Signs of economic difficulties
FOX 26 business reporter Tom Zizka explains why consumers’ own habits reveal how they really feel about the economy.
HOUSTON – Although the government’s latest inflation report shows improvement, inflation is still up about 20% since the pandemic began. While the Fed tries to get the crisis under control and avoid a recession, consumers have their own habits that show how they are feeling financially.
Economics at the kitchen table can be like a game of poker. Consumers have “tells” or behaviors that reveal how good or bad they think their situation is.
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The most notable indicator is the so-called “lipstick effect”. This term was coined by a sociologist and economist in 1998. The idea behind it is that in difficult economic times, people buy more lipstick because it is an affordable luxury, rather than spending money on other things.
But there are other signs that people are experiencing financial stress. Take a look in the fridge in your company’s break room. It might be a little fuller because employees are bringing their lunch to work instead of eating out.
A trip to the hair salon can fall victim to a tight budget, as can the sale of men’s underwear, which becomes out of sight and out of mind and is not quickly replaced when it wears out.
Dating habits are changing as singles have less money to spend on meeting new people in bars and clubs, and tips are less in demand as a voluntary expense.
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Houston-based financial advisor Rich Rosso believes financial habits “can” have a strong influence on the psychology of consumer sentiment, but the data paints a mixed picture.
“I don’t think you can determine your portfolio and the direction of the economy based solely on these consumption habits,” he says.
Credit card debt is at $1.14 trillion, a historic high. Employment is stagnating and wages are not keeping pace with inflation. Nevertheless, Rosso does not expect a recession yet.
“I think it’s a tale of two economies,” he says. “You have the older baby boomers who have seen their wealth increase in the stock market, who have no debt, who have seen their property values increase, who are still spending, and you have the families who are trying to make ends meet. So it depends on who I’m talking to how they think about the economy.”
If you’re looking for encouraging economic news, a new WalletHub report on 23 major cities across the country finds that Houston’s inflation saw the second-lowest increase year-over-year. That doesn’t make things cheaper, just a little less expensive.
The next meeting of the US Federal Reserve will take place in September and it is widely expected that the central bank will cut interest rates for the first time in two and a half years.
