American Consumers Foretelling a Recession Ahead
Remember these words: Without American consumers, the U.S. economy doesn’t go very far. If Americans become pessimistic, a recession follows. It’s that simple.
Sadly, as it stands, we are seeing something interesting happening among American consumers. They are losing confidence in the U.S. economy, their jobs prospects, and other related things.
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What’s interesting to note here is that this is happening as stocks are at their all-time highs, economic data says the U.S. economy is marching ahead just fine, and politicians tell us that sunny days are ahead.
Investors beware. Don’t ignore the consumer confidence statistics, they could be foretelling a recession ahead.
Consumer Confidence Index Continue to Decline
Look at the University of Michigan’s consumer sentiment index. In January, the index tracking how confident Americans are dropped to 94.4. There’s one more thing; this index has been dropping since November. And January’s level was the lowest since July 2017. (Source: “Consumer Sentiment Slides for Third-Straight Month,” The Wall Street Journal, January 19, 2018.)
Here’s the thing; if it were just one indicator of consumer confidence declining, it may not have been that worrisome. But others are declining as well. This essentially means pessimistic sentiment is widespread in the U.S. economy.
Look at the Conference Board’s Consumer Confidence Index as well.
In December, this index dropped 122.1 from 128.6 in November.
Regarding the decline, Lynn Franco, the Director of Economic Indicators at The Conference Board said, “The decline in confidence was fueled by a somewhat less optimistic outlook for business and job prospects in the coming months.” (Source: “The Conference Board Consumer Confidence Index Declined,” The Conference Board, December 27, 2017.)
Why Economic Slowdown or Outright Recession Could Be Likely in 2018
Dear reader, it’s very critical to understand what this all means.
You see, when consumers turn pessimistic, they stop buying things. When consumers aren’t buying, businesses don’t sell. This leads to business losses, unemployment, and more. Obviously, it takes a while for all this to happen.
I warn you, if consumer sentiment continues to fall, a recession in the overall U.S. economy could become inevitable.
Just look at the chart below. It shows personal consumption in the U.S.—this is consumer spending, divided by U.S. gross domestic product (GDP). In other words, it shows how reliant the U.S. economy is on consumer spending.
(Source: “Personal Consumption Expenditures/Gross Domestic Product,” Federal Reserve Bank of St. Louis, last accessed January 19, 2018.)
70% of U.S. GDP is consumer spending.
What do you think will happen to the GDP growth rate if consumers all of a sudden don’t spend as they did before?
Let’s do some extrapolation…
According to the U.S. Census Bureau, there are about 117.71 million households in the U.S. If we assume that each household just spends $100.00 less each month than they did before, this figure amasses to over $11.77 billion a month. If you annualize it, you are looking at a roughly $141.2-billion impact on the overall consumer spending figure.
Looking at all this, it’s very hard to be optimistic about the U.S. economy. As I see it, the stars are lining up for an economic slowdown or an outright recession in the U.S., rather than growth in 2018.
