U.S. Economy: Proof It’s Already in a Recession

U.S. EconomyIt looks like the U.S. economy is already in a recession, according to these indicators.

The Institute of Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) has been below 50 since October of 2015. Any reading on the PMI below 50 suggests a contraction in the manufacturing sector of the U.S. economy. Last time the PMI declined for four or more consecutive months, we were in the midst of the Great Recession. (Source: Federal Reserve Bank of St. Louis, last accessed February 2, 2016.)

The Markit Flash U.S. Services PMI is another reliable indicator of where the U.S. economy is headed. It’s an indicator of the health of the services sector in the U.S. economy. In February, this indicator declined for the first time since October of 2013, registering at 49.8 in February, down from 53.2 in January. (Source: Markit, February 24, 2016.)

Finally, consumer spending is plummeting. Please look at the chart below. It shows the ratio of inventories to sales at businesses across the U.S. economy. This chart scares me.

FRED

Source: Federal Reserve Bank of St. Louis,
last accessed February 2, 2016.

When this ratio rises, it means businesses are increasing their stockpile of goods because consumers are buying less.

Notice the ratio started trending higher in 2012. Now, it stands at its highest level since the Great Recession (the shaded area on the chart above). Don’t ignore this. It tells us a recession in the U.S. economy is in play.

U.S. Economic Outlook for 2016

I have talked over and over in these pages about how the U.S. economy isn’t going in the right direction. Long-term readers of Profit Confidential know this well. It was the easy money by the Federal Reserve that gave the illusion that everything is great via a rising stock market.

Sadly, investors are realizing the reality is completely different, as the Federal Reserve pulls the “punch bowl” away. The U.S. economic outlook for 2016 is dire. If you have paid attention to the stock market lately, investors are starting to run for the exits. Imagine what will happen once the data starts to show a recession in the U.S. economy. It could get very ugly.