PODCAST: Is a Recession Coming?

Subscribe FREE wherever you listen:

Apple Podcasts (opens in new tab) | Google Podcasts (opens in new tab) | Spotify (opens in new tab) | Overcast (opens in new tab) | RSS (opens in new tab)

Links mentioned in this episode:

• 15 Best Things to Buy at Dollar Stores (Dollar Tree Included) (opens in new tab)
• 17 Worst Things to Buy at Dollar Stores (Dollar Tree Included) (opens in new tab)
• Kiplinger’s Economic Outlooks: GDP (opens in new tab)
• Why Inverted Yield Curve Panic Is Overdone (opens in new tab)
• Kiplinger’s Economic Outlooks: Fuel Prices (opens in new tab)
• How Gas Prices Are Determined (opens in new tab)

Transcript:

David Muhlbaum: There’s a lot of talk of recession out there. Is our economy going to experience one soon? Jim Patterson, managing editor of The Kiplinger Letter, will take that question head on. We’ll also revisit dollar stores for a deal or no deal review with Bob Niedt, Kiplinger’s retail specialist. All coming up on this episode of Your Money’s Worth.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

David Muhlbaum: Welcome to Your Money’s Worth. I’m kiplinger.com senior editor David Muhlbaum, joined by my co-host, Kiplinger senior editor Sandy Block. Sandy, how are you doing?

Sandy Block: I’m good, David. I’m just doing great.

David Muhlbaum: Okay, good. Well, good. Well, we’re going to break from tradition here today and we are going to have a guest on our opening segment. So say hi to the good people, Bob Niedt.

Bob Niedt: Hello, hello.

David Muhlbaum: Yeah. Bob has the retail beat here at Kiplinger (opens in new tab), and that includes dollar stores. It didn’t go unnoticed, shall we say, that I made a somewhat sniffy sounding remark about dollar stores in our last episode. So in fairness to, well, dollar stores, I thought we should have Bob on to talk about what dollar stores do well and what they don’t, from a consumer point, that is. What’s the deal and what’s not? But before we dig in, Sandy, just to follow up, where did you buy that $3 bottle of wine when we were talking about this?

Sandy Block: Well, actually, I bought two bottles of wine. One was $5, one was $3. It was at a Dollar General outside Berkeley Springs, West Virginia.

David Muhlbaum: Got it. Now, okay, and so Bob, this brings me to one of my classic definitional questions to start out. First of all, it proves that not everything in a dollar store is a dollar anymore. Sometimes not even the dollar items are... Anyway, we’ll get to that. But you write about dollar stores in the generic, but we’ve got several big chains, right? There’s Dollar Tree, Dollar General, Family Dollar. And plus, sometimes there’s still some of these holdout independent little stores, right? So the guidance you’re going to give us, can we apply it broadly?

Bob Niedt: I would say for the most part, a little bit, but a little bit no. For example, Dollar Tree is the biggest dollar store in the U.S. And Canada. They also own Family Dollar, so they’re one in the same. Dollar General is a separate entity. Dollar Tree is the one that sticks more closely to the everything is a dollar, now $1.25, rule. The other stores, they may go up to $5. Not much higher than that, usually though.

Sandy Block: So as David hinted in his snarky way, I know my way around dollar stores and I do shop there. I got some very nicely priced dog treats there just last week. But Bob, am I doing it right? What are the best things to buy at dollar stores?

Bob Niedt: I have some of my favorites, and I think at the top of the list is greeting cards from Dollar Tree. They’re made by Hallmark. They’re quality cards. And usually, you can get two for a dollar. Straight dollar up, two of the cards. The really nicer ones, they’re a dollar each, but they’re never over that amount. Another-

David Muhlbaum: They’re not even $1.25.

Bob Niedt: No, they-

David Muhlbaum: They’re a dollar.

Bob Niedt: ... stuck those at a dollar.

Bob Niedt: Reading glasses is another one. If you’re like me and you have reading glasses everywhere, in your car, in different rooms in your house, you can get them for a dollar there, whereas they’re probably $7 or $8 at the grocery store. So those are two of the favorites for me.

