America Could Be Heading into a Recession
The odds of a severe recession in the U.S. economy are stacking higher. While in these pages I’ve talked about several indicators that predict an economic contraction, I have two new ones to share with you.
Let’s start with the auto inventory-to-sales multiple as illustrated in the chart below.
The auto inventory-to-sales multiple essentially tells us how many months it will take to clear out the inventory of cars sitting in car lots. Currently, the auto inventory-to-sales multiple stands at the highest level since the Great Recession.
With auto lease and loan rates rising as interest rates rise, I only see the auto inventory-to-sales multiple going up. Right now, it would take three and a half months to get rid of the accumulated inventory of cars on car lots. I predict this will increase to four months, and possibly four and a half months, before the auto industry comes crashing down like it did in 2009.
Next, restaurant sales have turned weak. Rising restaurant sales are an indication that consumers are doing well, feeling good about their economic future, and going out more to eat. When restaurant sales are declining, the opposite is true.
According to Black Box Intelligence, which provides restaurant sales trend and performance data, same-store restaurant sales in July were down 8.7% when compared to July 2015.
The firm dubbed the decline “…the weakest two-year growth rate in over three years,” and said that it is “additional evidence that the industry has not reversed the downward trend that began in early 2015.” (Source: “Sales Rebound Optimism Short Lived; July Restaurant Sales Tumble,” Black Box Intelligence, August 10, 2017.)
Dear reader; the list of indicators suggesting that the U.S. economy is headed for a recession gets bigger with each passing day. I might be the only one out there predicting this (like I was in 2007): the U.S. economy is headed for a recession later this year or in early 2018.
And I believe this coming economic downturn will be significant. If you are in stocks, focus on stocks that will do well during a recession, such as gold stocks. Gold stocks did exceptionally well after the Great Recession of 2008–2009.