They’re “rapidly expanding financial services by … creating brands that deeply resonate with their customers,” said Jennifer Tramontana, founder of fintech-focused marketing firm The Fletcher Group. Women represent less than 11% of board members and 19% of company executives in the fintech industry, market researcher Findexable found in 2021.
Less than 6% of fintech CEOs globally are women, Findexable found, and even fewer are chief innovation or chief technology officers. One position they do have higher representation in, however, is chief marketing officer — and women CMOs are building some of the fastest-growing brands in fintech today.
Sheri Chin, for example, is the CMO at Galileo, the payment processing company that powers banks Chime and Varo, which increased client accounts in Q3 by 40% year-over-year from 88.8 million to 124.3 million. And Anne Hay is vice president and head of marketing at billing platform PayNearMe, which from January 2021 to June 2022 increased transaction volume by more than 50% and grew the number of merchants on its platform by 20%.
“These companies are rapidly expanding financial services by filling unmet needs in the market and creating brands that deeply resonate with their customers,” said Jennifer Tramontana, founder of fintech-focused marketing firm The Fletcher Group, which recently conducted a survey of female fintech CMOs and CMO-adjacent executives.
In October, TFG’s 2022 Female Fintech CMO Report laid out the insights its subjects provided and what they mean for the future of fintech. One such insight is that, overall, fintech CMOs aren’t worried about a softening capital environment because it flushes the market of companies without a solid pathway to profitability.
“It helps drive more discipline with better due diligence and a more critical eye toward spending and partnerships,” according to the report. “There is a freedom that comes with getting back to the basics of product/market fit and away from ‘growth at all costs’ and the race for valuations.”
Additionally, per the report, CMOs aren’t planning to cut marketing spend in 2023, and they’re investing more in public relations and owned content — especially long-form content, like white papers and eBooks, which better tell a story on how their companies fulfill a need.
“To be effective in fintech, marketing teams are going to have to be able to communicate their vision. To the extent that prospective clients understand how you’re going to help, that’s where CMOs in fintechs need to be,” Hay said.
The global nature of the fintech market makes it challenging to personalize messaging. Michelle Faul, vice president of global marketing at B2B payment processor TreviPay, said that makes it even more important. Though TreviPay is headquartered in Kansas City — not a place most think of when they think about fintech, but a place Faul says has a healthy tech startup presence — the company counts customers nationwide and in 32 countries.
“Making sure you’re leading with empathy and ensuring to personalize your message based on the geography [is important],” Faul said. “Even with the way they talk about the challenges, making sure you understand their challenges in their words — it’s one of the pillars of our marketing to make sure they feel heard, and we’re positioning it in a way that they understand.”
That perspective is paying off: TreviPay processes $6 billion in transaction volume in 19 currencies, and the company has experienced recent growth. Even in a challenging macroeconomy, fintech marketers are eager storytellers. While they’re passionate about the technology, they’re perhaps even more so about who and what will be benefiting from it.
“The one thing I’m very excited about is really telling the technology story,” said Priya Rajan, DataVisor’s vice president of marketing. “In terms of providing education and bringing credibility, I think telling the story of these experts in a way that’s simple and valuable [matters].”
“In my current role … I try to uncover the story of how DataVisor really transforms the way we manage risk today in a way that’s real-time but also cost-effective. Fraud management should not exceed the cost of fraud itself,” Rajan added. “You need [return on investment]. … Aligning these business objectives and being able to connect the dots is something I’m super excited about and super proud of,” she said.
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Representation of women in fintech leadership is steadily improving, mostly at newer firms, the International Monetary Fund found. The business case is there: Citing a McKinsey study, the IMF reported that gender diversity on the boards of nonfinancial and financial firms is correlated with positive financial performance. Citing a Credit Suisse study on gender diversity and corporate performance, the IMF said higher share prices are, too.
Harvard Business Review, too, found that female-led finance and investment firms were more likely to “reinvest, create jobs and have higher levels of innovation than their male counterparts.”
“The way that women approach and think about [things] … I think it’s really important to have that equal representation at all levels,” Hay said. “Organizations will benefit from different ways of thinking about things.”
Assumptions can be dangerous. For instance, because I am the co-founder of a fintech company, some might assume I’m pretty tech-savvy. But in reality, I look to Carolyn Rodz, my visionary co-founder, for the technical stuff.
I’ve seen others making similar assumptions about “frivolous” social media platforms like TikTok. Much more than a place for teenagers to share dance challenges, TikTok has become a very real magnet for small-business owners looking to connect with customers. But what factors are motivating this shift to the new platform, and what kind of results are they seeing?
