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Telltale Signs

Summary:
I’m seeing lifestyles that are out of stock and no longer available, even in China. Though every recession is unique, all recessions manifest in similar ways in the real economy. By real economy, I mean the on-the-ground economy we observe with our own eyes, as opposed to the abstract statistical model reflected in official declarations of when recessions begin and end. One characteristic that never makes it into the abstract statistical representation of recession is the light switch phenomenon: business suddenly dries up, as if someone turned a light switch off. This is especially visible in discretionary purchases, which include everything from smart phones to vehicles to eating out. Other telltale signs of recession include:

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I’m seeing lifestyles that are out of stock and no longer available, even in China.

Though every recession is unique, all recessions manifest in similar ways in the real economy. By real economy, I mean the on-the-ground economy we observe with our own eyes, as opposed to the abstract statistical model reflected in official declarations of when recessions begin and end.

One characteristic that never makes it into the abstract statistical representation of recession is the light switch phenomenon: business suddenly dries up, as if someone turned a light switch off. This is especially visible in discretionary purchases, which include everything from smart phones to vehicles to eating out.

Other telltale signs of recession include:

Dead giveaway #1: businesses that seemed established and doing well suddenly close. The customers are surprised, the employees are not; they knew sales were eroding while costs were rising, and the financial situation was becoming increasingly precarious.

Dead giveaway #2: new businesses that would have thrived a few years ago close within a few months. Maybe it was the multitude of competitors, or the high rents; but for whatever combination of factors one attributes the demise to, an enterprise that seemed to have all the ingredients for success fails quickly.

Dead giveaway #3: advertising and marketing / promotion no longer move the needle. Campaigns that reliably increased sales no longer work.

Dead giveaway #4: Matriarchs and patriarchs of established enterprises retire. They typically offer rote explanations for their abrupt retirement–to spend time with the family, to enjoy the leisure they never had working 12-hour days, and so on–but the unspoken reason is their decades of experience have finely tuned their recession detectors. They know when it’s about to become impossible to grow revenues and they no longer have the need or energy to buckle down and survive the decline phase of their enterprise’s S-Curve.

Dead giveaway #5: a cliffdive in new business and new customers / clients. If 3 or 4 new customers would sign up every day in the good old days, suddenly nobody’s signing up, regardless of the promotions offered. Then existing customers start drifting away. If you ask why, you get routine answers: family budget cuts, time constraints, etc. Interestingly, these didn’t have any impact in good times, and yet suddenly they’re like a virulent virus: everybody’s got budget cuts and time constraints.

Dead giveaway #6: promotions increasingly give off the pungent scent of desperation. That airline credit card that once offered 25,000 free miles once you spend $1,000 are now offering 50,000 miles on the first use of the card, even if it’s for a cup of coffee at Starbucks. Then the offer edges up to 60,000 miles for customers on the airline’s flights, and so on.

New renters that were previously offered some throwaway promo (once month “free” gym membership, etc.) are suddenly being offered a free month’s rent to sign the lease.

Dead giveaway #7: multiple offers for homes vanish like mist in Death Valley in July. Real estate and home remodels / additions are the most sensitive canaries in the coal mine; they keel over at the first whiff of declining asset valuations and the first hint that greed has flipped polarity to fear.

Dead giveaway #8: the “fun” third vehicles and the inherited sports cars start showing up on CraigsList and “for sale by owner” lots. One of my favorite memories of the 2008-09 meltdown/recession was reporting on all the used Porsches I saw on the local “sell by owner” lot. One of my longtime correspondents said that if he saw me toodling around in a 911, he was canceling his financial support of my work. (Surrender my 1998 Civic for a sports car? Perish the thought–though it was a tempting fantasy….)

Needless to say, I didn’t pick up a heavily discounted recent-vintage Porsche, though the prices were amazingly attractive. (Recall my innate frugality.)

Charles Hugh Smith
Charles Hugh Smith is an American writer and blogger. He is the chief writer for the site "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites. His commentary is featured on a number of sites including: Zerohedge.com., The American Conservative and Peak Prosperity. He graduated from the University of Hawaii, Manoa in Honolulu. Charles Hugh Smith currently resides in Berkeley, California and Hilo, Hawaii.

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