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This 1 Factor Says U.S. Economy Could Be in Trouble for a Long Time Lombardi Letter 2020-09-09 10:15:23 To assess where the U.S. economy is headed, it's important that investors pay attention to how the U.S. consumers are doing. The are a major force behind the U.S. economy that can cause either recession or growth. Right now, they seem skeptical. Here’s the full story. U.S. Economy https://www.lombardiletter.com/wp-content/uploads/2020/09/stock-market-crash-XHAWUP4-1-150x150.jpg

This 1 Factor Says U.S. Economy Could Be in Trouble for a Long Time

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This 1 Factor Says U.S. Economy Could Be in Trouble for a Long Time

Consumer Sentiment Suggest U.S. Economy Far from Growth

Looking at the stock market performance, one could be fooled into believing that the U.S. economy is fine and economic growth could be ahead. But beware: the economic slowdown could drag on for a while.

You see, it’s not really rocket science: consumers in the U.S. economy are a major force that could either help create growth or could cause an economic slowdown.

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If consumers are optimistic, they go out and shop. This helps business and the wheels of the economy roll forward—we get economic growth.

However, if consumers are pessimistic, they step back from spending. This creates a massive problem for businesses: they don’t sell their products, profitability declines, and they are forced to make changes to their operations. In turn, an economic slowdown follows.

Mark these words as well: the longer consumers remain pessimistic and pull back from spending, the greater the economic misery in the U.S. economy will be.

2 Charts Saying U.S. Consumers Are Pessimistic

With this said, know that American consumers are not very happy. This is troubling; do not take it lightly.

Just look at the consumer sentiment indicators.

The most prominent consumer sentiment indicator is the University of Michigan’s Consumer Sentiment. Look at the chart below; it plots this consumer sentiment indicator.

(Source: “University of Michigan: Consumer Sentiment,” Federal Reserve Bank of St. Louis, last accessed September 1, 2020.)

Currently, consumer sentiment stands at its lowest level since late 2011! It’s telling us that consumers are pessimistic, and you really have to wonder if they will go out and shop.

Let’s look at this from another perspective…

To get an idea of consumer demand, look at what the retailers are doing with their inventories. If they are building up inventories, it’s a sign they expect demand. If they are reducing inventories, it suggests businesses expect slow sales ahead. Ultimately, this tells us whether consumers are pessimistic.

Now look at another chart below. It plots inventories at retailers in the U.S. economy.

(Source: “Retailers Inventories, “Federal Reserve Bank of St. Louis, last accessed September 1, 2020.)

Look towards the right side of the chart. Notice something? Inventories at retailers have seen a massive decline. In just a matter of a few months, their inventory levels have dropped to levels last seen in late 2015.

This is essentially saying that retailers don’t really see much demand and consumers are pessimistic.

U.S. Economic Outlook: Don’t Expect Growth Until Mid-2021

Dear reader, the stock market has created an illusion that everything is great. We have said this over and over again: don’t look at the indices to predict the direction of the U.S. economy.

If I just look at the consumer sentiment and nothing else, it tells me the economic slowdown we have seen since February of 2020 could continue for a very long time.

I believe the year 2020 is a complete write-off. Surely, we will see some bounce-back in the third quarter of 2020. This could be because everything was closed in the second quarter.

But, going forward in the fourth quarter, economic data may start to take a wrong turn again.

Don’t be shocked if, after one quarter of growth, the U.S. economy starts to slow down again. Expect next to no growth until at least mid-2021.

See also: The Last Time This Happened, Silver Prices Surged 300%

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