SEATTLE — First-quarter earnings came out this week, and they were grim. Experts say a recession will likely stick around even after the economy re-opens. That's partly because people are tentative about spending their money as more Americans miss rent or lose jobs.
The American economy relies heavily on consumption. If people are not consuming, the Gross Domestic Product goes down. If the GDP is down two quarters in a row, then economists will officially label the time as a recession. That won't happen until late summer, but it's clear that people are not spending money. Many say they do not plan on spending, especially on big-ticket items.
The head of credit card company Discover Financial Services offered a glimpse of what spending looks like. During a recent earnings call, Discover CEO Roger Hochschild reported discretionary spending down 33%, mostly driven by travel. Travel, he said, was down 99%, although it accounts for just 8% of cardholder spending.
Now is also a good time to tighten the budget if you haven't already, according to financial experts.
Economists say when business re-opens, people will have missed too many payments with no income coming in. Many will not want to go to bars and be in crowds, and that will further impact the hospitality industry.
"I still don't think we're going into a depression," said Thomas Gilbert, a University of Washington professor of finance and business economics. "But I think the recession will be quite bad. This re-opening will take time."
He says now is the time to manage your expenses like "crazy" – do what you can to save any amount of money. That might mean shuffling credit card debt to cards with lower interest rates or negotiating lower fees with banks or creditors.
Other experts say consumers should look for discounts – many companies are now offering more help. For example, insurance companies are now offering many auto insurance policyholders discounts as they are driving less frequently. Others say evaluate subscriptions and possibly consider cutting some data on your mobile phone bill.
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