Sandy Block: And those are really good ones, because I know from my experience with my father, he would lose them constantly. But now, Bob, maybe... And the greeting cards, I definitely see that, because in a drug store, they’ll cost you like $5 or more.

Bob Niedt: Yes.

Sandy Block: So that’s a significant savings. But what are some of the things that you shouldn’t buy at a dollar store? And please don’t say wine, because it’s too late for me.

Bob Niedt: Well, I haven’t seen wine at Dollar Tree, so not familiar if they’re doing that at all anyway.

David Muhlbaum: I really hope they do a private label, because that would just sell it. Dollar Tree Wine, yeah.

Bob Niedt: Some of your worst things to buy, it’s batteries. They’re mostly off-brand batteries. Sunbeam is what they usually carry. They’re really for like remote controls and stuff like that. They’re not really good batteries. What else?

David Muhlbaum: It’s like the chemistry is different, right? They’re not alkalines. They’re-

Bob Niedt: Right, exactly.

David Muhlbaum: Yeah, they’re like the generic things that get shipped to you with a new product so they can say, “Batteries included,” but you don’t actually want that battery.

Bob Niedt: Yeah, they won’t last, for sure.

David Muhlbaum: Right. You don’t want to go out and spend your own money replacing that battery with another not good battery.

Sandy Block: Absolutely.

Bob Niedt: Right. Other categories are wellness products. You should probably stick with the drugstore varieties or Costco or something like that. I’d steer clear of those. School supplies are usually pretty cheaply made. I’d steer clear of those. What else?

Sandy Block: Well, Bob, are there some things that aren’t necessarily bad, but not really a deal? I mean, some people think they’re saving money at a dollar store and they’re really not.

Bob Niedt: Right. Tools, for one thing. If you’re going to buy a tool from a dollar store, don’t expect it to last.

Sandy Block: That’s a good one.

Bob Niedt: Toys and costumes. There’s two other categories. The toys are very cheaply made, and I noticed that they have a lot of small parts in them too.

Sandy Block: Could be dangerous, yeah.

Bob Niedt: Yes.

David Muhlbaum: So we’re talking about comparing dollar store items to drug stores or big chains like Walmart, but Bob, it’s hard to make those comparisons sometimes because the quantities are so different. Can you talk a little bit about how you do that when you’re reporting on this and how a consumer should pay attention when they’re shopping?

Bob Niedt: Well, you could do it simply by the shelf tag. Let me backup a bit. As you mentioned, David, a lot of the items in the dollar stores are packaged by like food companies for dollar stores, so that the package size might be different. A can of soup might be a different size. So what do-

David Muhlbaum: But the brand is recognizable, but the quantity is different.

Bob Niedt: Yes. In some cases the name is recognizable. There’s a lot of off-brands in the food category as well. But the best way to compare is to compare what it costs per ounce. The item, the chicken noodle soup or whatever it is, compare it to what it’s being sold for in a grocery store. And you’ll find that you don’t have some really good bargains there at the dollar store.

Sandy Block: Bob, I like to buy, and tell me if I’m wrong here, is wrapping paper at the holidays.

Bob Niedt: Wrapping paper’s good. It’s disposable and it’s going to be thrown away anyway, so you don’t have to worry about quality so much. But the thing about the wrapping paper at dollar stores is it’s usually in smaller lots. The rolls are much smaller, different sizes. So you might be not making it out so well buying wrapping paper there.

David Muhlbaum: If you’re thinking on a square foot basis.

Bob Niedt: Right.

Sandy Block: Yeah.

David Muhlbaum: Right. Well, cool. Well, Bob, I know there are more in your lists, more details about what is good (opens in new tab) and what is not so good to buy at dollar stores (opens in new tab), and obviously, we will link up so people can dig into the gory details there. Thank you for joining us today.

Bob Niedt: Thank you so much. It was a pleasure.

David Muhlbaum: Coming up in our main segment, we’ll talk about the prospect of an economic recession and whether we’re at risk of talking ourselves into one. Stick around.

