Households have 'no wiggle room' amid inflation: Meredith Whitney
Meredith Whitney, CEO of Meredith Whitney Advisory Group, joins Morning Brief with Madison Mills to explain why over half of US households are barely hanging on despite solid employment data.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
The most hard economic data showing the US economy, it's been holding steady, a signal that's at odds with how Americans may be actually feeling. University of Michigan consumer sentiment hitting the second lowest level on record in May, even as inflation continues to cool and the unemployment rate hovers near a historic low. Joining us now to dive into that disconnect, Meredith Whitney, Meredith Whitney advisor groups, CEO, Meredith, great to have you here. In a recent note, you wrote that over half of US households are barely holding on and yet at the same time we have the employment data holding up, the so-called hard data holding up. Uh to what extent do you think that there could be a risk out there that is similar to that 2008 housing market crash that you predicted?
I don't think there's a risk of a there's clearly no risk of a housing market crash. Um consumer households or households are as unleverage as they've been in 40 years. Um so leverage is the lowest it's been in in 40 years. Um but I think if you dig down into how consumers and households are really doing, um over 50% of households um have already been through the their first recession. um that was two years ago. Um and I think they're going into uh their second recession in two in three years. Um so 52 plus percent of households are living paycheck to paycheck. Um and they've really been squeezed by the cumulative inflation of um of higher food prices, higher um insurance costs, higher you know, costs across the board. Um and when you look at these households, uh a great number of these households are employed in the sectors that are have been under the most pressure. So clearly aggregate spending has slowed, um definitely in travel, leisure, um and hospitality and in retail. And I think that's where you're going to see pressure in terms of um uh job losses. But I think you'll also see um uh pressure in general from uh a clear and the these households have no wiggle room in terms of inflation and I see inflation across the board. So let's talk about what Walmart said last week, which was um that you know, they tried to maintain prices on grocery, um but they'd put price uh uh increase prices um in other areas of the market. I think grocery prices are going to go up again. So one thing that has not been discussed uh broadly at all is um uh uh immigration and ice rates. And recently a private equity company said that they see cracks in the economy because um uh workers are not showing up work for fear of ice raids. So there've been ice rates across the board at uh areas at you know, workplace areas. um and when employees don't show up to work, um revenues suffer because in the instance of uh quick service restaurants there's no one to man the kitchens. Um so I think you're going to see uh uh uh pressure revenue pressure in their those areas, they'll cut uh they'll cut jobs um just to maintain um uh profitability. Um and then you'll see more consumer squeezed.
Right.
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