Is the economy headed for a 'discretionary recession'?

Luxury watch prices have plunged to multiyear lows, potentially signaling the beginning of what experts call a "discretionary recession."

The WatchCharts Overall Market Index, which tracks the price of 60 watches from the top ten luxury brands, has fallen by nearly 14% over the past year. Since peaking in March 2022, the index is down a whopping 35%.

For another data point, Bloomberg’s Subdial Watch Index, which monitors the resale value of the top 50 luxury watches, is down 43% since February 2022.

Slightly different numbers, but both tell the same story: The luxury watch market has peaked.

What luxury watches say about the economy

According to Subdial, a pre-owned watch dealer in London, declining prices mirror the state of the economy—namely, slowing growth, higher interest rates, and a collapse in highly speculative investments such as crypto.

For example, the luxury watch market peaked in the first quarter of 2022 following a year of record stimulus due to the pandemic. But as pandemic stimulus dried up and rates began to rise, the fervor around luxury items began to wane.

It was also around this time that the U.S. economy began experiencing its post-stimulus hangover.

While the economy has shown resilience this year, experts have long warned of a “discretionary recession” as consumers spend less on items they don’t need. Luxury watches fall under that category.

Status symbol or investment?

Regardless of their motivations, watch admirers have shown they’re not afraid to drop tens of thousands of dollars on their preferred timepieces. What’s perhaps most surprising is that buyers appear to be getting younger.

According to Boston Consulting Group, 54% of millennials and Gen Z buyers increased their spending on luxury watches over the past two years.

“The investment market for watches is growing,” the report said. “Wealthy investors increasingly seek alternative investments to diversify their portfolios and to hedge against inflation. For these and other investors, luxury watches stand out as a class of alternative assets because of the strong demand.”

With prices falling, experts say luxury watches may present a new buying opportunity for investors.

“I think as the economy stabilizes, you can see the prices stabilizing or maybe starting to rise again,” Boston Consulting Group’s Pierre Dupreelle told CNBC.