Is a Recession Coming? (Jim Patterson)

David Muhlbaum: Welcome back to Your Money’s Worth. For our main segment today, Sandy Block won’t be joining us. She’s getting an early start on her Memorial Day weekend. Good for Sandy. It will just be me talking with Jim Patterson, managing editor of The Kiplinger Letter, about the economy and the prospects of recession. And yes, that’s the same Jim Patterson we had on a few weeks ago to talk about surging fuel prices (opens in new tab), because it seems to be all economy all the time. So we’re going to have Jim on here to talk about the future of that economy. Welcome, Jim.

Jim Patterson: Thanks, David. Great to be back.

David Muhlbaum: Okay, I’m just going to cut to the chase here. Lots of people are talking recession. Are we going to have one soon? What is the forecast?

Jim Patterson: Well, let me give you the short answer first. We think that we probably can avoid recession here in the U.S., But there is a lot of legitimate reason to worry about recession. That’s why you’re hearing a lot of concerns about recession on Wall Street. That’s why you’re seeing the stock market act very nervously these days. So we certainly understand why people are worrying about it, and there’s a lot of legitimate causes for concern that we can talk about here. The big elephant in the room right now is the Federal Reserve, which is raising interest rates pretty rapidly to fight inflation. And there’s a long history of when the Fed hikes rates, that can lead to recession. It goes too far. It slams the brakes on the economy too hard as it tries to get inflation under control, and we end up with an economic downturn, oftentimes an actual outright recession. So that’s what you’re hearing a lot of from Wall Street right now. And that’s what we wanted to address in our recent page one story in The Kiplinger Letter. Is there enough reason to worry about a recession right now? And we think based on all of the economic indicators we’re seeing, we don’t see a sign of outright recession coming. We think the economy’s going to slow down, but stay out of a recession.

David Muhlbaum: Okay. Well, now I’m going to press you on timing. This is for 2022. The Kiplinger Letter is saying growth is going to weaken, but not go negative this year.

Jim Patterson: Right. Right. That’s right. We think we’re going to slow down under perhaps 2% or around 2% GDP growth (opens in new tab), which is not a booming economy. It’s not exciting like what we had in 2021, coming out of the COVID downturn. But that’s a lot better than actually going into a recession. And we are staying alert to the possibility that things could slow down more perhaps in 2023. We’ve been telling our readers about some of the warning signs to look out for. If a recession really does appear to be imminent, there are certain indicators that are pretty reliable that tell you that one might be coming. It’s just that right now, we’re not really seeing those clear warning signs going off.

David Muhlbaum: Okay, so but what are they? What should people be watching for?

Jim Patterson: There’s a few big ones that our research indicates are pretty reliable indicators here. The first to look at is what happens with the unemployment rate. Right now, unemployment is really low (opens in new tab). The unemployment rate that’s reported in all the headlines is 3.6%, and we actually think it could get a little bit lower even as the year goes along. But historically, if you see an increase in that unemployment rate of about half a percentage point from whatever the lowest point in the economic cycle is, that’s a pretty strong warning that a recession is coming. That shows a real weakening in the labor market, which is a big part of the overall economy. Another warning sign to look out for is something called the inverted yield curve (opens in new tab), which is a-

David Muhlbaum: Yes. Yes, yes, yes.

Jim Patterson: Right. That’s a technical sounding term. I’ll talk about it in non-visual terms. That just means that if interest rates on long-term government bonds, which are normally higher than on short-term government bonds, if they fall so that the interest rate on those long-term bonds is lower than short-term bonds, that’s called an inverted yield curve. For instance, if the interest rate on the 10-year Treasury gets below the interest rate on the 2-year Treasury note, that would be an example of an inverted yield curve. And that’s usually a pretty reliable indicator that financial markets are betting on economic weakness in the near future. In other words, a recession.

David Muhlbaum: Did we reach that at one point earlier this year? Did we actually invert or we flirt with it?

