Is the U.S. economy getting close to a recession? Rising business inventory and slowing consumption say yes.
In these pages, I have argued over and over again that consumption data is important; it’s the biggest part of the U.S. gross domestic product (GDP) calculation. And, currently, consumption in the U.S. economy is stalling at an alarming pace.
I look at consumer consumption to see how businesses are reacting, and how their sales and inventories level are looking. If sales decline and inventories rise, it’s a problem in any economy.
In March 2015, sales at manufacturers declined 2.1% from the same period a year ago. Inventories in the same month increased by 2.9% year-over-year! This is a bad combination to have. (Source: U.S. Census Bureau, May 13, 2015.)
Rising inventories and declining sales mean that businesses are just not selling and consumer spending is weak.
Of note: the manufacturing inventories-to-sales multiple (this is simply how much inventory manufacturers have compared to sales) currently stands at 1.36. Last time, the inventories-to-sales multiple was this high was back in 2009!
Industrial Production Slow
Another leading indicator of the U.S. economy is industrial production. If industrial production declines, it means factories are slowing down.
From December 2014 to this April, industrial production declined every month. The last time industrial production declined for five consecutive months, the U.S. economy was in a severe recession—late 2008 to early 2009. (Source: Federal Reserve Bank of St. Louis, last accessed May 15, 2015.)
Why I Remain Pessimistic on the U.S. Economy
This data (reported on by very few in the mainstream) tells me that the U.S. economy is in trouble. The few statistics I have just mentioned and others I closely follow say there is no reason to be optimistic towards the U.S. economy. It is decelerating at a dangerous pace. Sooner rather than later, those who say we are headed towards prosperity will see we are in a recession.
With this in mind, I look at the stock market and can’t help but ask if investors have lost their minds.
The majority of public companies have reported their first quarter of 2015 corporate earnings…and it was a terrible quarter, one of the worst in years for corporate earnings. The lack of earnings growth and revenue growth at American companies is the ultimate confirmation that the U.S. economy is slowing down.
But even with all this happening, the S&P 500 just made a new all-time high. Stock markets rally when earnings expectations are great. We simply don’t have this right now. The stock market is far too irrational right now and the reality of it all will soon hit.