To get to the bottom of these questions, Hello Alice sampled a portion of our more than 800,000 small-business owners to see how entrepreneurs leverage digital marketing platforms for growth. The resulting research report focused on major social media players, including Facebook, Instagram, TikTok, YouTube, and Snapchat as small businesses’ primary digital marketing platforms.
At a high level, we learned that most businesses pursuing digital marketing are young (less than five years old) and more likely to sell products, particularly in the beauty and self-care industries. Unsurprisingly, most entrepreneurs are hedging their bets by using multiple platforms to reach their digital marketing goals.
But the most significant finding confirms what can only be called the TikTok shift. Despite its status as the youngest player, TikTok overwhelmingly stands out as an emerging digital marketing leader. Our research found that it was the platform small-business owners were most excited to try.
Among small businesses already on TikTok, 78 percent said they plan to increase their investment in the platform. Clearly, something is driving owners to shift their attention — and budgets — from the established players to new options.
According to our research, here are the three primary trends surrounding small business digital marketing today.
Affordability Is the Number One Factor for Small-Business Owners
When you’re running a small business, every dollar counts. This is especially true with the pandemic, inflation, and supply chain shortages not going anywhere soon. According to our research, the majority of businesses leveraging digital marketing platforms are new or emerging businesses, which also tend to be the most vulnerable to cost pressures. In practice, this means that entrepreneurs favor the platforms perceived to offer the best ratio of value to results.
Market leaders such as Facebook and Instagram came first and second in terms of perceived value for their marketing dollar, with YouTube, TikTok, and Snapchat trailing behind. However, this is for paid efforts, and nearly half (45 percent) of owners said they don’t engage in any paid marketing at all. When we measure the perceived value of each platform’s purely organic reach, TikTok comes in a close third to Instagram and Facebook.
The takeaway? Entrepreneurs are willing to invest their dollars in paid marketing that delivers proven results. However, despite devoting comparatively little time to the platform, entrepreneurs are finding a high chance of organic success via TikTok. Achieving real results with little or no monetary investment makes TikTok a clear winner for any small businesses deciding where to focus their digital marketing efforts in the future.
Creativity Has Become a Key Differentiator in Small-Business Marketing
Every business owner should be familiar with the concept of a key differentiator — the element that sets them apart from the competition. In a world of endless banner ads and Instagram posts, it’s no surprise that digital marketers are looking for easy-to-use features that enable dynamic storytelling in a variety of formats.
Our research found that approximately two-thirds of small-business owners believe that TikTok helps them tell stories in a creative way (67 percent), outpacing established competitors including Instagram (65 percent), YouTube (58 percent), Facebook (55 percent), and Snapchat (51 percent). Whether it’s a new video filter or a viral audio clip, TikTok’s robust creator tools go beyond the usual arsenal of text and images to help entrepreneurs forge novel connections between consumers and their brands.
Even better, TikTok’s creative boost seems to come without much of a learning curve, with 81 percent of TikTok users telling us the platform is easy to use and 73 percent saying it is fun to use. There’s no underestimating these sentiments; when you’re a busy entrepreneur, fun and easy-to-use are going to win out every time.
Marketers Are Following Their Audiences to New Platforms
It’s only natural that Facebook and Instagram historically received the lion’s share of attention from small-business digital marketers, given that they are the most popular social media platforms. Marketing is, after all, a game of eyeballs. However, this is changing as Facebook usage declines and TikTok usage dramatically grows. Entrepreneurs are simply adapting platform strategies to follow their customers to the platforms where they spend time.
According to the data, the word is out that TikTok has huge potential for small-business marketers. Our survey revealed that 43 percent of small-business owners are now likely to join TikTok because they’ve heard of positive results from fellow entrepreneurs; only 23 percent told us the same about Facebook.
Some might assume that the TikTok shift is entrepreneurs simply chasing a shiny new trend, but the research resoundingly suggests otherwise: Fifty-nine percent of small business owners said TikTok helped grow revenue, 42 percent said TikTok helped them safeguard their business against the impact of the coronavirus pandemic, and 32 percent said TikTok helped them raise capital.
There’s only one thing to say with results like that: Where do I sign up?
A woman shops for chicken at a supermarket in Santa Monica, California, on September 13.Apu Gomes/AFP via Getty Images
The last year of inflation has disproportionately hurt low-incomeand nonwhite families — those with the least flexibility in their monthly budgets to absorb higher prices. Now those same groups could be hurt by economic policymakers’ plan to tackle inflation through interest rate hikes, and in potentially longer-lasting ways.