Jim Patterson: We technically did, I think for a matter of a day or two. And we think that that’s probably not a great clear indicator of a recession coming. It literally was a matter of a day or two. And there are other parts of the yield curve that economists look at. For instance, the difference between the yield on the 10-year Treasury note and the 3-month Treasury bill. That’s a really bad situation if the yield on the 3-month bill gets higher than the 10-year note, and we didn’t come anywhere near that. So we didn’t see really a clear recession signal from that very brief inversion of that one part of the yield curve. It’s definitely something to pay attention to, but we don’t think that has the statistic sort of significance of a long-lasting inversion of the yield curve.

David Muhlbaum: Got it. Well, there are yield curves and there are yield curves.

Jim Patterson: Right, exactly.

David Muhlbaum: To go back to the question of the unemployment rate for a second to really dig in, the metric that I thought where I was supposed to pay attention to was job creation ahead of the unemployment rate. Am I missing something here?

Jim Patterson: Well, job creation tells you what’s going to happen with the unemployment rate in the future. Same thing with job losses. Actually, probably the best real-time data to look at for the labor market is the Department of Labor’s weekly-

David Muhlbaum: Weekly unemployment claims?

Jim Patterson: ... unemployment claims. That tells you how many workers are making new applications to claim unemployment benefits because they’ve been laid off. And if you are starting to have more layoffs now, that will probably mean there’s going to be fewer new jobs being created in the future. And if there are fewer new jobs being created in the future, eventually you’re going to get an uptick in the unemployment rate. So there are different parts of the labor market or different indicators about the labor market that you can look at to try to gauge what’s going on with the economy.

Jim Patterson: Right now, those workers filing claims for unemployment benefits are quite low. They’re close to their lowest in the existence of the data series, I believe. They’re certainly at a low enough level that we are not worried about a lot of layoffs happening right now. There’s not a sign of that. So that suggests to us the labor market’s going to stay very tight and probably the unemployment rate is not about to start rising anytime soon.

David Muhlbaum: Well, I think this is a good moment, since we’re getting to definitions, to step back and check another definition, because listeners know I love definitional questions. There’s a standard term for what a recession is. I mean, I may be a humanities grad, but I know there is one. But how about you explain it, Jim?

Jim Patterson: Okay, well, I’ll explain it one humanities grad to another here. The traditional rule of thumb definition of a recession is two consecutive quarters of negative economic growth. Two quarters where GDP gets smaller rather than gets bigger. But that’s not the official definition that we use here in the US. The official definition is a little ambiguous, actually. But the official designation of a recession comes from a group called the National Bureau of Economic Research, the NBER (opens in new tab). They’re considered the arbiter of what is a recession, what is not a recession in the US. And they do not necessarily use that two consecutive quarters of negative growth rule of thumb that I just mentioned. I think typically if we were to have two consecutive down quarters, the NBER would probably label it a recession, but I don’t think that that’s their formal definition.

David Muhlbaum: In fact, didn’t that question come into play with the last recession? I mean, that was a weird one, right?

Jim Patterson: It was a weird one because we did have two negative quarters, but one of those was an extremely negative quarter. That was, of course, when COVID caused the shutdown of so much of the economy.

David Muhlbaum: Yeah, it’s like we fell off the cliff.

Jim Patterson: But then we bounced back very quick.

David Muhlbaum: Right.

Jim Patterson: Right, we fell off the cliff and then we bounced way back (opens in new tab). We had something like a negative 20 or 30% GDP number and then a similar sort of rebound to the upside the next quarter. So we had a very brief, extremely sharp contraction of what you might call an artificial sort of recession. Certainly in a recession we’d never really seen before where because various state governments were trying to control the spread of the coronavirus, there were all these orders to curtail a lot of economic activity. People weren’t traveling, people weren’t going into work. A lot of people were laid off because they couldn’t do their jobs from home. So we had this really, really sharp drop in one quarter and then an extremely vigorous rebound as a lot of those restrictions were taken away and the economy reopened again. That’s not your typical recession, certainly.

David Muhlbaum: So if the pandemic recession doesn’t inform our future, it was a fluke, what are you looking to in the history for how things might go for us in the near term?

