How Consumers Look Today as Recession Risks Become More Prominent

The MetLife & U.S. Chamber of Commerce Small Business Index for the third quarter of 2019 indicated that employers are experiencing high levels of confidence about their local economies and their financial future. The index overall score increased again to 70.7 this quarter (a gain of two full percentage points), and that was the highest number since its inception.

The National Federation of Independent Business (NFIB) Small Business Optimism index fell by 1.6 points to 103.1 in August. While still a very strong reading, fewer owners expect better business conditions and real sales volumes in the coming months, even as job creation accelerated, positive earnings trends improved and quarter-on-quarter sales gains remained strong. The report does note that the endless number of recession predictions is driving more uncertainty:

In spite of the success we continue to see on Main Street, the manic predictions of recession are having a psychological effect and creating uncertainty for small business owners throughout the country. Small business owners continue to invest, grow, and hire at historically high levels, and we see no indication of a coming recession.

MetLife recently issued its 17th annual U.S. Employee Benefit Trends Study (2019), which was given a subtitle of Thriving in the New Work-Life World. The top five sources of financial stress of employees in its survey were as follows:

  • Being able to afford the cost of health care in retirement (72%)
  • Outliving retirement savings (68%)
  • Having money to pay bills if someone loses their job (67%)
  • Having money to cover out-of-pocket medical costs (67%)
  • Ability to rely on Social Security/Medicare in retirement (66%)

While these all matter, it’s the 67% of workers who are concerned about having enough money to pay bills if someone loses their job that matters if a recession is really coming. The report said:

Nearly 2 in 3 people say they are confident in their finances, but half say they are living paycheck to paycheck, many have dipped into retirement savings, and an increasingly large group says they will have to delay their retirement because of finances.

Among IT workers, generally deemed to be in a high-paying yet somewhat economically sensitive position, 59% of those workers were said to be living off their most recent paycheck, and 69% of respondents reported that they were already planning a postponement to their retirement because of a dire financial situation.

The Federal Reserve released its most recent consumer credit trends report on September 9, showing that consumer borrowing rose by $23.3 billion in July after having risen $13.8 billion in June. This was said to be the largest monthly gain since the $29 billion increase from November of 2017 and the category covering auto loans and student loans also rose handily along with a $10 billion gain in credit card debt to $1.08 trillion.

Fresh data from the Census covering income, poverty and health insurance coverage had some ill omens in the report, but in fairness it was looking back at 2018 versus 2017. It had some data that is not dire but definitely not strong either. The median U.S. household income of $63,179 was not statistically different (up 0.88%) from the 2017 median of $62,626, even as the official poverty rate of 11.8% was a decrease of 0.5 percentage points from 2017. The rate and number of people without health insurance increased from 7.9%, or 25.6 million, in 2017 to 8.5%, or 27.5 million, in 2018.

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