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Key Takeaways

  • Consumers are shifting their spending due to inflation, forgoing holiday travel for purchases like food, shelter, and major household appliances.
  • Surprisingly, more Americans are planning on buying a home in the near future. This may be because home prices have stopped rising, and while interest rates are high, they are expected to increase further over the next year.
  • Overall, consumer expectations indicate a recession. But the NBER generally doesn’t usually declare a recession’s start or end until a year or more after it’s happened.

We could be in for a rough holiday season if the Consumer Confidence Report is right. Americans are stressed about inflation, and it’s affecting everything from their travel plans to holiday shopping projections.

The Conference Board’s October Consumer Confidence Report revealed numbers that could impact retailers’ profit margins. It includes an overall malaise not only about inflation but also about the current job market.

Inflation could damage the holiday spirit

After a couple months of hopefulness, consumer confidence fell in October. Inflation had slightly ebbed over the summer – or at least didn’t go up as much – in large part because gas prices came down a bit.

But that shifted over the past month, with prices at the pump once again on the rise. Consumers are also concerned about food prices, which remain stubbornly high. Transportation and food are essentials, which means with these high prices, we can expect to see consumers cutting their spending in other budget categories – like holiday spending.

This drop in confidence is particularly worrying for retailers who put their inventory in place for the upcoming annual shopping surge before learning of this slump in consumer confidence. This has led some at the Conference Board to postulate that retailers might need to cut their prices in order to move inventory over the next couple of months.

On one hand, this potential outcome could help consumers as they struggle to keep up with rising costs. But the anticipation of this spending slowdown caused massive drops in big retailers’ stocks, like Amazon’s. When retailers are feeling economically impacted, they’re less likely to spend money on labor costs, which impacts the job market and compensation packages.

Housing market showing a sense of urgency with rising rates

Surprisingly enough, consumers expressed higher intentions of purchasing big ticket items, like a home and vehicles. This may be because while both home prices and interest rates are high, home prices are expected to stay stable in the near-term while rates are expected to increase.

As the Fed continues its attempts to battle inflation, it has made its intentions to continue raising rates well into 2023 very clear. For that reason, those who know they will need to buy in the next year may be feeling a sense of urgency to make their purchase now – before a mortgage gets even more expensive.

In October, the Consumer Confidence report also revealed an increased intention to take out auto loans as well. These are purchases that could become more expensive over the next year if the Fed follows through on its declared intent to continue raising interest rates.

Americans planning to stay home, shifting spending accordingly

The Consumer Confidence Report revealed that many Americans plan to stay home rather than travel over the next six months. There may be a couple different reasons for this.

The first is the pandemic. Summer travel was abundant in 2022, rivaling pre-pandemic numbers. But these trips were riddled with issues, flight delays and cancellations due to airline staffing issues, forcing many travelers to fork over for extra lodging expenses while they were stuck away from home.

These recent chaotic experiences have been followed by warnings from health experts that the winter season is likely to be rough for COVID-19 and other illnesses in the U.S.

Europe and Asia have experienced increased caseloads in recent months, and the U.S. is expected to follow suit – especially as the weather forces people indoors.

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Those not concerned about the virus or the turbulence in the travel industry may simply be staying home because it’s too expensive to travel. Gas prices are on the rise again, making it more costly to play tourist, even domestically.

As people plan to hunker down for the winter, they’re shifting their spending accordingly. In October, more Americans expressed an intention to buy home appliances than in months prior. This includes things like washing machines, vacuums, and refrigerators.

Labor market expectations vary depending on who you ask

Whether or not the labor market is expected to improve depends entirely on who you asked in the month of October. In September, 17.4% of consumers expected more jobs to be available in the short-term. In October, that number bumped up to 19.8%.

But not all consumers surveyed had the same rosy outlook. In the same report, 20.8% of consumers reported that they expected to see fewer jobs in October. This is up from 17.8% in September.

Regardless of what people think is going to happen in the future, the assessment of today’s reality is down across the board. When looking at today’s labor market, the number of people who said jobs were plentiful fell from 49.2% in September to 45.2% in October. The number of people who said it was hard to get a job was up to 12.7% in October compared to 11.1% in September.

Does this mean we are headed for a recession?

The most recent numbers indicate that, yes, we are likely headed for a recession. Typically when the Expectations Index – which looks at consumers’ short-term assessments of labor, business, and income expectations – falls below 80, it indicates a recession. In September, the Expectations Index was 79.5. In October, that number fell to 78.1.

In fact, we may already be in a recession. The National Bureau of Economic Research (NBER) typically announces the beginnings and conclusions of recessions retroactively, after all the data has come in and they’ve had time to assess it.

For example, the Great Recession in 2008 – which started in December 2007 – wasn’t officially demarcated until December 2008. While it ended in June 2009, NBER didn’t make that announcement until September 2010.

What does a recession mean for my portfolio?

When you’re a long-term investor, recessions aren’t necessarily bad for your portfolio. Rather, they’re an expected part of the investing process in the same way that they are a normal and expected part of the economic cycle.

The stocks you buy during this time period may experience short-term losses off the bat, but overall the market is likely to grow over a long time horizon. That means the prices you’re paying today may be a good deal after you take long-term growth into consideration.

However, that doesn’t mean these times are easy. There are stocks in some sectors, like healthcare and energy, that appear to be doing well despite the potential recession. But overall, even early-pandemic winners like Amazon and Apple are seeing massive dips in their stock prices.

To combat one of the major drivers of this particular recession, you can use an Inflation Kit and Portfolio Protection. These tools can help you protect your gains and reduce your losses regardless of the industry you’re planning to invest in.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.

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