Last month, leaders at the Federal Reserve predicted that, given their plans to continue raising rates, unemployment would rise from 3.7 percent (or 6 million people) to 4.4 percent by the end of 2023. In plain terms, this means an additional 1.2 million people would lose their jobs over the 15-month period. “I wish there was a painless way to do that,” Federal Reserve Chair Jay Powell had said. “There isn’t.”
Other financial analysts projected even higher unemployment to result. Bank of America predicted unemployment would reach 5.6 percent by the end of 2023, translating to 3.2 million more people out of their jobs. Researchers at the International Monetary Fund (IMF) said in September that unemployment may need to reach as high as 7.5 percent to curb inflation, which would mean roughly 6 million people losing work.
The Federal Reserve raises interest rates to slow down consumption across the economy: As the cost of borrowing rises, the hope is that people buy fewer things, and prices stop spiraling higher. The latest data shows inflation still up roughly 8 percent compared to a year ago, and recent reporting in the New York Times suggests Fed leaders may even raise rates more aggressively into 2023 than they had previously envisioned.
The question is whether the Federal Reserve will be able to hit the brakes when they decide they’ve done enough — or whether it will be too late, and the economy will be hurtling downhill toward a recession that the Fed created but can’t control.
“One thing that’s a very open debate and a very important subtext to all the fights is the question of whether the Fed can actually increase unemployment just a little,” said Mike Konczal, the director of Macroeconomic Analysis at the Roosevelt Institute, a left-leaning think tank. “And with every million who lose their jobs, it’s that much harder to reintegrate them [into the labor force] later on.”
Stabilizing the economy, Konczal said, is like mending a garment. “You can pull at the threads, but if it tears you can’t just push it all back,” he said. “That’s certainly what keeps me very nervous, that the Fed is so worried it underreacted last year [to inflation] that now it might overreact.”
Some economic experts and journalists are asking if the current pain of inflation outweighs the suffering of a potential recession, and if there are less blunt tools the federal government could be leveraging instead.
“To have a smaller paycheck due to inflation, is that really worse than having no paycheck at all?” Today, Explained host Noel King asked Minneapolis Fed President Neel Kashkari last week. “There’s not an easy answer,” Kashkari acknowledged, ultimately arguing that unemployment affects fewer people than inflation, and it’s easier for the government to target assistance to those who might be hurt.
But higher unemployment and recessions don’t just affect those who lose their jobs, and the assumption that the government would be willing or even able to provide targeted assistance to those pushed out of the labor market beyond the maximum six months of traditional (and relatively meager) unemployment benefits seems highly uncertain, given how Democrats’ more generous pandemic stimulus policies have been blamed for contributing to inflation in the first place.
Experts say the country still lacks the infrastructure to deliver more targeted aid, and with Democrats barely even mounting a defense of their pandemic assistance, whether there’s political oxygen — let alone technological capacity — to help those in a recession remains unclear.
On top of all this, if rate hikes do push millions more people out of work, those who would likely bear the biggest brunt of that job loss and take the longest to recover are the same groups suffering most now from inflation: low-income workers, workers with less education, and people of color.
Missing a “soft landing” means millions more people could lose their jobs
The workers who are most vulnerable to near-term layoffs work in construction and mortgage lending, and sell products like TVs and cars. These are so-called “interest-sensitive” industries, particularly responsive to changes in interest rates and borrowing costs. The next hit would be those working in firms that are particularly exposed to financial speculation — like traders and tech companies built around equity valuation.
The Federal Reserve’s goal is to achieve a so-called “soft landing” — meaning they want to lower inflation without throwing the economy into a recession.
Earlier this year Powell, the Fed chair, explained their goal was to make it harder for people to switch jobs, since job-switching and the fierce competition to hire workers were driving up wages. In this scenario, maybe a business eyeing higher interest rates would post fewer new jobs or decide not to fill vacant roles.
Maybe an employee would see the hiring landscape as less friendly and decide to stay put. “The idea is there’s a whole lot of activity happening that we don’t see by just looking at the unemployment rate,” said Konczal, of the Roosevelt Institute. “So in this scenario, where it becomes harder to switch to new jobs, the economy still cools without unemployment going up.”
Konczal says there’s some evidence that Powell’s “soft landing” argument has been bearing out over the past two months — the number of new job openings has slowed, as have the number of workers voluntarily switching to take another job. Wage data expected at the end of October should provide a clearer picture of where things stand.
But many experts are pessimistic that inflation can really come down without driving up unemployment, and say that if the Federal Reserve wants to see a genuine drop in prices it will have to force layoffs in less “interest-sensitive” industries, even if that increases the risk of a recession. Fewer people simply work in interest-sensitive fields like manufacturing than they did decades ago.
