Costco CFO Richard Galanti Just Sounded a Recession Warning

For months on end, many financial experts have been sounding warnings about an impending recession. And it's hard to know how seriously to take them.

On the one hand, consumer borrowing costs have soared in the wake of rate hikes on the part of the Federal Reserve. That's likely to lead to a pullback in spending, which could impact the economy.

On the other hand, current economic indicators aren't pointing to a recession. The national unemployment rate in May was just 3.7%, and almost 340,000 new jobs hit the economy last month.

But if you ask Costco CFO Richard Galanti, one specific behavior on the part of Costco members is pointing to economic fears and sluggishness.

Consumers are cutting back on expensive meats

Although Costco tends to offer competitive prices on groceries across the board, during the company's most recent earnings call, Galanti said that members have been cutting back on beef purchases and are instead shifting over to cheaper proteins, like poultry and pork.

He also said, "Historically, like within fresh protein, we've always seen when there's a recession, whether it was '99 or '00 or '08, '09, '10, we would see some sales penetration shift from beef to poultry and pork. We have seen some of that now."

Now the fact that Costco consumers are cutting back on beef purchases doesn't necessarily indicate that we're in a recession. Rather, it could simply be a sign that consumers are worried about one, and that they're trying to conserve cash and boost their savings account balances in case economic conditions worsen. But it's a pattern worth keeping tabs on, because if a recession is in the cards for 2023, it's important that everyone prepare.

How to gear up for a recession

The problem with recessions is that they can lead to an uptick in job loss. And going without an income for a period of time can be a scary thing when you have bills to pay.

That's why now's a good time to boost your emergency fund. If you only have enough cash in the bank to cover two months of essential living expenses, try to sock away enough to cover three. The more money you have at your disposal, the less stressful a layoff might end up being.

At the same time, aim to pay off high-interest debt, such as any credit card balances you have lingering. If you're out of a job, the last thing you'll want is another expensive payment hanging over your head.

Finally, do your best to grow your job skills. That won't guarantee that you'll be spared a layoff, but it might lower your chances. You may also want to consider getting a side gig not only to boost your savings, but to have a second job to fall back on in case your main job is yanked away.

All told, the fact that Costco members are steering clear of a more expensive grocery product could be a sign that consumers are preparing for the worst. That doesn't mean we're doomed to a recession this year, but it's something to be mindful of, and to prepare for accordingly.