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Is a recession coming?
While no one can know for sure there are some tell-tale signs to watch out for.
And one of those signs is consumermoney-spending habits.
We chatted with two financial experts aboutwhat spending habit changes might indicate that a recession is looming.
What is a Recession?
A recession is defined as a slowdown in economic productivity, increased unemployment and lessened consumer spending.
In the U.S., this means that the economy isnt growing year-over-year, underperforming the previous years output.
What Are Recession Indicators?
Recessions often come with tell-tale signs that the economy is stressed.
When the GDP slows down or is negative year-over-year this could indicate a recession is near.
Higher Unemployment
When unemployment rises this can mean that businesses are stressed financially.
An uptick in unemployment several months in a row can indicate that a recession is coming.
Higher rates put stress on the economy and can lead to a recession.
Lower Consumer Expenditures
Whenaverage household consumer expendituresdecreasethis means the economy suffers.
This means that an analysis of consumer spending can help reveal whether a recession is looming or not.
My clients in grocery and basic apparel see consumers trading down, indicating they have less discretionary income.
And when things are financially goodmany consumers opt for themore expensive name brand product.
Restaurants and entertainmentsee declines in higher-margin purchases, Hsiao said.
People cut back on non-essential items and experiences first.
My clients in these sectors are often the first to feel the pinch.
New businesses form at a slower rate whilemore established businessesclose down, Hsiao said.
But when the jobs market starts getting stressed and cash is less plentiful luxury purchases start to die off.
Retailers [may] see drops in sales ofbig-ticket, discretionary goods, Hsiao said.
People postpone expensive, non-urgent purchases, especially for luxury products.
My clients selling fashion, beauty and jewelry are often impacted here.
Consumers take on more debt relative to income, Hsiao said.
Asavailable cash tightens, people turn to credit cards and loans to maintain their lifestyle.
This debt overhang suggests lower future spending.
An uptick inconsumer savings ratescould mean that people are feeling uncertain and feel the need to stack cash.
you might track personal savings rates through the Federal Reserve websitehere.
If savings rates start to spike, it could mean consumers are worried about whats to come.
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