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Opportunity Spending in this Economy

Market Crash. Recession. Inflation. It feels like these words have been dominating headlines in the first half of 2022. Not without merit – the market (S&P) is down -15% and investors are wondering if there will be a comeback in the second half, albeit with inflation at 40-year highs and the Feds’ resolve to combat the 8% cost of living increase with higher interest rates, investors are fretting that a recession is upon us. 

But this article isn’t about that. Instead of focusing on the negative, let's uncover some opportunities to do what Americans love most – shopping! Just in time for National Splurge Day, June 18th.

I know it doesn’t seem like the best idea to go shopping with rising prices, a down market, and recessionary looms but keep in mind that what drives the economy is company earnings fueled by consumer spending. 

Recent recessions have been short-lived. It took almost 4 years to get out of the Great Depression in 1929, it took 1.5 years to get out of the Great Recession in 2008, and it only took a few months to recover from COVID in 2020. Consumers were much more eager to spend money during COVID and pinch pennies a century earlier. 

There are several reasons for this: better consumer credit data, a more refined and accommodative monetary & fiscal policy, and perhaps most importantly, a change in the consumer's psychology. Today, 70% of US GDP is driven by consumer spending (60% globally). 

Inflation makes things difficult – people must spend more on things like food, gasoline, rent, etc. reducing disposable income. However, if we dissect the 8.3% inflation into its components, you’ll find some real bargains.

Takeaway 1: Avoid Travel

Starting off with an unpopular opinion – don’t travel this summer! I get it, COVID delayed your travel and vacation plans long enough, you may have been working from home and just want a change of routine, but you’re not the only one. You can blame it on the pent-up demand for travel, lack of employees, higher input costs, and supply chain delays.

Airfares are 33% higher than they were a year ago. If paying extra isn’t a big deal to you, consider delays and cancellations. In the first month of the year, nearly 1 in 5 flights were delayed and 5% of flights were canceled.

Driving isn’t much better – gasoline costs are up 44% since last April. If you do drive, be careful... not only for your own health but also because it’s more costly to service/repair your vehicle, and fewer vehicles out there (new or used). Once you reach your destination be prepared to spend 20% more on lodging.  

Takeaway 2: Learn Something New

On the flip side, some services are cheaper than they were a year ago (or at least haven’t gone up in price as much).

If you wanted to learn a new skill or trade, try enrolling in a technical or business school – fees haven’t gone up since last year. Education is 4% cheaper than it was in April of 2021. College tuition is up 2.1%, less than the 8% inflation rate. 

Admissions to sporting events have actually decreased by nearly 10%. This is likely due to the lingering pandemic fears, get them while it lasts!

Recreational goods and services are also cheaper – if you ever wanted to get into a new hobby now may be a great time! Cooking appliances and kitchenware are all selling at a discount from last year. Combine that with a cooking course (which too is also on sale)! 

Photography equipment's prices have remained unchanged. TVs are 5% cheaper. Smartphones are also interestingly –16% less expensive than they were a year ago. 

Lastly, subscription goods and services are too trending lower. 

Takeaway 3: Recessions can be opportunities 

There’s a lot of talk about recessions. They’re no fun to experience but there are opportunities to be seized. 

Traditionally real estate and cars are sold at great bargain prices during recessions. This may not be the case this year because rising interest rates may make the homes cheaper but make them more expensive to finance. Cars are a different story. With a lack of supply and lots of pent-up demand, cars are still selling at a premium. In fact, new and used cars were a key contributor to high inflation figures throughout last year – up nearly 50 percent. They’ve come down in 2022 but I don’t think they will be ‘bargains’ in a recession. The heightened demand raised prices to the point that many people decided to wait – once supply picks up, the demand will be there. The average age of vehicles on roads is 12.2 years, a record number. 

Another place to look for great bargains in a recessionary environment is the secondary market. Facebook marketplace, Offerup, eBay, and Craigslist are full of people selling their goods for quick income. Many of these goods are in perfect condition. Recessions and inflation pressures may push people to sell & those platforms can be goldmines for bargain deals – if you don’t mind second-hand goods. 

The last place to buy things on sale right now is the stock market. Stocks are down as much as 20% from their highs (especially big tech). If you have extra capital sitting on the sidelines, consider investing it! Stocks tend to go up over time and if you’re a long-term investor this is an opportunity. If you’re investing in your employer's 401(k) you may already be ‘buying the dip’ with every paycheck. If you’re not, now’s a great time to sign up for your employer's 401(k) or increase your contributions – the recession and inflation will come to pass and your future self will thank you.

~ Igor Nikachin

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.