“That’s where face-to-face services like hospitality start to take the hit,” said Josh Bivens, the research director at the left-leaning Economic Policy Institute. “Recessions can have big multiplier effects. Layoffs typically start in construction and then radiate onward, and things can get pretty bad if you have a big spiral.”
It’s harder for less educated, low-income, and nonwhite people to find work after layoffs
While some policymakers are trying to figure out if they could reduce inflation while keeping unemployment around 4 or 5 percent, other economists are sounding the alarm on what even this optimistic aggregate figure obscures — the unemployment rate for Black people is generally double that of white people, and for Hispanic people it’s typically 1.5 times the rate.
In one recent study, researchers found that lowering interest rates disproportionately helped the employment prospects for Black workers, women, and those without a high school diploma. It makes sense — if employers are facing increased competition for labor, they may be less likely to discriminate in the hiring process. Relatedly, over the past year, workers with criminal recordsand workers with disabilities were more in demand than they have been, as employers struggled to fill vacancies.
“It’s just a truism that when bad things happen in an economy, it’s the marginalized people, the people with less power, who are hurt fastest and most,” said Wendy Edelberg, the director of the Hamilton Project, an economics division within the Brookings Institution. “That should be fiscal policymakers’ laser focus, at all times but particularly in a downturn.”
The government is less likely to offer aid to workers who lose their jobs
The investments kept millions out of poverty and evictions below historic averages, and are credited generally with helping the economy rebound much faster than following past downturns, and more quickly than other nations that had less robust stimulus policies.
But now Republicans have latched onto that federal aid as one of the top reasons inflation is at its highest point in four decades. They blame the Biden administration for putting too much money in people’s pockets, allowing them to spend too much and drive up prices. Some argue the American Rescue Plan was simply too big, or not targeted enough to those who really needed help. Economists disagree over how much the pandemic policies are to blame but Democrats, notably, are not touting their investments on the campaign trail, as voters cite inflation as a top election concern.
Republicans are expected to win control of the House, and Republican Leader Kevin McCarthy has for months attacked Democrats’ Covid policies for driving inflation. This raises the question: If the economy does spiral and workers lose their jobs or their workable hours, what kind of assistance might they expect to receive in that scenario?
“It’s one of the reasons I’m so worried about the Fed potentially overshooting, that we just won’t do that much to help people since we’re told that helping people too generously is what got us into this mess,” said Bivens of the Economic Policy Institute. “I think that’s wrong, but I’m still totally worried about this dynamic.” Bivens also warned that if Republicans control Congress, it might be in their interest to prolong economic hardship ahead of the next presidential election.
“If the Fed slips the economy into recession, what kinds of tools and political capital will be available? That’s a real concern that we aren’t talking about and aren’t being honest with ourselves,” said Mark Paul, an economist at Rutgers who has argued raising rates is the wrong response to the inflation crisis. “In the pandemic, policymakers reacted in a far better way than they have in our lifetime, where, rather than the economy taking 10 years to get to pre-Covid levels, it essentially took 1.5 years. The narrative now is that the government overshot, but the question is what were the other options and what would those have led to?”
Edelberg of the Hamilton Project said if there is a downturn, she hopes we can get “targeted relief” to those most in crisis, so that it only has modest effects on inflation. “We should do that with eyes wide open — knowing it will boost aggregate demand a little bit and that will be okay because a policy should have more than one objective,” she said.
Edelberg acknowledged the country isn’t exactly positioned to distribute targeted relief — the nation’s unemployment insurance system remains in need of serious upgrades. “We should be improving the system so we can find the people who need to get the money, so we don’t need to do things like send checks to everyone,” she said. “We do not have that infrastructure now because we haven’t really valued it.”
Slow wage growth affects even those who keep their jobs
It took 10 years after the Great Recession for wages to finally start rising, long after unemployment had gone back down. Part of this was fueled by stateand local minimum wage increases, but part of it, experts believe, was due to a finally tightening economy.
Workers have enjoyed increased power over the past two years amid the even tighter post-pandemic labor market. Wages have gone up, especially for workers at the lower end of the income spectrum, and especially among those who switched their jobs. In 2021, wages grew by 4.5 percent on average, the fastest rate in almost four decades.
Now that we’re finally seeing broad-based gains in the economy, progressive economists warn that aggressive Fed policy could make those raises disappear. One major risk of a recession is slowed wage growth, which can impact everyone, not just those who lose their jobs. Even modest economic downturns can significantly reduce the chance of employers handing out raises.
The Federal Reserve has been explicit that its goal is to reach 2 percent inflation — meaning prices would continue to rise in that scenario, just hopefully more slowly and predictably. But if wages are not also rising, then families will still feel worse off and struggle to afford basic necessities.
