Consumers can have their own habits to show how they think the economy is doing
HOUSTON - While the government's latest inflation report shows improvement, it has still grown by about 20% since the start of the pandemic. As the Fed tries to get it under control, and avoid a recession, consumers have their own habits that indicate how they're feeling, financially.
Kitchen table economics can be like a game of poker. Consumers have 'tells', or mannerisms, that give away how good or bad they think their situation is.
The most notable indicator is the so-called 'Lipstick Effect'. It was coined by a sociologist and economist back in 1998. The idea being that people would buy more lipstick during difficult economic times, because it was an affordable luxury, as opposed to spending money on other things.
But there are other indicators that people may be feeling financially stressed. Look inside the breakroom refrigerator at work. Maybe it's a little fuller, because people are bringing their lunch to work, rather than eating out.
A trip to the salon could fall victim to tight finances, as can men's underwear sales that can be out of sight and out of mind, and not quickly replaced as they wear out.
Dating habits change, as singles have less to spend on bars and clubs to meet someone, and tips can shrink as a discretionary expense.
Houston financial advisor Rich Rosso thinks financial habits 'can' reflect a powerful psychology of consumer sentiment, but the data is more of a mixed bag.
"I don't think you can dictate your portfolio and the direction of the economy solely from these (consumer habits)," he says.
Credit card debt is a historic $1.14 trillion; employment is stagnating; wages aren't keeping pace with inflation. Despite that, Rosso does not see a recession, just yet.
"I think it's a tale of two economies," he says. "You have the older boomers who have seen stock market wealth appreciate, no debt, housing wealth appreciate, who are still spending money, and you have families who are trying to get by. So, depending on who I'm talking to, is how they feel about the economy."
If you're looking for some encouraging economic news, a new WalletHub report of 23 major cities across the country finds Houston's inflation had the second-smallest increase, year over year. That doesn't make things cheaper, just a little less expensive.
The Federal Reserve next meets in September and there is wide expectation it will lower rates for the first time in two and a half years.