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Consumers are 'steady and active,' Flexport's chief economist says

The consumer is looking pretty good – for now, according to Flexport chief economist Phil Levy.

"The current state of the consumer is sort of steady and active," Levy told Yahoo Finance at the 2023 Milken Global Conference. "They're not dropping off."

The consumer has been on a journey through the last couple of years, he said, and the logistics startup has been tracking demand closely.

"At the start of the pandemic, everything turned down on consumption expenditures," he explained. "But by May or June 2020, it had already recovered and then shot up so much from there. Consumption expenditures shot up so much that, by the time you get to spring 2021, you had durable goods consumption up from something like 35% from where it was pre-pandemic in real terms."

People shop at a Target store during Black Friday sales in Chicago, Illinois, U.S., November 25, 2022. REUTERS/Jim Vondruska
People shop at a Target store during Black Friday sales in Chicago, Illinois, U.S., November 25, 2022. REUTERS/Jim Vondruska (Jim Vondruska / reuters)

Since then, consumption has dipped, but the decline isn't nearly as bad as some have said, Levy noted.

"It came back from that 35% maybe to 27% or 28%," he said. "Though it's plateauing a little, that's still really elevated consumption and durables."

However, an odd situation has emerged where shipping volumes have been down, even as consumer demand has remained steady.

In the midst of the supply chain crisis last summer, companies "overdid it a bit on inventories," Levy said. "So now we've been getting this pullback because all of a sudden they said, 'Whoa, my warehouse is full.' ... We've gotten a lot of companies pulling back on their shipping, saying that they have to get those inventories down a bit, which means that you've had this disconnect over the last six months."

Looking ahead, however, Levy remained cautious about the economy, primarily due to the Fed's rate hikes.

He doesn't see the Fed backing off its 2% inflation target, meaning additional rate increases could still be in the books. That, in turn, could lead to a recession down the line.

"One could go to any of those people on the Board of Governors, and they're going to consistently point to their mandate — that it's two-fold: full employment and stable prices," Levy said. "Though we have full employment, we don't have stable prices... and that's why I think we're going to have a sharper recession, though perhaps not in the near future."

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

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