If more households are spending on food and energy, will they modify their consumption patterns?
With consumer demand gradually weakening and business activity slowing down, the consequences of surging food and energy inflation might be weighing on the broader economy.
But what are the data showing and how are higher food and energy prices fueling the recession?
Paying More for Food
In July, food inflation hit 10.9 percent, the highest level since May 1979. Across the board, every food and beverage item listed on the Bureau of Labor Statistics’ (BLS) consumer price index has surged on a year-over-year basis, from bread to meat to coffee.
Food prices might not ease for quite a while after the Department of Labor reported that prices paid to U.S. producers for finished consumer goods increased close to 16 percent in the year through July. This represented the biggest increase since 1974.
Although commodity markets have eased in recent months, many agricultural products are rising again, including soybeans, wheat, corn, lean hogs, and coffee.
The United States, for example, is poised to harvest its smallest corn crop in three years.
This is terrible news for households already struggling to cover the cost of the grocery store bill.
According to a new study by Lending Tree, U.S. households are spending 28 percent more on food than they were a year ago as they spent an average of $407 a week on food in July, up from $318 in May 2021. In addition, the percentage of Americans reporting food insufficiency—not enough to eat—and relying on credit cards to pay for groceries has swelled.
Keeping the Lights on Is More Expensive
Despite crude oil and gasoline prices coming down, the energy index remains up 32.9 percent on an annualized basis. Fuel oil has advanced 75.6 percent, gasoline has climbed 44 percent, and electricity costs have jumped 15.2 percent.
The meteoric boost in energy prices forced drivers to change their habits.
Industry surveys show that motorists are driving less, combining errands, and doing fewer leisure activities because of the exorbitant cost of gasoline. Moreover, Energy Information Administration (EIA) data show that gasoline demand stood at 8.434 million barrels in the week ending Aug. 19.
Electricity costs have become so outrageous that 20 million households cannot afford to pay their monthly utility bills. Increasing power costs and declining purchasing power have led to a collective electric bill of about $16 billion in June, double the $8 billion in December 2019.
Businesses are also enduring the agony of higher utility costs.
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In June, Century Aluminum Co., the second-largest aluminum mill in the United States, which accounted for one-fifth of domestic supply, had to idle its Kentucky plant because it could not afford the electricity bills.
Broader Effects on the Economy
Waning consumer demand might already be weighing on businesses, according to various metrics.
The S&P Global Manufacturing Purchasing Managers’ Index (PMI) eased to 51.3 in August. The Services PMI fell to 44.1, while the Composite PMI dropped to 45. Anything below 50 indicates a contraction.
Economists at S&P Global noted that higher input prices diminished consumer demand, with many firms reporting that clients were concentrating on inventories and essential spending more closely.
“August flash PMI data signaled further disconcerting signs for the health of the US private sector. Demand conditions were dampened again, sparked by the impact of interest rate hikes and strong inflationary pressures on customer spending, which weighed on activity,” said Siân Jones, senior economist at S&P Global Market Intelligence, in the report (pdf). “Excluding the period between March and May 2020, the fall in total output was the steepest seen since the series began nearly 13 years ago.”
The U.S. economy is two-thirds driven by consumer spending. If Americans are not purchasing goods and services because their main focus is on sustenance, be it filling up a tank of gas or putting bread on the table, business activity shrinks and the gross domestic product takes a hit.
Indeed, market analysts have been closely monitoring consumer demand data in recent months to find hints of a slowdown.
In July, retail sales were flat at 0 percent, while personal spending edged up at a lower-than-expected pace of 0.1 percent. The personal savings rate also dipped to just 5 percent, the lowest since 2008.
A new First Insight Report, titled “The State of Consumer Spending: Inflation Fueling Recession Fears,” found that consumers are reallocating their budgets. The report learned that rising food prices are the biggest concern for 68 percent of consumers. This has them cutting spending in other areas, including dining out, streaming services, electronic games, and gym memberships.
Even priorities and behaviors in consumers’ food budgets are changing, said Greg Petro, CEO at First Insight.
“As inflation remains at the highest levels seen in the U.S. since 1981, consumers continue to find different ways to afford things,” said Petro in a statement. “Putting food on the table remains consumers’ top priority. We are seeing reallocation of food budgets, with many consumers cutting back on fresh produce and spending less on name brand products.”
On the energy front, the World Bank warned in a June blog post that “energy price shocks” can trigger “immediate repercussions” on economic activity and then result in wider consequences, from fiscal and monetary policy to investment uncertainty.
“The restart is stalling in the U.S. as it bumps into production and labor supply constraints, and we believe U.S. activity is now set to contract,” said Tara Sharma, an investment strategist at BlackRock Investment Institute, in a note.
Will the US Become Europe?
While the United States might be in the beginning stages of a sharp contraction in business activity amid inflationary pressures in food and energy, Europe has become entrenched in this cycle for months.
Eurozone growth has slowed down considerably, with factories across the region reporting a significant decline in demand as rising energy bills and the broader cost-of-living crisis impacted customers’ finances. The Eurozone S&P Global Manufacturing, Services, and Composite PMIs slipped to 49.7, 50.2, and 49.2, respectively, in August.
A growing chorus of economists believes it is almost an inevitability that the eurozone and the United Kingdom will slip into a recession.
“The European Commission’s economic sentiment indicator took a dive in July, with forward-looking indicators pointing to an economic contraction in the second half of the year. Meanwhile, inflationary pressures are starting to soften, albeit only gradually,” wrote Peter Vanden Houte, the chief economist of the eurozone at ING, in a note.
With the Atlanta Fed Bank GDPNow already cut from 2.5 percent to 1.6 percent for the third quarter, elevated food and energy inflation is affecting the economy as consumers are tapped out and businesses slow down activity.
The only bright side is that cooling demand might be what cures inflation, which would be at the expense of the economy.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
About the Author
Andrew Moran covers business, economics, and finance. He has been a writer and reporter for more than a decade in Toronto, with bylines on Liberty Nation, Digital Journal, and Career Addict. He is also the author of “The War on Cash.”
Article cross-posted from our premium news partners at The Epoch Times.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
Coffee the Christian way: Promised Grounds