“This wage growth angle is, by far, the most important reason why just looking at the rise of unemployment in a recession is a radical understatement of how many workers are adversely affected by recessions,” Bivens wrote in July.
One big fear for inflation watchers is the risk of a so-called “wage spiral” — a scenario where wage increases cause price increases, which in turn cause more wage increases. The concern isn’t baseless; wage spirals have happened before, most notably in the US in the 1970s, but it’s certainly not an inevitability. The labor movement was also much stronger four decades ago — over a third were unionized compared to 6 percent of private sector workers today — giving workers the kind of bargaining power they simply lack now.
Fears of a wage spiral have been dissipating somewhat. Wage growth is still higher than pre-Covid levels but has been slowing down this year. Earlier this month, researchers with the IMF concluded that wage spiral risks “appear contained” for now.
What else could be done?
Some economists and writers have warned that raising interest rates further is unlikely to curb some of the root causes of inflation — such as the war in Ukraine and factory shutdowns — and that inflation would come down next year regardless as supply chains get back on track.Others say more attention should be on things like investigating corporations for raising their prices far beyond the cost increases for raw materials.
The House Subcommittee on Economic and Consumer Policy held a hearing on these concerns in late September, and three Democratic lawmakers introduced a bill in May that would seek to ban price gouging during market disruptions. Dean Baker, an economist at the Center for Economic and Policy Research, pointed to what he called “an extraordinary increase in profit shares in a relatively short period” — rising from 23.9 percent in 2019 to 26 percent in the second quarter of this year.
Some centrist and conservative analysts have framed higher unemployment and a possible recession as simply a necessary if regrettable stage in the life cycle of an economy, almost like a biological reset. “The Fed’s rate hikes will hurt,” said the right-leaning Washington Post editorial board. “That’s unavoidable.”
But “the idea that severe recessions are necessary is absolutely not true,” said Konczal. “That’s the whole point of having a Federal Reserve and macroeconomics. And the idea that recessions are somehow regenerative and healing to the economy is also wrong.”
Whether one needs higher-than-expected unemployment or lower-than-existing GDP to bring down inflation is not really clear. “People are not sure if that’s true,” said Konczal. “It’s a small sample size, and we have only so many economies that you can test.”
Others have argued that fiscal policy — as opposed to the Federal Reserve’s monetary policy — demands more attention to combat inflation. (Fiscal policy refers to a government’s decision to tax and spend, whereas monetary policy is about a central bank’s control over the flow of money and credit.) Fiscal policy can be more targeted, but it can also be difficult to pass through the legislative process, and take far longer to have an economic effect.
For example, Rep. Ro Khanna (D-CA) has called for a “production agenda” that would involve new investments in child care, housing, and community college to bring down prices and train Americans to work. These strategies, if successful, would take years however to trickle out. Sen. Elizabeth Warren (D-MA) similarly argued this past summer that Congress investing in child care would help bring more parents into the workforce, which could counteract inflation, though pouring more money into child care amid a worker shortage, conversely, could also worsen it.
In August, Rep. Jamaal Bowman (D-NY) introduced a bill that would place price controls on utilities, food, and housing, bolster the scope of the White House supply chain disruption task force, and authorize better data collection on corporate profiteering. (Price controls are controversial, and led to soaring prices after they were lifted in the 1970s.)
Paul, the Rutgers economist, helped advise Bowman on his bill and told Vox that he believes the Federal Reserve is not taking seriously its dual congressional mandate for both price stability and maximum employment. “Right now the Fed seems to be focused on price stability at all costs,” Paul said. “Full employment be damned.”
Roughly speaking — very roughly – there are five theories, and two subsidiary theories, proposed by different groups of economists and others to explain rising prices, or “inflation” so-called:
Bad monetary policy – the central bank “printing too much money” which effectively devalues the currency relative to the value of real goods and services, driving prices up
Corporate Greed – companies exploiting the public, squeezing higher profits and driving prices up
RisingInflation Expectations – a psychological explanation, which strangely holds that if the public thinks prices will rise, that alone can cause prices to rise
Supply Constraints – bottlenecks in the economy that create shortages of key goods (e.g. energy and other commodities), driving prices up
Demand Pressure – an economy that is running “too hot” with excessive demand that leads buyers to be willing to pay more, driving prices up – which is often explained as the result of… [these are the subsidiary theories]
Loose fiscal policies that give consumers too much “extra” cash to spend, like tax cuts or stimulus checks
Wage increases driven by workers’ demands for excessive compensation
These are more than mere theories. They represent distinct and comprehensive worldviews, expressed in broad economic philosophies and partisan political platforms.
