On a regular basis, we are told the U.S. economy is just fine. There’s economic growth and the standard of living for the average Joe in America is improving. Is this really the case, though?
I recently had a chance to chat with Michael Lombardi, founder of investment research firm Lombardi Financial and the popular financial web site Profit Confidential. He isn’t buying into the optimism presented by the mainstream media about the U.S. economy.
Below is an excerpt from my conversation with Michael Lombardi. It has been lightly edited for clarity:
Moe Zulfiqar: In your regular Profit Confidential columns, you have been telling readers that the U.S. economy isn’t exactly as it seems. Please explain a little what you mean by this.
Michael Lombardi: I truly believe there’s a huge discrepancy between what we are told and what the data actually say about the U.S. economy.
For example, it’s implied all over that consumer spending is solid. Sadly, this isn’t true. I look at the inventories and sales data at businesses in the U.S. economy very closely; it’s actually suggesting that consumer spending is anemic. Businesses’ inventories are increasing and sales are slowing down very quickly. This is not good at all.
Know that consumption accounts for roughly 70% of the U.S. economy’s growth. If consumers are pulling back, it shouldn’t be surprising if recession actually comes into play sooner rather than later.
Moe Zulfiqar: What else makes you skeptical about the growth talk we often hear?
Michael Lombardi: Let’s look at unemployment statistics.
You will hear politicians say, “look, the unemployment rate has declined by more than 50% from its peak in 2010.” However, there are a lot of things that go untold.
Consider this: the average duration of unemployment—this is how long a person remains unemployed in the U.S. economy—is severely elevated. The average duration of unemployment in the U.S. economy sits at approximately 27.7 weeks. Prior to the Great Recession, it was around 17.0 weeks. I don’t know how one can call this “improvement” whatsoever.
Mind you, there are several other things no one is willing to talk about. For example, the number of Americans working part-time because they can’t find full-time work remains high, a large number of Americans have stopped looking for work, and the labor participation rate is at its lowest level in several decades.
Again, this is not what you see in a strong economy.
Moe Zulfiqar: Where do you see the U.S. economy heading in the next few years?
Michael Lombardi: Saying the very least, the outlook for the U.S. economy isn’t very rosy—even the Federal Reserve is turning skeptical! It hasn’t outright said it, but if you look at the Fed’s forecast for the U.S. economy, its sentiments are very clear.
As I said earlier, I personally wouldn’t be shocked if there’s a recession in the U.S. economy in the near future.
The money printed over the years has given a great illusion that all was well, but it isn’t. There’s nothing more to it.
My biggest concern? Over the years, investors have bought into this “recovery” or “economic growth” talk. They went ahead and bought stocks on this rhetoric. I question what happens when the rug is pulled out from under their feet and they learn the U.S. economy is really in a recession.
Investors could run for the exits then, causing a major sell-off in the stock markets. Certainly, time will tell more.