Charles Schwab chief investment strategist talks ‘rolling recession’

NRF 2023: Liz Ann Sonders on the state of the U.S. markets and economy
Fiona Soltes
NRF Contributor
January 25, 2023

At NRF 2023: Retail’s Big Show, NRF Chief Administrative Officer and General Counsel Stephanie Martz dove right into a wide-ranging financial conversation with a question on many minds: Are we facing a deep, lasting recession, or a soft landing?

It doesn’t look like either, according to Liz Ann Sonders, chief investment strategist with Charles Schwab, who believes we’re in a form of recession already. “I’ve just been calling it a rolling recession,” she said.

It’s been a unique cycle. “The strength coming out of lockdowns was forced to be funneled into the goods side of the economy,” Sonders said. “Because we didn’t have access to services. That then became the breeding ground for the inflation problem we’re still dealing with. But then there’s been the handoff from the goods side to the services side. You had pockets of weakness in many categories on the goods side, certainly in housing, that are definitely in recession territory. But we’ve had the offsetting strength on services.”

NRF 2023

Did you miss us in NYC? Take a look at our NRF 2023: Retail's Big Show event recap.

Whether it’s officially declared a recession by the National Bureau of Economic Research, Sonders said, “that’s almost academic at this point.”

Regarding the labor market, Sonders said some interesting things are going on below the surface. “If you just look at the headlines — how many payroll jobs were created last month, what’s the unemployment rate — it leaves you with the impression that the labor market is still very strong,” she said.

“The problem is, if you just peel one layer of the onion back, you can see some of the cracks. For instance, hours worked. What many companies are doing — particularly those that have hourly workers — they want to hang on to their employees ... but they’re cutting hours. That’s indicative of a weaker demand environment.”

“The strength coming out of lockdowns was forced to be funneled into the goods side of the economy.”

Liz Ann Sonders, Charles Schwab

What the Fed ideally wants to do, Sonders believes, is “crush job openings, but not cause a huge spike in the unemployment rate. It’s a pretty narrow hole in the needle they’re trying to thread.”

The talk touched on the potential medium to long-term results of the conflict in Ukraine. The biggest impact has clearly been in the energy and food channels, as Ukraine has been known as the “breadbasket of the world.” Prior to the conflict, Russia was the largest exporter of oil and natural gas to the EU. Global factions are arising, too.

Sonders also mentioned the demographics of China, where the one-child policy has led to a rapidly aging and shrinking population. She expressed concerns about being able to entice young people in the United States to have children. And then there’s the rising burden of debt.

One long-term trend Sonders believes is relevant to all industries, including retail, is the exit — “somewhat coincidentally with COVID” — from a multi-decade era in which “everything gelled.” The world, she said, previously had access to cheap goods, cheap energy and cheap labor.

“That ship has sailed,” she said. “That’s not coming back.” Even though inflation is rolling over, Sonders said, “I think where it ultimately settles is probably at a higher plane than what was the case pre-COVID.”

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