While there are various triggers that can tip an economy into recession, a drop in consumer spending is certainly an unwelcome development.
And one measure of consumers’ spending patterns shows that spending is still strong, suggesting that a recession is not imminent.
Behavioural economist Dr. Dan Geller and his company Analyticom provide the banking industry with scientific forecasting and Geller is the developer of the Money Anxiety Index which measures the level of financial anxiety by what people do with their money.
Despite the current low level of the index – it was at 44.0 in June, up from 42.7 in May – Dr. Geller warns that the negative media speculation of a recession could be enough to spark a reduction in spending.
That’s because when people perceive financial danger, they begin hoarding money in case they lose their jobs in a potential recession.
Since consumer consumption makes up about 70% of Gross Domestic Product (GDP), a 5% reduction in spending equals 3.5% of GDP, which is greater than the projected GDP for 2019.
Dr. Geller’s index began rising around 14 months before the Great Recession and peaked in its aftermath at 100.4.
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