The Warning Signs of a Recession Are Now Heating Up

From record-high gas and diesel prices on the road to a major spike in the price Americans paid for their Memorial Day weekend barbecue essentials, shoppers are seeing price spikes everywhere they go.

The unofficial kickoff to this grilling season came with sticker shock that’s been mounting over the past year.

CPI

The latest Consumer Price Index (CPI) shows despite the overall pace of headline inflation easing, the cost of groceries alone increased 10.8 percent since April 2021, which is the largest annual increase in 42 years. The jump is being driven largely by the prices of meat, poultry and fish, up 14.3 percent in the past year, which marks the largest 12-month increase since 1979.

Glynn Tonsor, an agricultural economist with Kansas State University, says there are two major drivers of the price hikes for consumers.

“One reason is they still like protein,” says Tonsor. “Demand overall is strong, certainly compared to pre-pandemic levels. There is a little bit of weakness building, but demand pulls prices up, and the cost of producing meat is also up."

gas prices

It’s not just meat causing price pain. Just before Memorial Day weekend, the national average price for a gallon of gas hit another new record of $4.59 a gallon, which is 47 cents above where prices were just a month ago, and $1.56 more than what drivers paid a year ago.

“We're on the road in the summer more, so we may not be done with those higher gas prices is the point,” adds Tonsor. “Yes, it does eat pocketbooks. All else equal, if one input and your budget goes up, that eats into your discretionary income for other categories. And we are watching that.”

A JP Morgan Chase analyst recently projected gas prices could top $6 a gallon by August, and the thought of higher gas prices is already drawing concerns about the price pain eating into meat demand.

“There are some warning signs and a little bit of easing on meat demand for some consumers,” says Tonsor. “Those that haven't changed jobs and haven't had a pay raise may not have a wealth effect from the stock market, that group has the ones who are feeling the pinch the hardest, because they've taken a net pay cut in the last six to 12 months, due to inflation.”

Midan Marketing
Midan Marketing 
 

With concerns of a recession, the meat industry is watching the economy closely. Midan Marketing recently surveyed consumers and  found 54% of them say they are purchasing about the same amount of meat products, while 32% are starting to buy less.  

“We have consumers that are feeling the real tight crunch of the wallet. And what they're doing is they're trading down, they're staying in meat right now, they haven't traded out,” says Danette Amstein, principal, Midan Marketing.

Recession Talk 

Shoppers may be purchasing more hamburger versus steak today, but the true test for meat demand may be in the coming months, as the economy battles historic inflation, especially with talk of a possible recession.

“Pessimism is pretty high with typical consumers as we speak,” says Tonsor. “In the past, that can be a barometer for recession coming.”

Tonsor says it’s not the only measure of inflation, but if consumers start to taper their spending because they’re concerned, then it can cause what’s called a self-fulfilled recession.

“I think that's the most common narrative on the street now, in response to 6%, 8% inflation, depending who you ask. Consumers are tightening their belt, and maybe that will reduce demand for products enough that that induces a recession in 2023. That's not a guarantee. But we need to watch that, because the meat industry is very prone to consumer incomes.”

Are Consumers Better Prepared for Inflation?

Warning signs of a recession are already gaining steam with various headlines. However, one major fund manager thinks a recession won't have the same impact it did nearly 15 years ago.

Dawn Fitzpatrick, who is the chief executive and chief investment officer of Soros Fund Management, recently told Bloomberg that since the the U.S. consumer is in “extraordinarily” good shape, she thinks the economy will better weather expected rate hikes by the Federal Reserve. 

“Rate increases will slow the economy and will impact inflation, but this economy has some shock absorbers built in,” Fitzpatrick said on “Bloomberg Wealth with David Rubenstein.

Fitzpatrick argues even with wage growth behind the current rate of inflation, Americans are still flush with enough cash to pay down their credit card balances. 

Beef Demand and Inflation 

Tonsor says while there’s not one strong indicator a recession is imminent, domestic meat demand hinges on whether the U.S. economy runs out of gas.

“Beef demand, in particular, historically, is tied to consumer incomes. If we have a recession, we would anticipate weaker beef demand and maybe protein demand overall, but particularly beef demand,” says Tonsor.

Tonsor says typically a recession isn't defined until after the fact, but watching consumer confidence, as well as shopping habits, are both solid indicators of what's to come. 

 

Latest News

Vestaron and Simplot Announce Distribution Agreement
Vestaron and Simplot Announce Distribution Agreement

The distribution agreement focuses on Vestaron’s Spear Lep insecticide, which is a peptide-based control method meant to provide growers with a more environmentally friendly alternative to traditional chemicals.

The Scoop Podcast: How To Gear Up For Carbon And Sustainability Programs
The Scoop Podcast: How To Gear Up For Carbon And Sustainability Programs

Tim Hushon, sustainability and technology director at The Mill, details how sustainability factors into their ag retail business and how to partner with farmers on the technology adoption required.

Two Crop Protection Partners Divest Postharvest Solutions Company
Two Crop Protection Partners Divest Postharvest Solutions Company

Sumitomo Chemical and Valent BioSciences have announced Pace International will become part of AgroFresh Solutions.

The Untold Farmer Stories Of Ukraine: Q&A With Howard Buffett
The Untold Farmer Stories Of Ukraine: Q&A With Howard Buffett

Farmer and philanthropist Howard Buffett held a fireside chat during the 2024 Top Producer Summit to share his experiences visiting the front line of Ukraine over the past two years.

Get the Facts Straight on Highly Pathogenic Avian Influenza
Get the Facts Straight on Highly Pathogenic Avian Influenza

Now that the mystery illness impacting some dairy herds has been revealed as the same strain of Highly Pathogenic Avian Influenza that has been impacting the U.S. poultry flock, pork producers are asking questions.

From Farm to Fire: First Soybased Fire Suppressant Hits the Market
From Farm to Fire: First Soybased Fire Suppressant Hits the Market

Since the 1950s, fire departments across the country have used products containing dangerous PFAS to put out fires. But the United Soybean Board has announced a greener alternative made from soybean meal.