Recession: The Untold Epidemic of American Businesses Closing

RecessionAccording to the U.S. Census Bureau, for the first time in 35 years, more businesses in the U.S. economy are dying each year than being established.

In 2013, 400,000 businesses started in the U.S. and 470,000 closed down. (Source: “American Entrepreneurship: Dead or Alive?” Gallup Inc. web site, January 13, 2015.) We won’t know 2014 numbers for a couple of more months, but I expect the same: more U.S. businesses closing than opening.

Businesses are what create jobs. If there are more businesses dying each year than opening up in the U.S. economy, it’s a fundamental problem. This gives credence to my belief that economic misery in the U.S. economy continues to be severe and makes talk of economic growth, be it by politicians or the Federal Reserve, questionable.

Three things need to happen for the U.S. economy to improve and for a recession to be avoided: there needs to business investment and/or new business formation, higher wages, and rising consumer confidence. When the U.S. fails at delivering this, we experience an economic slowdown.

Falling Household Income: Indicator of U.S. Recession Ahead?

Declining income remains a major issue in the U.S., threatening to take the economy towards another recession. The chart below is of real median household income in the U.S. economy. This is the income of households adjusted for change in prices, known as inflation.

In 2007, the average American family’s income was $57,357 per year. In 2014, it was down to $53,657—a decline of 6.4%. If incomes are falling, it has a direct impact on consumption, which is the biggest factor when it comes to the calculation of U.S. gross domestic product (GDP).

Saying the least, a recession in 2016 seems a more likely scenario than growth if incomes continue to decline.

Real Household Median

Consumer Sentiment Turns Sour in the U.S. Economy

Last but not least, consumer confidence is critical to the U.S. economy, as it tells us how consumer spending will look going forward. Consumer spending, which accounts for two-thirds of U.S. GDP, determines whether the U.S. economy is on the path to growth or recession.

With all this said, please look at the chart below of the University of Michigan Consumer Sentiment Index.

University of Michigan

Chart courtesy of www.StockCharts.com

While we had a small upturn in consumer sentiment in September, since the beginning of 2015, we have been seeing a decline in consumer confidence.

Why the U.S. Economy Could Enter Recession Soon

More businesses closing than opening, real median household income declining, and consumer confidence remaining down for the year: when the three most basic ingredients of economic growth are failing to perform, a recession is more likely for the U.S. economy than growth.

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