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U.S. Consumers Become Pessimistic & Factories Slow Down; Recession Inevitable? Lombardi Letter 2019-09-03 07:27:20 The U.S. economic data is becoming very loud and clear that a recession is inevitable and that it could be nearing. If the recession becomes reality, it could be bad news for investors. Here’s the full story. U.S. Economy https://www.lombardiletter.com/wp-content/uploads/2019/08/Consumers-Becoming-Pessimistic-Factories-Slowing-Down-Recession-Inevitable-150x150.jpg

U.S. Consumers Become Pessimistic & Factories Slow Down; Recession Inevitable?

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Consumers Becoming Pessimistic & Factories Slowing Down; Recession Inevitable

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A Recession Could Be Nearing

Investors beware: a recession could be nearing. If you are not careful, your portfolio could be hurt badly.

Keep this in mind, the noise doesn’t really matter much. Data is fact; it’s the only thing that tells us reality. News headlines will have you convinced that there’s nothing wrong and everything is under control.

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Right now, there are tons of economic data suggesting that the U.S. economy is headed for a recession or could already be in one. We have not seen economic data this bad in years.

Scary.

Consumer Confidence Tumbling

Look at the consumer confidence level: it’s falling.

American consumers are the backbone of the U.S. economy. If they become pessimistic, a recession will follow. When consumers are pessimistic, they stop spending, and this hurts business and production across the board.

One measure of confidence that must be watched by investors is the University of Michigan’s Consumer Sentiment Index. In August, this index fell to 92.1, its lowest level since January. (Source: “Economic Concerns Send U.S. Consumer Mood to Seven-Month Low,” Bloomberg, August 16, 2019.)

This is not good. Consumer sentiment falling screams “Recession ahead.”

Factories Aren’t Getting Many Orders

But don’t just stop at consumer sentiment. As consumers become pessimistic, manufacturers are feeling the impact. They are not getting many orders to produce. Factories are slowing down.

Look at the chart below. It plots the year-over-year change in new orders for durable goods at U.S. manufacturers on a monthly basis. Durable goods are things that last for a long period; think products like furniture and appliances.

Chart courtesy of StockCharts.com

From July to September 2018, new orders for durable goods at U.S. manufacturers grew at a high rate. (Source: “Manufacturers’ New Orders: Durable Goods,” Federal Reserve Bank of St. Louis, last accessed August 28, 2019.)

Things are completely different now though. In March and April of this year, we saw an outright decline in new orders for durable goods. There was a bounce after that, but the overall trend says that orders could decline further.

Don’t forget, a recession is essentially when business activity slows. The reduction in new orders is a pretty clear sign that that the future doesn’t look so bright. In fact, it wouldn’t be wrong to say that the numbers suggest that the U.S. economy could very well be in a recession already.

Why Should Investors Worry About an Upcoming Recession?

Dear reader, I believe that a recession could be inevitable for the U.S. economy. It’s just a matter of time at this point. The economic data is very loud and clear.

I expect the rest of 2019 and early 2020 to be very bad. I will not be shocked if the economic data becomes even more dire and suggests that a recession is here.

Here’s what I’ll end with: the stock market tends to move ahead of the economy. If a recession is coming, expect the stock market to make a top sooner rather than later. At this point, the upside looks very limited while the downside looks big.

Once the data starts to become worse, don’t be shocked to see a sell-off. The bottom falls into place when the economic data is at its worst and things are about to get better.

With that in mind, invest wisely.

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