Costco Reveals Changes In Buying Patterns Amid Impending Recession Fears
Customers are avoiding expensive beef products and buying cheaper meats like pork and chicken. They are also putting in their carts cost-efficient canned meat and fish products, Costco executives recently told investors. These changes in shopping habits are sending tell-tale signals that a recession is on the way, the executives said, as per Business Insider.
Costco's in-house brand Kirkland saw growth in sales in this quarter as these products are cheaper than other national brands. Sales of big-ticket items like TVs and refrigerators have also seen a dip. The average daily transaction at Costco was down by almost 4.2% worldwide and 3.5% in the US during this quarter.
Costco CFO Richard Galanti said that these behaviors are indicative of the coming recession as these same signs had emerged during the past economic downturns.
Many customers are also turning to dollar stores in their efforts to combat inflation. Both Dollar Tree and Dollar General have reported growth in their sales in recent times.
Is a Recession Inevitable for The US Economy?
It's been some time since Americans have been told that recession is around the corner. There are three key indicators of an economic downturn. According to the Bank of America, reported by Market Insider, two of those three signals have already surfaced and it could turn into a nightmare for the stock market.
"The stock market is ignoring the risk," the bank said.
So what are these three signals?
1. Yield curve steepening
"Yield curve steepening after inversion tends to precede big lows in the stock market," Bank of America said. "Get defensive as the yield curve steepens."
This curve measures the difference between the short-term and the long-term US Treasury rates. Currently, short-term rates are yielding more which is unlike norms.
2. Tighter credit conditions
The Bank of America said, "The Fed's quarterly Senior Loan Officer Opinion Survey has tracked bank willingness to lend since the 1960s. It is flashing warning signs. Lending standards have never gotten this tight without leading to or coinciding with a recession. Credit conditions typically turn negative about a year before a buyable low in the market. December 2022 saw the first credit tightening since Covid, and conditions have worsened since then."
3. The Fed Forced To Cut Interest Taxes
"Several Fed cuts to start easing policy have been unabashedly bearish signals. Recessionary bear markets typically see 25% more downside after the Fed's first cut," the bank said
Change In US Consumer Behavior
According to a report by McKinsey & Company, the US is optimistic about the country's economic future. Having said that the report also highlights how more and more consumers and tightening their spending and not going on shopping sprees. While consumer sentiment remains mixed, there is an uptick in optimism as 36 percent of US consumers expect a quick economic rebound.
How Will an Upcoming Recession Differ From That of 2008?
According to Morgan Stanley, the possible recession could be pandemic-induced and also credit driven. Due to this difference, experts at the International Monetary Fund (IMF) predict that the new recession could be shallow and short-lived.
Key Takeaways For Businesses
Market Your Product Accordingly: As consumers tighten their budgets, it's important for the business to market their products the right way and also choose the right products that offer value. Remember, consumers can always be persuaded to buy a product, regardless of any situation.
Cost Cutting Where Needed: There's always an opportunity to reduce expenditure, you just need to look for it. Think of excess as spending and work on that.