Which explanation, or worldview, is correct? The question is important, because different theories lead to different and often mutually incompatible policies. A full answer would call for a book-length treatment. But two general points underscore the complexity of the problem:
“Inflation” – which, to be clear, refers very specifically to a measured rise in posted prices of the items in a market basket of goods and services defined by the Bureau of Labor Statistics – seems like a simple symptom, but it can be and likely always is very complicated with multiple contributing causes; in other words, several of these factors may be causally relevant at the same time
“Inflation,” so defined, is not the same “always and everywhere” (pace Milton Friedman) – just as a fever in a person can arise from many different causes – some innocuous, some annoying, some lethal – a rise in prices can issue from various sources of stress in the economy, not all of which should carry the same weight in spurring public policy
In the concrete present moment, however, “all of the above” is not a satisfactory answer. Policy-makers – at the Federal Reserve especially, but elsewhere in government – as well as investors, trying to anticipate the direction of the financial markets – need to decide which of these factors – supply, demand, the money supply, psychology – is likely to predominate today, as the immediate guide for action.
The Federal Reserve – following a prevailing fashion in economics – appears to have decided that the psychological explanation carries the greater weight right now. Fed officials have resorted to tough talk, and performative interest rate rises, to try to knock down our inflationary expectations going forward. If they can somehow calm our feverish expectations regarding future inflation – Fed policy folks speak of preventing our expectations from “de-anchoring” – and if it brings actual current inflation down, that will constitute the much-desired “soft landing.”
But there is a harsher tone now emerging from the chorus. If (we are told) throwing cold water on the public psyche is insufficient, it may become necessary to inflict damage on our standard of living, to reduce actual demand. How? By raising the unemployment rate for example – as Larry Summers has urged:
“‘We need five years of unemployment above 5 percent to contain inflation—in other words, we need two years of 7.5 percent unemployment or five years of 6 percent unemployment or one year of 10 percent unemployment,’ Summers said during a speech at the London School of Economics.”
We need 10% unemployment? This is what a “hard landing” means? According to this view, it will be necessary to inflict actual economic pain on millions of people.
To support this explicitly nasty policy, the sainted Paul Volcker is invoked – he who “broke the back of inflation” 40 years ago – although Larry Summers is more than ready to claim credit for this grim insight.
Frankly, this is an obscene recommendation. But it is worse than that — it is also wrong.
It’s The Supply Chain, Stupid
Step back even a little from last month’s CPI headlines, and the first important Hard Fact to acknowledge is the obvious one: The world economy has been slammed and shaken by three once-in-a century external shocks in the space of less than two years.
Covid, the worst global pandemic in 100 years
The Invasion of Ukraine, the first major war in Europe in 75 years
Monetary stimulus on a massive scale, unprecedented since World War II
Like tossing that boulder into a small pond, the effect is chaotic disruption of all important trends. The chart for almost every economic measure, whether demand-side, supply-side, or monetary, shows whiplash.
The Big Picture is a carnage of dislocation. All the normal trends and relationships are broken. Beginning one fine day in March 2020, Consumer Demand shifted violently down, then violently up, and always and especially “sideways”– i.e., consumers, in lockdown, or working remotely, unable to pursue many normal activities, or simply becoming cautious as the pandemic spread uncertainty everywhere, altered their buying patterns dramatically. As has been widely noted, there was a major displacement of spending away from the consumption of services, and in favor of the consumption of goods (durable and nondurable).
In dollar terms, over a 30 month period, consumer spending on services fell about $1.5 trillion from the trend line while purchases of durable and nondurable goods increased by about the same amount.
What all this amounts to is a recipe for putting the supply chains that serve our economy under extreme, but temporary stress. Consider the implications of the shift to goods over services.
Many services are entirely performed in a defined location (e.g., restaurants, hair salons, healthcare) – where there really is no physical supply chain as such (although the service providers may be hampered by supply problems for the goods used in performing the service). Many other services have migrated online (e.g., banking, or streaming media).
“Goods,” however, are physical objects – boxes of cereal, automobiles, microchips – that must be assembled or manufactured (from other physical inputs, with their own supply chains), inventoried, packaged, trans-shipped (often from a great distance), delivered to the end customer, tracked and cared for all along the way.
When one speaks of supply chains, one is speaking about the “goods” side of the ledger. Greater spending on goods rather than services puts a much heavier burden on real supply chains. Suddenly injecting a trillion dollars of additional demand for all sorts of physical products ripples through these tightly-coupled networks. Small glitches can derail or delay the process of “fulfillment.” For want of a nail, etc. –
In addition, there is the information deficit created by the shocks described above. Physical supply chains rely on accurate information flow from customers to manufacturers and vice versa (and all the intermediate parties). But the chaotic nature of the past 30 months has disrupted this process. It has blown up the forecasting models that customers use to place orders and manufacturers use to prepare for them.
