Ripples from pandemic-era policies continue to reverberate through the U.S. economy, making a recession probable in 2024. While the forward-looking evidence is somewhat mixed, our analysis indicates that the greater weight of evidence points to downside pressure extending to around year-end 2024 and potentially dragging into early 2025.

The Treasury yield curve remains inverted; this is a generally reliable precursor to recession. The Federal Reserve continues to pursue contractionary monetary policy, the effects of which take time to fully develop, and financial conditions have become more restrictive. Recession will be felt differently across the economy; interest rate-sensitive and discretionary markets will likely feel downside pressure more acutely than essential goods and services. 

U.S. consumers thus far have proved to be resilient, and inflation-adjusted incomes are rising to help fuel their spending. However, consumer finances are showing early signs of weakness. Inflation-adjusted U.S. personal savings balances are declining. While still relatively low, credit card delinquency rates are rising, and an increasing percentage of consumers are making minimum payments. Banks are tightening credit standards, which decreases consumers’ access to liquidity. Additionally, the ITR Retail Sales Leading Indicator is declining. However, there are some positive signals—as mentioned, real personal income is rising. Additionally, inflation continues to ease, and the labor market is likely to remain relatively strong given demographic trends. The likely result is a decline in overall U.S. total retail sales, but relatively mild decline.  

Businesses are also facing headwinds, which is most evident in the decline of overall U.S. corporate profits. An increasing number of lenders have raised the criteria for borrowing, and interest rates are elevated, suggesting that credit-funded expansion is becoming less feasible for many businesses. Weaker economic data and tougher financial conditions suggest businesses are likely to be more conservative in their capex plans for 2024. Delays of projects and large expenditures are already starting to occur.

The eyecare industry will feel downside pressure in 2024, but that will be buffered by the essential nature of vision-related services. Customers are more likely to opt for lower-cost options or delay nonessential services. U.S. eyeglasses and contact lenses personal consumption expenditures in the 12 months through August totaled a record-high $42.4 billion, up 2.1% from the year-ago level. Historically, annual expenditures have shown a tendency to contract during macroeconomic recessions. Expenditures declined 3.9% during the early-1990s recession and 6% around the early-2000s recession but dropped only 1% during the Great Recession. 

Think back to those time periods: Is there anything you wish you had done differently to weather the downturn or to prepare for the rise on the other side? The backside of the business cycle can be stressful but remember that it is temporary. There are already some tentative signs of the next rising trend. Lead with optimism and keep an open line of communication with your team and suppliers.  

Do not expect price increases to contribute as much to your top-line growth in 2024. The U.S. consumer price index for eyecare services annual growth rate has diminished to 1.9%. We expect general disinflation (prices rising at a slowing pace) for consumer prices in 2024, but there will likely be small pockets of deflation (decline in prices).

Make sure your financial plans reflect the economic realities of a softening economy in 2024, but also consider the longer term. Identify investments you should make to prepare for the next rising trend—improvements in efficiency or investments that reduce your dependence on labor are likely to pay off in the long run. Just avoid overstressing your finances to make those investments in the immediate term.