-in customers.
When Shurr broached the subject, his boss asked him to give it a chance and said he was really needed on the showroom floor. Shurr, who describes himself as more of a computer guy, quit about a month later.
“I feel kind of trapped at the moment,” said Shurr, who has since taken a part-time job as a parts manager as he tries to find full-time work.
Bridging the distance
Long-distance relationships between bosses and staff might also be an issue. Nearly a third of workers at large firms don’t work in the same metro area as their managers, up from about 23% in February 2020, according to data from payroll provider ADP.
Distance has weakened ties among co-workers and heightened conflict, said Moshe Cohen, a mediator and negotiation coach who teaches conflict resolution at Boston University’s Questrom School of Business. He has noticed more employees calling co-workers or bosses toxic or impossible, signs that trust is thin.
Cohen’s corporate clients said their employees are increasingly transactional with one another. Some are coaching workers in the finer points of dialogue, such as saying hello first before jumping into the substance of a conversation.
“The idea of slowing down, taking the time, being genuine, trying to actually establish some sort of connection with the other person—that’s really missing,” Cohen said.
One Los Angeles-based consultant in his 20s, who asked to remain anonymous because he is seeking another job, said that when he started his job at a large company last year, his largely remote colleagues were focused on their own work, unwilling to show a new hire the ropes or invite him for coffee. Many leave cameras off for video calls and few people show up at the office, making it hard to build relationships.
“There’s zero humanity,” he said, noting that he is seeking another job with a strong office culture.
The share of U.S. companies mandating office attendance five days a week has fallen this year—to 38% in October from 49% at the start of the year—according to Scoop Technologies, a software firm that developed an index to monitor workplace policies of nearly 4,500 companies.
Some companies have reversed flexible remote-work policies—in large part, they said, to boost employee engagement and productivity—only to face worker backlash.
Not all the data point downward. A Conference Board survey in November 2022 of U.S. adults showed workers were more satisfied with their jobs than they had been in years. Key contingents among the happiest employees: people who voluntarily switched roles during the pandemic and those working a mix of in-person and remote days. But that poll was taken before a spate of layoffs at high-profile companies and big declines in the number of knowledge-worker and professional jobs advertised.
At Farmers Group, workers posted thousands of mostly negative comments on the insurer’s internal social-media platform after its new CEO nixed the company’s previous policy allowing most workers to be remote.
Employees like Kandy Mimande said they felt betrayed. “We couldn’t get the ‘why,’” said the 43-year-old, who had sold her car and spent thousands of dollars to redo her home office under the remote-work policy. She shelled out $10,000 for a used car for the commute. A company spokesperson said that not all employees will support every business decision and that Farmers hasn’t seen a significant impact on staff retention.
During a brief leave, Mimande realised she no longer felt a sense of purpose from her product-management job. She resigned last month after she and her wife decided they could live on one salary.
She now helps promote a band and pet-sits. “It’s so much easier for me to report to myself,” she said.
Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
