The warning signs of an impending recession have been prevalent due to the trade war initiated by U.S. President Donald Trump. Various indicators such as declining economic growth, weakness in the labor market, and decreasing consumer and business confidence point towards a potential recession. In addition to these well-known indicators, there are also lesser-known symptoms like consumers opting for cheaper options at grocery stores and an increasing demand for career upskilling that can illustrate underlying economic weakness. Longstanding theories dating back decades suggest that changes in skirt hemlines, lipstick and men’s underwear sales, and rising cases of diaper rash could hint at an impending recession.
The tariffs imposed by the U.S. and the resulting counter-tariffs are putting pressure on governments and businesses to diversify trading partners and adapt supply chains to minimize the impacts. Economists and business experts predict higher costs for goods and services as a result, leading to an inflation spike. These higher costs have a ripple effect on economic growth as companies scale back investments in new projects and developments. The gross domestic product (GDP) is a key indicator of economic activity, with a decline for two consecutive quarters being the strongest indicator of a technical recession.
The latest GDP measurement in Canada showed growth in January, but upcoming reports are expected to show a slow-down in the economy. The uncertainty surrounding the trade war is expected to have negative impacts on future growth. Rising unemployment is another indicator of a potential recession, as companies may halt hiring if the economic outlook dims. While a recession can last from several months to a few years, it is less severe and prolonged than a depression. Recent recessions, including the Great Recession of 2007 to 2009 and the COVID-19 recession of 2020, have had significant economic impacts.
Consumer behavior can provide insights into economic changes, such as opting for cheaper options at the grocery store. The so-called “Diaper Index” theory suggests that parents may struggle to afford basic necessities for their children in tough economic times, leading to cutbacks on diapers and an increase in diaper rashes. Other anecdotal theories like the “hemline index,” the “men’s underwear index,” and the “lipstick index” have been debunked but are still sometimes discussed in relation to recessions. These theories attempt to make sense of economic trends in the short term, although they do not provide clear data indicating a recession.
While statistics, policymakers, economists, and financial experts do not rely on anecdotal indicators like hemlines, lipstick sales, or instances of diaper rash to categorize a recession, these indicators can impact consumer confidence. Central banks consider consumer confidence when making interest rate policy decisions. It is essential not to overreact to anecdotal indicators and wait for real data to confirm a recession. The uncertainty surrounding the current economic situation calls for caution and careful analysis of the available data before making definitive conclusions about the state of the economy.
