The Quarterly: The slowdown-resistant economy

Consumers defy policies intended to slow spending

Despite predictions for a slowdown, the U.S. economy remains the envy of the world. Jobs are plentiful, asset values are near all-time highs, and consumers are spending. Things are good. But inflation is still well above the Fed’s target, and persistent monetary tightening is likely to usher in a mild recession by year-end or early in 2024. Some of the highest inflation rates have been in the grocery store and at restaurants, and that is now triggering consumer pushback. In contrast, energy prices are down considerably, limiting the pain felt at the gas pump and with monthly cooling bills amid sweltering summer heat.

Weather has been the biggest factor in agricultural markets, as a broad swath of the Midwest struggles through a summer of drought. Recent rain has brought some relief to the Plains, but more is needed. Tight soybean stocks and a historically small hard red wheat crop will help keep grain and oilseed prices elevated. Retail prices for meat, poultry, and dairy have come off their highs, and typical supply/demand dynamics are now back in charge. Prices are generally above pre-pandemic levels, but so are input costs including feed and labor.

Both the communications and power sectors are strategizing about the latest transformational impact, now coming from generative AI. A ChatGPT search consumes about 50-100 times more energy than a Google search, and the use of AI tools is in the early stages. Both sectors will be forced to adapt again to changes in data volume and energy consumption.

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