How Consumers Look Today as Recession Risks Become More Prominent

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With the endless media calls for a recession, one would think most Americans would at least be preparing for a downturn. Either the public thinks the media’s use of the term is as misused as “decimated” or the public is just sticking its head in the sand. Many issues create a solid debate about just how real a recession is and about how deep it would be, but there is still no overwhelming consensus among economists and market-watchers that a recession is already inescapable. That said, there are concerns that the public is not very well prepared for the next recession.

It takes many things to occur for people to start preparing for a recession. They have to start saving money and they have to stop or slow their spending. This then automatically sets the stage for a recession to become inevitable. With Gross domestic product (GDP) having close to 70% of its weight tied to consumer spending activities of some sort, consumers’ efforts to build up as much cash suddenly competes with the dollars used for spending.

One figure frequently used is that most consumers are stretched to come with $500 to $1,000 easily. While the public is rarely able to get through even a mild recession easily, there is a concern that Joe Public might not even be that well prepared for a small economic hiccup.

24/7 Wall St. has maintained that a recession is not unavoidable at this point. While the media keeps touting “recession” headlines, the aggregate statistics about the consumer remain strong. Unemployment is exceptionally low at 3.7%, wages have risen and investments and retirement plans should be very strong at this time. Consumers remain very confident. While homeownership could be stronger, it just doesn’t look or feel like the base level of the housing market is all that stretched.

Let’s move beyond generalities and just assume that a recession is lurking and is unavoidable. At one point, no one will care if it was avoidable. They will just care that they are in the middle of it, and their spending habits will adjust whether or not it is desirable.

GDP has been shrinking, and there are views that GDP is likely to contract for the remainder of 2019. The 3.1% GDP growth in the first quarter of 2019 went down to 2.0% in the second quarter, and the Federal Reserve Bank of New York’s Nowcast was lowered to GDP growth of 1.55% for the third quarter of 2019 and that GDP growth in the fourth quarter would likely run at 1.08% (versus 1.57% just a week earlier).

A summer survey from Bankrate.com indicated that 23% of Americans (a whopping 47 million of them) who were adults when the Great Recession hit said that their overall financial situation is still worse than when the recession hit. This seems hard to imagine, but that’s their reporting. Another one in four surveyed said that they were doing roughly the same now versus at the start of the last recession. Some 51% of that same group said their financial situation is better now than it was before the recession.

Small business confidence is showing a mixed bag in overall confidence, and it is the small business segment that can add the most jobs at any given time. Two readings on this are shown below.