Inflation is widespread, consumers are glum. How can US companies survive?

Operating in a slowing economy ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ 

TODAY'S NEWS. TOMORROW'S INSIGHTS. A daily newsletter from McKinsey & Company   Edited by Katy McLaughlin   Senior Editor, Southern California Mixed messages and the US economy In the news • Low visibility. Labor market? Up. Retail sales? Moderating. Manufacturing reports? Mixed. Getting a read on the US economy is tricky amid conflicting measures of health. Demand in the US is proving resilient for now, with total retail sales rising 0.3% in August and consumer spending increasing in eight out of 13 categories. But consumers are pivoting from goods to services, leading to canceled orders and stockpiles of unsold items that are discouraging manufacturing. The only near certainty? Interest rates are rising in an effort to control inflation. [Bloomberg] • Uncertain consumers. Jobs may be plentiful and overall inflation lower amid gas prices softening late this summer, but consumers are signaling uncertainty about the long-term path of the US economy. The consumer sentiment index, a multidecade measure of how people feel about their economic prospects, has ticked up from record lows this June but is still far lower than it was last year. The US economy seems to be growing slowly, but consumers are stressed over the price of food and housing. [WSJ] It's likely that the private sector is entering a new era of "higher for longer" interest rates and cost of capital. On McKinsey.com • How high? How long? The US Federal Reserve aims to bring inflation back down to 2% a year. For consumers, the mission is critical: over the past 12 months, prices have increased in more than 90% of categories, according to analysis by McKinsey senior partners Stephan Görner, John Kelleher, Ida Kristensen, Asutosh Padhi, Alex Panas, and fellow authors. Many economists currently expect the Fed's key lending rate to top out at about 4%. In 11 rounds of Fed tightening since 1965, most lasted from one to three years and resulted in a recession. • Managing fallout. McKinsey studied equity analysts' most recent estimates of revenue and earnings for the whole of 2022 and compared them with their estimates from the beginning of the year. The median analyst forecast expects the current revenue dynamics (materials and commodities up, consumer companies down) to continue and, more bleakly, for earnings to decline in all but a handful of industries. See how US companies can survive, build resilience, and flourish in the years to come. Four themes to consider Was this forwarded to you? Sign up here. Or send us feedback— we'd love to hear from you. Follow our thinking This email contains information about McKinsey's research, insights, services, or events. By opening our emails or clicking on links, you agree to our use of cookies and web tracking technology. For more information on how we use and protect your information, please review our privacy policy. You received this email because you subscribed to the On Point newsletter. Manage subscriptions | Unsubscribe Copyright © 2022 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007