2020 has changed the economy in ways we still can’t understand

In a phone conversation about profit and loss this week Yum Brands CEO David Gibbs expressed the confusion that many people feel when trying to understand what is happening to the US economy right now:

“This is truly one of the most challenging environments we have ever experienced in our industry. Because we are dealing not only with economic problems, such as inflation, stimulus and the like. But also with the social problems of people returning to mobility after the lockdown, working from home and just changing consumption patterns.”

Three months earlier, during the company’s previous call with analysts, Gibbs said that economists who call it a “K-shaped recovery,” with high-income consumers feeling good and lower-income households struggling, are oversimplifying things.

“I don’t know, in our careers we have seen a more complex environment for analyzing consumer behavior than what we are dealing with now,” he said in May, citing inflation, wage growth and federal stimulus spending, which are all still fueling the economy. economy.

At the same time, social problems such as post-COVID-19 opening and Russian war in Ukraine affect consumer sentiment, which “creates a pretty complex environment to figure out how to analyze and sell to consumers,” Gibbs said.

Gibbs is right. Everything is very strange. Will there be a recession or not?

There is ample evidence in favor of the yes camp.

Technology and Finance getting ready for the downturn with hiring slowdowns and job cuts and please for more efficiency from workers. The stock market has suffered a nine-month slump, with Nasdaq high-tech stocks down more than 20% from their November peak, and many high-profile tech stocks down 60% or more.

Inflation makes consumers spend less on non-essential purchases like clothes so they can afford gas and food. The US economy has contracted for two quarters in a row.

City center San Francisco The ghost town no longer feels like the ghost town it was in February, but it still has vast swathes of empty storefronts, few passengers, and record high levels of commercial real estate vacancies that are also typical of New York City (although Manhattan is more like New York). he returned to his pre-pandemic bustle).

Then again:

The tourism and hospitality industry cannot find enough workers. Travel is back almost to 2019 levels, although it looks to be cooling down as summer delusions. Delays are common as airlines can’t find enough pilots and there aren’t enough leased cars to meet demand.

Restaurants are facing a severe labor shortage. labor movement is experiencing its biggest year in decades as retail workers in Starbucks and warehouse workers Amazon trying to use their leverage to win concessions from their employers. Reddit is filled with threads about people leaving a low-paying job and unscrupulous employers… do something else, although it is not always clear exactly what.

A shrinking economy is usually not accompanied by high inflation and a hot labor market.

Here’s my theory as to what’s going on.

The pandemic shock has turned 2020 into an era-changing year. And, as with the terrorist attacks of September 11, 2001, the full economic and social implications will not be understood for many years.

Americans have experienced the death of family members and friends, prolonged isolation, job changes and loss, prolonged illness, urban crime and property destruction, natural disasters, presidential elections that most of the losing party refuses to accept, and an invasion of Congress. by an angry mob in less than a year.

Many people are dealing with this trauma – and the growing suspicion that in the future the bad news — ignoring decorum, ignoring societal expectations, and even ignoring the harsh realities of one’s own financial situation. Instead, they seize the moment and follow their whims.

Consumers act irrationally, and economists cannot understand their behavior. No wonder the CEO of Yum Brands, which owns Taco Bell, KFC and Pizza Hut, can’t either.

Call it a big commotion.

How can this manifest itself? How will we look back at the 2020s a decade from now?


  • Older workers will continue to leave the workforce as soon as they can afford it, spending less in the long run to maintain their independence and bundling freelance or part-time work as needed. The labor market will remain tilted towards workers.
  • Workers in low-paying jobs will demand more dignity and higher wages from their employers, and will be more likely to change jobs or leave if they don’t get one.
  • People will move more for lifestyle and personal reasons, rather than chasing jobs. Overworked workers will continue to flee the urban environment to the suburbs and countryside, and suburbs within one to three hours of major cities will see rising property values ​​and an influx of residents. Dedicated citizens will find reasons to move out of town, leading to even more population outflow and reduced social connections.
  • The last remnants of employee loyalty will disappear as more people seek self-realization before they get paid. As one technical worker who quit his job in expedition work for a solar technology company Sanran recently posted this“You just realize there’s little more to life than making the most of your compass.”
  • Employees who have proven they can do their jobs remotely will resist returning to the office, forcing employers to make hybrid workplaces the norm. The cost structure will constantly change, and businesses serving commuters and urban workers will continue to struggle.
  • Those with disposable income will spend it vigorously on entertainment—travel, restaurants, bars, hotels, live music, outdoor living, extreme sports—while limiting the purchase of expensive material goods and home entertainment, including broadband internet access as well as streaming media services. The pandemic was a time to lay low and renew the nest. Now that we have all the furniture and platoons we need, it’s time to go out and have fun.

It is possible that this summer will be the cornerstone of this period of uncertainty, and consumers will suddenly stop spending this fall, sending the US into recession. Further black swan events, such as wars, natural disasters, an exacerbation or new pandemic, or wider political unrest, could similarly quell any signs of life in the economy.

However, some of the behavioral and social shifts that occurred during the pandemic will prove to be permanent.

These signals should become clearer in the earnings report as we move away from a year-ago-to-pandemic lockdown comparison, and as interest rates stabilize. Then we will find out which businesses and sectors of the economy are truly resilient as we enter this new era.

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