With the threat of recession looming this year, many organizations are looking for ways to secure the gains they made as the economy rebounded over the past two years. Strengthening strategic planning by gauging the potential impacts of an economic downturn on consumer spending can help financial institutions prioritize their goals, gain a clearer understanding of the risks they face, and develop more resilient blueprints for growth during the recovery.
Likely impacts of impending recession
Visa’s in-house recession model predicted an 83 percent likelihood of a recession or downturn in 2023. This is due, in part, to inflation pressure holding strong for longer than initially anticipated and the resulting federal rate hikes by the Federal Reserve.1 Visa’s chief economist Wayne Best and principal U.S. economist Michael Brown share their take on what a 2023 recession and recovery could look like in the U.S.
The impacts of a downturn on the consumer sector are expected to be minimally disruptive, as tight labor market conditions may help mitigate job losses. However, the expected outcome of increased unemployment paired with ongoing high inflation is that real disposable income growth will remain negative until the first quarter of 2024. This loss of purchasing power and an expected slide in consumer confidence will likely slow consumer spending growth, which could potentially affect financial institutions’ portfolios in a number of ways, including cardholder activation, spend behavior, spend volume, revenue, and more.
A more targeted view can help you navigate economic uncertainty
While a broad macroeconomic view can help financial institutions understand the full scope of potential market activity, they need a more targeted view of consumer spending trends to help evaluate the risks of a downturn at the national, state, and city levels. Detailed insights that can be filtered by location and market segment can help inform strategic planning, as impacts on consumer spending may vary by region.
The Visa Spending Momentum Index (SMI) from Visa Business and Economic Insights provides a granular view of consumer spending trends by analyzing aggregated and deidentified spend behavior data from millions of consumers. SMI provides a number of reporting solutions, such as the new Recession Probability Index, that can help financial institutions with a detailed recession analysis to identify the risks they might face across different regions down to the local level.
In this brief video, Visa global economist Dulguun Batbold explains the Visa Spending Momentum Index in more detail as a guide to navigate business through economic cycles. He explains how SMI can provide an advance warning of emerging economic weakness at both the national and local levels, helping businesses plan ahead, adjust acquisition plans, reallocate marketing budgets or refocus areas for more risk monitoring.
“Had our clients had access to our SMI at the beginning of the 2008 recession, they would have already seen emerging weaknesses in states like Florida and California…”
-Dulguun Batbold, global economist at Visa
In addition, just as important as managing economic cycles on the way down, the timeliness of our recession probability measure can also help businesses catch the recovery as it happens, rather than reacting after the fact. Keep in mind that U.S. recessions typically end within a year. Businesses that are earlier to restart marketing and acquisition campaigns can gain a strategic first-mover advantage as the recovery unfolds.
For eligible U.S. Visa clients, access to more detailed views such as geography, merchant or credential segment is available through subscriptions delivered via the Visa Analytics Platform. Learn more at our Managing Risks and Growth During Economic Downturns page.