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The Fluffy Puppy Indicator is flashing red for the U.S. economy

As higher prices for gas and food has consumers sharpening their budgets for the months ahead, it looks like their cuddly pets aren't immune to the cutbacks.

Over the four-weeks that ended April 9, sales of pet supplies — in other words non-food items that pets don't need to live — fell 1.9%, according to the latest data from Nielsen. That's a sharp drop-off from the 12-week average increase of 3.6%.

Pet grooming sales also plunged 19.2% while dog accessories fell 12.1% and pet bed sales declined 12.7%. The lone increase of any size came in cat litter, which saw an 11.7% gain.

Early signs of less discretionary spending on furry loved ones are a Fluffy Puppy Indicator for the health of the economy in the coming quarters. After all, who doesn't want to keep Fido happy?

"It's an interesting analysis," highly-regarded Morgan Stanley strategist Mike Wilson said on Yahoo Finance Live (video above). "We love our pets. We won't starve them to death, but maybe not buy the extra toy as a discretionary purchase. It's no different than buying an extra thing online and having it shipped to your home. Those types of purchases are exactly the kinds of things we think will suffer first [in a slowdown]."

Wilson is of the view the U.S. may slip into a recession sometime in 2023.

Australian shepherd dogs, Canis familiaris, four puppies leaning on wooden fence. (Photo by: Auscape/Universal Images Group via Getty Images)
Australian shepherd dogs, Canis familiaris, four puppies leaning on wooden fence. (Photo by: Auscape/Universal Images Group via Getty Images)

Wilson is not alone on Wall Street.

"Our analysis of historical G10 episodes suggests that although strong economic momentum limits the risk in the near-term, the policy tightening we expect raises the odds of recession," Goldman Sachs Chief Economist Jan Hatzius wrote in a recent note to clients. "As a result, we now see the odds of a recession as roughly 15% in the next 12 months and 35% within the next 24 months."

Earlier this month, Deutsche Bank's Matthew Luzzetti became the first economist from a major Wall Street firm to predict a U.S. recession as various data point to potential trouble for the U.S. economy.

"I'm no economist," Petco CEO Ron Couglin said on Yahoo Finance Presents. "It's my job to be prepared if there is a recession. We start from the history. And the history is that the pet industry has been one of the most resilient of any industry."

To be clear, the Fluffy Puppy Indicator is hardly foolproof. As Coughlin suggests, spending on pets has held up relatively well during economic slowdowns.

But we do think the indicator is worth being one small tool in your investment decision-making process.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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