The auto industry is a case in point, where the initial impact of the pandemic triggered classic defensive responses from the car companies, which quickly cut back orders to many parts suppliers on the assumption that the auto industry was about to enter a severe recession. When the opposite happened – consumer demand quickly surged above pre-pandemic levels – the automakers were unable to restock the parts they had canceled. The drastic losses in revenue they suffered, especially from the inability to procure semiconductor components, have been well documented. (More on that in an upcoming column).
Sheer complexity is another problem. Physical supply chains have ramified enormously, in scale and geographical dispersion (i.e., globalization). The example of the moment is the semiconductor industry, which comprises a vast eco-system with tens of thousands of critical or near-critical suppliers, reaching across the entire world. A White House report recently underscored the boggling intricacy of the supply network that underlies the digital economy.
“The Semiconductor Industry Association notes that one of its members has over 16,000 suppliers, more than half outside the United States, and that a semiconductor may cross international borders as many as 70 times before reaching its final destination.”
Then there is “science” – specifically, the science of modern logistics management, as it is taught in leading universities and disseminated through international standards bodies. Doctrines of “lean manufacturing” and “just-in-time inventory management” have been widely adopted, and they have squeezed the margin of safety out of the system in pursuit of mere efficiency.
All across the manufacturing world, traditional “shock absorbers” (e.g., physical inventory) have been stripped down to bare minimum levels. All this leads to the crisis which is now driving the price trends in the global economy. The New York Federal Reserve has recently developed a measure of supply chain stress. That stress level has exploded.
This is the primary cause of the inflation today: the supply constraints. Inflation is not being driven by “excess demand” in any permanent sense (once the stimulus checks are spent). At this point, it is certainly not being driven by growth in the money supply(which has fallen now back to levels below the long term average). [Two large questions related to the monetary causality theory are to be noted:
The efficacy, or more generally, the wisdom of aggressive money supply expansion in response to the pandemic crisis in the Spring of 2020
The nature of the lag between the money supply expansion, or now, its return to normal levels, and the effect on prices
Those issues will be sidestepped for now, with this passing comment: whatever the merits of the expansive policies in 2020 – and I think they were well-justified by their chief objective, properly realized, i.e., the avoidance of a severe recession at the time – the growth of M2 has been declining rapidly for at least 18 months, which means it is approaching the point where it should begin to show a deflationary effect.]
As to the Expectations theory of inflation, which the Fed seems to be hanging its hat on for now, that is also a large topic for another day – but available measures of inflation expectations are not showing the surge in public concern for future inflation – the dreaded “de-anchoring” – that the theory looks for as the root cause of price instability.
And finally, as for the Corporate Greed theory, this too finds no real support in the realm of factuality (although it has plenty of political voltage in some precincts).
Good News & Bad News
“It’s the Supply Chain” – has become the answer to everything, it seems. But it really is the answer to the question of what is driving “inflation” right now. Supply chain stress comes in many forms – shortages, bottlenecks, dislocations geopolitical (Ukraine), medical (China’s Covid-Zero policy and the shutdowns), and more pedestrian cases, like –“One of the world’s most legendary companies has run out of trademarks – that little blue oval emblem that reads ‘Ford.’ Reports say that their supplier cannot deliver the right number of blue emblems like the ones that Ford puts on the back of its F-150 trucks…
The average car has over 30,000 parts. The F-150 comes with six engine options, seven trim levels, and so many options that some estimates say there are over 20 million possible configurations. But, that little badge, that nameplate, that trademark, has to be there. Reports say that Ford thought about alternatives like laser etching or retrofitting the trucks when the badges become available. Doubtless some people would have bought the car without the Ford badge affixed. Many or perhaps most would just wait. With all of the supply chain issues, we have really hit the end of the road with this one.”
It’s a great little vignette, but then, it’s not so little. “Ford on Monday said it expects to have about 40,000 to 45,000 vehicles in inventory at the end of the third quarter that couldn’t be shipped to dealers because they were awaiting needed parts. Many of these vehicles are high-margin trucks and SUVs and the shortages primarily involved parts other than semiconductors, the company said.”
The Good News is that supply constraints of this sort are almost alway self-correcting. Businesses and consumers don’t sit in limbo. They respond, build new capacity, fix transportation problems, expedite shipments, increase supply; customers defer purchases, find substitutes, wait it out or work around, innovate. The market mechanism does actually function, even if imperfectly and with a lag. The shocks suffered in the last two years have been severe, but the supply chains are beginning to clear. (More on the specifics in a future column.)
