Retailers in the U.S. are having a difficult time this year. Sales are down at the retail stores, as consumers are being very cautious with their spending. Even Internet sales are weaker than the experts had predicted.
The U.S. economy is expected to grow by only one percent this current calendar quarter. Consumer spending is tight. The housing market is getting more pathetic each passing day and central banks around the world continue to pump money into the banking system. Great comfort for consumers and investors alike.
A technical definition of a recession is two consecutive quarters of declines in real GDP (gross domestic product). Hence, an official recession can be called as soon as April 2008. But, as with most statistics, you only realize you are in a recession until after it happens.
As I have written many times, the big mistake leading to this economic mess was the Fed’s action of lowering its key lending rate in 2004 to one percent – you’d have to go back 46 years to see the discount rate that far down before. As interest rates fell, consumers went on a party binge-borrowing and spending like drunkards. Today, they are facing a prolonged hangover.
To my beloved readers, I can only hope you tread with caution in the months ahead. If we enter a deflationary period, as I expect, the worst thing to have will be debt. Debt is only good during inflationary times because your debts stay constant while your assets increase in value. During deflationary times, debt could be devastating.
NEWSFLASH — The U.S. Commerce Department reported yesterday that the pace of construction of single family homes fell in November to about a 15-year low. New home-building activity is now down 24% from a year ago. No surprises for PROFIT CONFIDENTIAL readers here. I’ve been writing about how “bad” the housing market will get since 2005… with the worst yet to come.