For 2016, a recession is becoming a more likely scenario than economic growth, confirmed by two leading indicators and these charts.
Consumer Spending in U.S. Economy Slumps
Consumer spending in the U.S. economy is in a downward spiral. Major retailers are complaining about not being able to drive customers to their stores. Investors are nervous about the earnings of major American retailers and are dumping their shares.
The chart below is of the SPDR S&P Retail ETF (NYSEArca:XRT), an exchange-traded fund (ETF) that tracks the performance of well-known retailers in the U.S. economy.
Chart courtesy of www.StockCharts.com
Since April, the SPDR Retail Index, a leading indicator of retail sales, has been collapsing to the point that you have to ask, “Can anything but a recession be ahead?”
But that’s not all. This following chart shows the ratio of inventories to sales at U.S. retailers.
As you can see, since 2012, retailers have been piling up inventories, as sales have slowed. The inventory-to-sales ratio for the retailers now sits at its highest level since 2009, when the U.S. economy was in the midst of a severe recession.
Key Manufacturing Measures Say Economy in Trouble
A leading indicator of manufacturing in the U.S. economy, the Purchasing Mangers’ Index (PMI), tracked by the Institute of Supply Management, dropped to 48.6 in November. Why is this significant? When the PMI registers below 50, it suggests there’s contraction in the manufacturing sector. This is the first time in 36 months that the PMI has been below 50. (Source: Institute of Supply Management, December 1, 2015.)
My final chart today is of the industrial production index. Tracked by the Federal Reserve, this index measures the output of manufacturing, mining, and electric and gas utilities based in the U.S.
The chart tells the story: Industrial production in the U.S. economy started falling just before 2015. It rebounded in the summer and is now back on the downtrend.
The Recession We’re Heading Toward in 2016
Dear reader, if you listen to the mainstream financial news, there isn’t much talk about risks of a recession in the U.S. economy next year. This is nothing new to me. I have seen this before. Back in 2007 and early 2008, when the U.S. economy was headed toward a recession, the mainstream was clueless—just like they are today.
In mid-2007, we were telling our readers a recession would happen in 2008, but we were just ridiculed back then, too. Here’s the exact text I sent to my family of Profit Confidential readers on August 23, 2007: “I personally expect the next couple of years to be terrible for U.S. housing sales, foreclosures, and the construction market. These events will dampen the U.S. economic picture significantly in the months ahead, leading to the recession I am predicting for the U.S. economy later this year.”
It took guts back then to make this prediction, especially as the stock market was making new highs almost daily. But just like today, key economic indicators were flashing red, and that’s what led me to predict the 2008 recession. It’s those same indicators that today, are pointing me to a recession in 2016.