New York, NY, August 16, 2016 – Profit Confidential (www.ProfitConfidential.com) an e-letter of Lombardi Publishing Corporation, a 30-year-old consumer publisher that has served over one million customers in 141 countries, warns that the stalled U.S. economy and weak consumer spending could send the country into a recession in late 2016 or early 2017.
“The U.S. economy is stalling and a recession by late 2016 or early 2017 is a strong possibility,” says economist and lead contributor Michael Lombardi. “The Bureau of Economic Analysis reports that the U.S. economy grew at an annual pace of 1.2% in the second quarter of 2016. At the same time, it also revised first-quarter growth downward from 1.1% to 0.8%.” (Source: “National Income and Product Accounts Gross Domestic Product: Second Quarter 2016 (Advance Estimate),” Bureau of Economic Analysis, July 29, 2016; http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm.)
Lombardi explains that since the first quarter of 2015, economic growth in the U.S. has been rapidly decelerating. A recession is technically defined as two consecutive quarters of negative gross domestic product (GDP) growth. At 1.2% and 0.8% GDP growth in 2016, the idea of a recession in the second half of the year is not implausible.
“Declining U.S. economic growth will continue for one major reason: consumer spending, which makes up two thirds of the U.S. economy, is in bad shape. I expect consumers to continue pulling back on spending,” Lombardi adds. “In fact, consumption in the U.S. economy is at its lowest level since 2009—that was just after the last recession.”
This is born out in the total inventories-to-sales ratio of all businesses in the U.S. economy. When this multiple declines, it means businesses are keeping their products “off the shelves” because consumers are buying their goods. Conversely, when the inventories-to-sales multiple increases, it means companies are stockpiling more inventory because sales are soft. The inventory-to-sales ratio has been increasing steadily since 2012 and is at the highest levels since the 2008/2009 recession. (Source: “Total Business: Inventory to Sales Ratio,” Federal Reserve Bank of St. Louis, July 15, 2016; https://fred.stlouisfed.org/series/ISRATIO.)
“What happens if the U.S. economy falls into a recession in late 2016 or early 2017? Will the Federal Reserve step in and try to revive the U.S. economy? Having exhausted all other efforts the Fed could introduce negative interest rates and flood the market with even more money through its easy monetary policies,” Lombardi adds. “Should our central bank adopt any of these actions, the price of gold bullion could easily move to the $2,500-an-ounce level. If this happens, there will be plenty of opportunities in the shares of quality gold miners. I continue to see them as attractive at their current price levels as a recession could be exactly what they need to push them even higher.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. More information on Lombardi Publishing Corporation can be found at www.LombardiPublishing.com.