Jim Patterson: Looking back historically, I think whether you get a severe recession, a really deep, long-lasting one, or a shallower one, a lot of it has to do with whether that recession is related to some sort of financial crisis. Of course, storing 2008, 2009, we had the Great Recession, which was one of the worst economic downturns in US history. That was spurred, to a large extent, by the financial crisis we had involving subprime mortgages and how that affected our financial system. There was concern in the summer of 2008 that certain financial institutions were going to fail and what that would mean for the larger system.

So I think historically what you see is if there’s some sort of crisis or panic in the financial system that causes a recession or accompanies a recession, that recession’s probably going to be really severe, difficult to recover from. We certainly saw that after 2009. The recovery was slow. It was not a vigorous comeback. Growth was kind of anemic for a while. We had this slow but steady recovery of all the jobs we had lost. It took years and years.

Other recessions, where there hasn’t been that element of financial crisis, tend to not last as long. They tend to not be as deep. We tend to come out of them faster. Think the recession around the turn of the millennium in 2000, 2001. Of course, we had a terrible stock market sell-off, especially in tech stocks. But the actual damage to the economy wasn’t that bad, and we started to recover faster and more vigorously from that one.

David Muhlbaum: A terrible sell-off in tech stocks. Hmm.

Jim Patterson: Where have we heard that before?

David Muhlbaum: Where have I heard that before? But actually, in the Letter, you look to a situation to forecast how we might actually stay out of a recession. You look back to another time when the economy was wobbly, there was a sell-off in a market sector. But it turned out okay.

Jim Patterson: Right. That was 2016. A lot was different about 2016, but there were a lot of concerns about recession in 2016. We did see a pretty significant slowdown in the economy. What was going on then was a big part of the US economy, the oil and gas sector, was really struggling because commodity prices had really dropped a lot. There were a lot of energy companies that were either going bankrupt or flirting with bankruptcy because the price of the commodities they produced was so weak. And there was a lot of concern that that could spill over into the broader economy and cause an outright recession. And we didn’t get that. We got pretty anemic growth in 2016, something like 1.4% GDP growth for a while. And again, that doesn’t feel like great prosperity, necessarily, but it’s a lot better than actually going into a recession.

So that’s a case where there was a lot of legitimate concern about the R word, but we managed to... The damage stayed contained to one sector. It didn’t spread. Wasn’t enough to slow down the overall economy. And there’s, I think, a hopeful case to be made here that something similar could happen where even though there’s lot of headwinds, like the Federal Reserve raising interest rates, that there are also enough latent strengths in the economy to keep us growing even if it’s not growing very fast.

David Muhlbaum: A good-enough economy.

Jim Patterson: A good-enough economy is better than a recessionary economy.

David Muhlbaum: Right. Okay, I find this sort of thing interesting, and I hope our listeners do, but also I find it a little, I don’t know, futile. Because what is one supposed to do other than hope for the best outcome? But Kiplinger Letter readers, they can... Well, what can they do? I mean, if they’re a business owner or manager, they could change purchasing, marketing decisions.

Jim Patterson: Right. That’s been our advice to readers recently. That’s true. You’re right. When you hear about a recession coming, whether that’s actually going to happen or not, it kind of feels like this steamroller bearing down on you and maybe you just hope that it doesn’t hit.

Jim Patterson: But the practical things that people can do if they’re concerned about the economy, if you’re a business, this might be a good time to rethink some of the investments you were planning to make. Perhaps you might want to go slower or hold off on any sort of major investment, maybe whether it’s new equipment, new real estate, hiring new workers. You might want to be more cautious about things that would make you more vulnerable if the economy did really go south and perhaps you had taken on a lot of debt to finance a new investment of some sort.

And I think the same thing could be said about consumers. Might be a good time to be more circumspect about major purchases. Is this a great time to be buying that boat you wanted for a long time? Or something like that. Or a new car, or maybe moving up to a bigger, more expensive house. It’s not to say you stop doing your normal economic life day to day, but you might want to think more about the big risks that you could be potentially taking on, especially in terms of new investments, new expenditures.

