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  • Brian Gómez

The Faltering Economy Outlook: Where are We Going?


As the United States and the world enter a recession, it is important to understand what this shift in our economy means. This recession is inevitable, as the shifts in economic sectors post-COVID take full effect.


We can look at our Gross Domestic Product as a starter. The U.S has historically largely been able to control for large volatility shocks, with consumer spending and inventory investment shouldering the burden. Spending and production were the exact industries most hit by COVID. Sector-growth figures from BEA in September, show the continued GDP increase of entertainment, professional services, health care, and finance, while construction, manufacturing, and trade decrease, with government spending seeing stability.


While it is true that consumer spending is up, people are also buying less items at higher prices, and the shift to an information-centric buying strategy has led to traditional snowball purchasing, where one purchase might turn into ten. There needs to be a large consolidation of brick and mortar stores, as demand has decreased and is now geared more towards online and delivery or pick-up features.


So many of these places will close-however many already suffered from staff shortages as an increase in intergenerational housing and less spending has made the labour market tight, as well as the effects of a more restrictive immigration system creating shortages at both the high and low ends of the skills pool.


Broadly this means higher costs for firms. Whether demand for goods increased in the fall, and prices spiked because of low supply, or whether demand for goods decreased, and supply chain consolidation increased costs and pushed out smaller buyers, the reorganisation of the economy was inevitable. The rising interest rates in the Summer and Fall by the Federal Reserve, as shown by the recent BEA numbers, have affected inventory investment, as higher costs and more expensive financing has decreased the amount businesses are willing to put into the production of goods.


In addition the energy crunch and increased costs of heating fuel will likely drive winter costs for Americans up, especially in the northeast. While gas has somewhat rebounded, diesel has not, and there exists a shortage of diesel refinement, or renewable diesel capacity in the U.S to counter it. Changes to household costs like energy and food will also push consumers to buy less, strengthening the effects of these forces.


Of course there are winners in every economic shift and while there are many downsides, an increase in farm profits due to increasing costs are happening in the Dakotas, and unemployment in the disabled population continues to drop as tightening demand and remote work has led employers to hire more people with disabilities.


In sum, supply chain shortages, a decrease in demand, inflation, employment, and the energy crisis, are all creating an interaction that is necessary but will lead to a recession and radically transform our economy in the years to come.


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