Recession Is Likely as American Consumers Continue to Struggle
If you think the U.S. economy is marching along just fine, be very careful. A recession could be looming. Don’t let the false optimism created by the stock markets fool you.
Understand this: the U.S. economy witnesses economic growth when Americans feel good about their finances. If they are experiencing hardships, a recession could become a likely scenario.
Mark my words: American consumers are hands down the key catalyst for where the U.S. economy goes.
Sadly, as it stands, many Americans are struggling. There’s a lot of evidence of it too.
Just recently, the Federal Reserve released a 66-page report that talks about how Americans dealt with their finances in 2017.
In this report, there were several troublesome findings that shouldn’t be ignored. They make for a very compelling argument that Americans continue to struggle, and that a recession could be ahead.
Here are some of the findings:
- 27% of Americans have a family income of $25,000 or less.
- 40% of adults in the U.S. would either borrow, sell something, or not be able to pay at all if they were faced with a $400.00 emergency expense.
- More than 20% of adults in the U.S. were not able to pay their bills in full.
- More than 25% of U.S. adults skipped necessary medical care because they couldn’t afford the cost.
- 28% of those with at least one credit card (83% of all adults in the U.S.) only made the minimum payments at least some of the time.
- More than 60% of non-retired American adults think their retirement savings plans are not on track.
- Five percent of non-retirees borrowed money from their retirement accounts in 2017 to pay for expenses. Four percent have permanently taken funds from these accounts.
(Source: “Report on the Economic Well-Being of U.S. Households in 2017,” Board of Governors of the Federal Reserve System, last accessed May 23, 2018.)
More Americans Use Food Stamps Than the Entire Population of Canada
Dear reader, as I said earlier, consumers are one of the biggest catalysts for economic growth or recession in the United States.
Statistics across the board are saying that many Americans are not doing well financially. The report by the Federal Reserve is simply more proof.
For instance, we have a massive number of Americans struggling to even bring food to the table. Consider the food stamp usage in the United States. As of February 2018, more than 40.0 million Americans used food stamps. This was well above what the usage figure was before the Great Recession of 2007–2009. (Source: “Supplemental Nutrition Assistance Program,” U.S. Department of Agriculture, May 4, 2018.).
To provide some perspective, there are more people in the United States using food stamps than Canada’s entire population.
Keeping all this in mind, I remain pessimistic about the U.S. economy. Low interest rates may have helped a bit, but the conditions are now completely different. Interest rates are going higher, and this could drag the U.S. toward a recession.
Obviously, with time we will know more.
A warning for stock investors: if we assume that a recession is nearing, know that stock market tops tend to happen before the economy enters a slowdown. So be very careful; a top could be forming.