David Muhlbaum: Well, that’s good advice to the individual, but perversely, it’s just the sort of thing that could make that recession actually happen, right?

Jim Patterson: Right. There’s an element of self-fulfilling prophecy here. If everyone gets nervous at the same time about the economy and everybody seizes up and stops making those big ticket sort of purchases or investments that keep their business growing, that could lead to a vicious circle where fear of an economic downturn actually brings on an economic downturn. There’s definitely always a large psychological component to the business cycle on the upswing and the downswing. I’m not saying that this is the root cause of recessions, but certainly recessions can be brought on or hastened or worsened by a lot of fear.

David Muhlbaum: Well, let’s talk about those consumers en masse then for a moment, because clearly you’ve taken their pulse to make your forecast. How is sentiment?

Jim Patterson: Sentiment is not great, but it depends on which measure of sentiment you look at. There are a couple of big ones. The University of Michigan conducts a long-running and highly followed consumer sentiment survey (opens in new tab), and then The Conference Board does as well (opens in new tab). How those organizations conduct their surveys, they place different points of emphasis on what affects consumers. So one measure might be more sensitive to things like the stock market decline, and the people responding to that survey may be more prone to change their spending decisions, for instance, because they’ve seen their 401(k) or their other investment portfolios’ value decline. Another survey may not put so much emphasis on that, but might put more emphasis on the labor market, which is very strong. Jobs are plentiful. It seems like practically everyone who wants to get a job can get a job right now. Wages are rising.

Jim Patterson: So sentiment varies depending on how you measure it, but there’s no question that it’s weaker than it was. There’s a lot of consumer pain out there, of course because of inflation. You’d have to be living under a rock these days not to notice that the price of practically everything is up a lot. And certainly, consumers are feeling that. It’s painful to fill up your gas tank. It’s painful to go grocery shopping right now.

But at the same time, there are indicators that people are still spending. Retail sales are holding up. They’re not necessarily doing great. And people are probably shifting more of their spending to things they can’t do without, the basics, and maybe aren’t spending as much on discretionary sort of goods. Whether it’s electronics or other things they don’t necessarily have to have. Things they might want to have, but maybe they can’t justify it when milk and eggs and gasoline and other staples are rising so much. So it’s not that consumers are feeling great, but it does seem like there are indications that consumers are holding up.

David Muhlbaum: I see. Yes, and I appreciate the attention being paid to the retail sector. I mean, the sales tell us what has happened, but there’s a lot of attention being paid now to what retail firms are saying in their quarterly reports, their forecasts about what they see ahead. That’s had some pretty dramatic effects on a number of retailers. Like, Target got whacked. Although, I can’t exactly remember why, but I do know that their shares went down by like a quarter.

Jim Patterson: Yeah, there was a lot of downbeat news on a lot of retailers’ earning calls, including Target warning about their rising costs eating into their profit margins.

David Muhlbaum: There you go.

Jim Patterson: Rising costs for freight shipping. They’re paying more for the goods that they put on their store shelves. Their profit margins are being pressured as costs rise. And retailers, especially the Targets and the Walmarts of the world, probably are doing everything they can not to hit their customers with the full impact of their own cost increases, because they know their customers are cost-sensitive and they don’t want to drive people away to some competing store. So yeah, we saw Target’s stock drop by a quarter after they issued this downbeat earnings outlook, and we’re seeing other retailers dealing with these same problems. This is the nature of high inflation. It puts a lot of pressure on budgets, whether it’s a household budget or whether it’s a major corporation’s budget.

David Muhlbaum: Since we’re talking about prices, let’s quickly check in again on fuel prices, which are, of course, a Jim Patterson niche (opens in new tab). We are here on the cusp of Memorial Day weekend. Traditionally, the start of the summer driving season. In the face of $4, maybe $5 gas, do you think consumer demand will remain strong? There’s not some price point where people go, “nah, staying home”?

