U.S. economic data is very clear: we’re headed towards a recession, if we’re not already in one.
There are three key indicators I closely follow that presently paint a gruesome picture of the U.S. economy: consumer confidence, manufacturing statistics, and business conditions as tracked by regional Federal Reserve banks. All three point to an economic slowdown.
Recession Indicator # 1: Consumer Confidence Crashing
As I have often written in these pages, consumer consumption statistics are key to where the U.S. economy is headed, as consumption is the biggest factor in the U.S. gross domestic product (GDP) calculation.
As it stands, we are seeing massive declines in consumer confidence—a leading indicator of consumer spending. Please see the chart below; it’s of the University of Michigan Consumer Sentiment Index.
Chart courtesy of www.StockCharts.com
As the chart clearly shows, since January of this year, consumer confidence in the U.S. economy has been crashing. As consumers become more pessimistic, they pull back on their spending.
Recession Indicator # 2: Manufacturing Collapsing
Manufacturing statistics are critical as they show how factories in the U.S. economy are faring. If manufacturing slows, an economic slowdown could soon be ahead. And right now, activity in the manufacturing sector is decelerating quickly.
Consider the Institute of Supply Management Purchasing Managers’ Index (PMI). In September, this index, which tracks manufacturing in the U.S. economy, registered at its lowest level in 28 months; it stood at 50.2. (Source: Federal Reserve Bank of St. Louis, last accessed October 1, 2015.) At the same time last year, the PMI stood at close to 60. Remember: anything below 50 means the economy is in contraction.
Recession Indicator # 3: Surveys by Regional Federal Reserve Banks
Each month, several Federal Reserve banks report on business conditions in their respective regions. By looking at these statistics, we can get a general idea about the direction of the U.S. economy.
The chart below is of general business conditions in the New York region, as reported by the Federal Reserve Bank of New York. Note the gray area on the chart is when the U.S. economy was in recession.
Looking at this chart, we see that businesses in the New York region are saying the U.S. economy is already in a recession, as business conditions in New York are at their lowest level since 2009! Other regional statistics are similar, if not worse.
U.S. Economy Already in Recession?
Don’t buy into the optimism sold by the politicians. The U.S. economy is facing severe headwinds and an economic slowdown is already here. If this continues, and the headline numbers start to show recession, there could be many surprises ahead. Maybe that’s what the falling stock market has been warning us about: a recession in late 2015/early 2016.