The Bad News is that policy makers seem to have panicked (along with the media, who gave up hope almost immediately). I thought for a while that Fed Chairman Jerome Powell had the backbone to stand against the chorus of bad advice he was getting from so many quarters, and allow the system to find its footing again. But the pressure to “Do Something” has prevailed.
We have now entered the chapter of “performative monetary policy” – taking measures which everyone knows will (1) have no positive effect on supply chain problems – there is nothing the Fed can do to speed up the delivery of those blue oval logos – but (2) may well cause real economic havoc. Fighting inflation by “reducing demand” – which, perversely, means raising prices (like on your mortgage), and throwing millions out of work (as Volcker did) – is one of those ideas John Maynard Keynes warned us about
“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
My first career: I spent 25 years in the high-tech segment of the wireless technology industry, involved in the early development and commercialization of digital wireless
The International Monetary Fund warned on Tuesday of a slowdown in global economic growth as the world economy continues to take a hit from “increasingly gloomy developments in 2022,” including high inflation, a slowdown in China caused by Covid lockdowns and ongoing fallout from Russia’s war in Ukraine.
The IMF slashed its global growth projections, now expecting global GDP to grow 3.2% this year and 2.9% in 2023, down from previous estimates in April of 3.6% GDP growth for both years.
The group cited a slowdown in the world’s three largest economies—the United States, China and the euro area—as a reason for the revised estimates, warning that the risks to the outlook remain “overwhelmingly tilted to the downside.”
Several “shocks” have hit the global economy as it tries to recover from the pandemic, including higher-than-expected inflation worldwide––especially in the United States and Europe, a worse-than-anticipated slowdown in China caused by Covid lockdowns and “further negative spillovers” from the war in Ukraine.
The IMF also said that high inflation remains a “major problem” as prices have continued to rise in 2022, led by soaring food and fuel costs, arguing that “taming inflation should be the first priority for policymakers” worldwide.
The group now expects global inflation to hit 6.6% in advanced economies and 9.5% in developing economies this year, though prices are expected to return to near pre-pandemic levels by the end of 2024.
The IMF also slashed its growth estimates for the U.S. economy, now forecasting GDP to rise 2.3% this year and 1% in 2023, down from previous estimates of 3.7% and 2.3%, respectively, amid the impact of tighter monetary policy and reduced household purchasing power.
“The outlook has darkened significantly since April,” IMF chief economist Pierre-Olivier Gourinchas said in a statement. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”
“The slowdown in China has global consequences,” the IMF said. “Lockdowns added to global supply chain disruptions and the decline in domestic spending are reducing demand for goods and services from China’s trade partners.” The group now sees China’s economy growing 3.3% in 2022—its lowest pace in four decades and down over 1% from previous estimates.
The World Bank similarly slashed its forecasts for the global economy last month, predicting GDP growth in 2022 of just 2.9%, down from an earlier estimate of 4.1%.
I am a senior reporter at Forbes covering markets and business news. Previously, I worked on the wealth team at Forbes covering billionaires and their wealth.
The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook. Many of the downside risks flagged in our April World Economic Outlook have begun to materialize. Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions.
China’s slowdown has been worse than anticipated amid COVID-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. As a result, global output contracted in the second quarter of this year. Under our baseline forecast, growth slows from last year’s 6.1 percent to 3.2 percent this year and 2.9 percent next year, downgrades of 0.4 and 0.7 percentage points from April.
This reflects stalling growth in the world’s three largest economies—the United States, China and the euro area—with important consequences for the global outlook. In the United States, reduced household purchasing power and tighter monetary policy will drive growth down to 2.3 percent this year and 1 percent next year.
In China, further lockdowns, and the deepening real estate crisis pushed growth down to 3.3 percent this year—the slowest in more than four decades, excluding the pandemic. And in the euro area, growth is revised down to 2.6 percent this year and 1.2 percent in 2023, reflecting spillovers from the war in Ukraine and tighter monetary policy.
Despite slowing activity, global inflation has been revised up, in part due to rising food and energy prices. Inflation this year is anticipated to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies—upward revisions of 0.9 and 0.8 percentage points respectively—and is projected to remain elevated longer. Inflation has also broadened in many economies, reflecting the impact of cost pressures from disrupted supply chains and historically tight labor markets.
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Harvard Business Review, too, found that female-led finance and investment firms were more likely to “reinvest, create jobs and have higher levels of innovation than their male counterparts.”
