King of Prussia, a small Pennsylvania town of about 22,000 people, has no natural landmarks. It has no monuments, no museums and no historical sites worth visiting. However, there are about thirty hotels, many of considerable size, that have mushroomed around the major local tourist attraction: a huge shopping center to which consumers flock via the four converging freeways. However, hotels are emptier than usual these days, according to an employee. It’s not shopping season yet, but gas is also more expensive, and fewer and fewer people are choosing to shop long distances. The higher prices – especially for energy and food – are having an impact on consumption. And the expectations of the Democrats ahead of the November 8 general election.
The King of Prussia shopping center is better known than the city it shares its unique name with, and if you’re in the mood for some shopping, one day isn’t enough to visit the entire mall. The universe of consumption is present in more than 450 facilities covering a total area of approximately 2.9 million square feet. Fashion stores (from Primark to Ralph Lauren), luxury stores (Jimmy Choo, Louis Vuitton, Gucci, Tiffany’s, Bulgari, Cartier), department stores (Bloomingdale’s, Macy’), decoration, home, furniture, sports stores… You can find They even have a Tesla dealership and dozens of restaurants. There are a number of other shops, supermarkets and megastores in the immediate vicinity. Costco and Walmart, the giants of grocery distribution, are here. Of course there are several petrol stations within walking distance of the mall. Virtually the entire universe of American consumption in one place.
“Saturdays are crowded,” said a store clerk. While showing signs of weakness, consumption has surprisingly held up so far thanks to the savings accumulated during the pandemic and the strength of the job market.
This is another paradox of the American economy. The unemployment rate is 3.5%, the lowest in 50 years. “Help Wanted” signs can be seen in many King of Prussia stores. According to estimates, the number of offers is twice as high as the number of unemployed. Joe Biden recently declared that the country had “employed 10 million additional workers. More than ever. Unemployment is the second lowest rate in all of American history.”
More hot dogs
But the truth is that it doesn’t pay off. Unemployment has simply returned to pre-pandemic levels. However, inflation was an almost forgotten problem for Americans. Over the past 30 years, the average has been just over 2%. Until the current crisis. To weather the pandemic, the Federal Reserve and Biden administration flooded the economy with liquidity and demand skyrocketed while supply continued to be impacted by supply chain issues and the Covid-19 backlash. In addition, problems have been compounded by the war in Ukraine due to its impact on oil, food and other commodities, and prices are rising at their fastest pace in four decades. Inflation reached 9.1% in June and does not want to decrease. In September – the last data before the elections – it was 8.2%.
“Everything is expensive, but you have to eat,” said one customer, smiling as she recently left King of Prussia Walmart with her kids. According to the United States Bureau of Labor Statistics, home-use groceries have increased in price by 13% over the past 12 months. These include strong increases in basic products such as eggs (30.5%), milk (15.2%), chicken (17.2%), rice and pasta (15.9%) or margarine (44%). Walmart’s chief financial officer recently explained that customers are gravitating towards cheaper products like hot dogs, tuna or canned chicken.
Meanwhile, gasoline is still up 18% year-on-year and the bills arriving at home are also growing higher: electricity up 15.5% and gas up 33%.
In comparison, the 5.5% gain in apparel (the most coveted product at the King of Prussia Mall) isn’t much. Sales and discounts have managed to contain prices. For this sector, the problem is different: when consumers spend more on groceries, they have less money for other purchases. The companies miscalculated and found themselves with a lot of stock they couldn’t sell.
The Federal Reserve is attempting to contain inflation with the most aggressive rate hikes since the 1980s. Its chairman, Jerome Powell, has said it will take “some pain” to pull it off; if necessary, he is also prepared to provoke a recession. Monetary tightening and the prospect of an economic slowdown have hit the stock market, in which tens of millions of Americans invest directly or indirectly.
Rate hikes have particularly impacted mortgages, which Freddie Mac says is already at about 7% for 30-year loans. As a result, home sales are falling; Just last Thursday, the Pennsylvania Association of Realtors pointed out that their state is down 16% year over year.
What worries the public the most
In surveys, the economy in general and inflation in particular invariably appear as the top concern, far behind immigration, abortion, crime, firearms or the risks to democracy. In the most recent New York Times/Siena poll, the economy in general is the top concern for 26% of likely voters and inflation for 18%. Abortion and immigration are mentioned by 5%. At Gallup, 38% cite economic issues, 22% cite government as an issue, and immigration is third at 6%. And according to the CBS News/YouGov poll, 65% of voters believe the economy is deteriorating, with a majority citing Biden as responsible.
“It’s the economy, fool.” This is the phrase that James Carville, Bill Clinton’s strategist, used at the heart of the 1992 presidential campaign to defeat George Bush Sr. Republicans are convinced that victory in the November 8 general election will also be theirs. At every debate and rally, they bleed with the price hikes and try to hold Biden accountable and tie the Democratic candidates to him.
The President called the Inflation Reduction Act a piece of legislation that didn’t do this, but at least gave it some political ammunition. He also staged a confrontation with oil company directors to lower gasoline prices while announcing that he would continue to bring more strategic oil reserves to market. It didn’t do him much good.
At least the slowdown in the labor market and the possible recession have been delayed. Aside from Saturdays, Thanksgiving weekend (including Black Friday) and the weeks leading up to Christmas are the times when the King of Prussia mall is packed. This data will be this year’s acid test that will determine where consumption and the US economy are headed. But that will be after the elections.