Jim Patterson: I think there is such a price point where it becomes too painful to take that road trip if you don’t have to go. And we’re already starting to see some indications of that. Fuel consumption is already starting to trend down. We are just about at record high prices for gasoline on a national average basis. I always follow AAA’s gas prices because they do such a great job of both providing a national average and then showing the state by state averages. I think currently there is no state in the country where gas averages under $4 a gallon. The overall national average is $4.60, which, again, when you don’t adjust for inflation, is the highest we’ve ever seen. Some states are well over $5. In California, it’s over $6.

Jim Patterson: So I think we are getting to that pain point where even though consumers really do want to travel, they want to get out. Sure, it’s Memorial Day weekend, and every year people want to go on vacation. Especially this year after a couple of weird years with COVID and a lot of people not traveling much, not going to the beach, not going to see family as much, there’s clearly a lot of pent up demand for R & R. People want to get out on the roads. And airline fares are very expensive, so more people are going to be driving, probably.

So demand is pretty good considering we’re at these high prices, but there are some signs that people are starting to say, “I think I’m going to stay home.” It’s not like people are just ignoring the price they’re seeing at the gas station. And as we get even higher, I think that effect will become more pronounced. We’ll see a little more of what economists call demand destruction.

David Muhlbaum: Demand destruction. That is quite a term.

Jim Patterson: An ominous sounding term. It just means-

David Muhlbaum: Demand destruction.

Jim Patterson: ... buying less of something.

David Muhlbaum: Yes, okay. I’m going to pop in a link to Jim’s most recent energy price forecast (opens in new tab), as well as a couple of interesting articles he’s written (opens in new tab) about why gas prices are high, like what is going on in the market and what the factors and... You’re really sort of putting on display your deep knowledge of the energy sector. So that’s something to look at our show notes and check out.

But one last little sort of almost intramural question for you. At Kiplinger, we make forecasts for the stock market. We were just talking about those in a previous week. And we make forecasts for the economy, which is what your team does. And now the we I’m talking about is Kiplinger. Of course, there are individuals who do the research and the reporting behind those, but in the end, it’s a Kiplinger forecast. So here’s my odd question. Who do you think has it harder, the economic forecasters or the people saying what the S&P 500 is going to do this year?

Jim Patterson: Well, as the guy who’s in charge of the team that does the economic forecasts, I would say my colleagues who have to worry about the stock market forecast have it harder, because there’s so much psychology involved in trying to gauge what the stock market is going to do. I think it’s not a precise science to try to tell you what the economy is going to do, but there is a lot of objective sort of analysis that goes into that. We have a great staff economist here at Kiplinger named David Payne (opens in new tab), who I work with closely, who crunches all these numbers and scrutinizes them. I think he does a great job of telling our readers what all this stuff means and what’s going to happen next.

Now, I think it’s even tougher to tell readers what the financial markets are going to do, because in the short term, stock market, the bond market, other assets are driven so much by sentiment and psychology and it’s very tough to predict what other investors are going to be doing or thinking. So I’m grateful that we can just try to say, “Well, here’s what the economy is going to do,” because to us, that’s more tangible. You can look at supply and demand and freight shipping and things that are concrete.

Jim Patterson: When it comes to the stock market, maybe the stock market has a great day or a terrible day because the chairman of the Federal Reserve said something that was interpreted as good or bad. And how do you guess what that’s going to be day to day? So I really take my hats off to my folks who try to handle the investing outlook. I think they’ve got the toughest job.

David Muhlbaum: Well, this could be an interesting conversation next time we all get together in a human space and over a cup of coffee or maybe even a beer, at a work happy hour. So a little behind the scenes there, but I think it’s insightful to understand how the sausage gets made, to some extent. And Jim, you do a great job of pulling it all together. Thanks so much for talking about the dismal science with us this week.

Jim Patterson: My pleasure, David. You made the dismal science fun today, so thank you.

David Muhlbaum: That will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts (opens in new tab) or wherever you get your content. When you do, please give us a rating and a review. And if you’ve already subscribed, thanks. Please go back and add a rating and review if you haven’t already.

To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed, go to kiplinger.com/podcast. The episodes, transcripts, and links are all in there by date. And if you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.