If This Is Economic Growth, Then What Will an Economic Slowdown Look Like?

As I have written in these pages many times before, economic growth in a country happens when people are finding jobs, real wages are rising, consumers are spending, businesses are expanding and seeing their inventories decline, and the general standard of living is rising.

But all of these events are missing in the U.S. economy.

The jobs growth we have witnessed following the Great Recession has been in low-wage-paying sectors. Despite the politicians telling us we have economic growth, we still have a significant number of Americans unemployed or working part-time because there aren’t any full-time jobs for them. The underemployment rate, which I consider to be a better measure of the jobs market situation, still stands around 14%, and it’s been at that number or higher for years.

In periods of economic growth, businesses spend their money, creating higher-paying jobs as they do. In the current U.S. economy, businesses are still shying away from spending; rather, they hold a pessimistic view on the economic growth potential of the current U.S. economy. Many companies have taken to the process of buying their shares back in order to make their per-share corporate earnings look better.

According to the Bureau of Economic Analysis, personal consumption expenditure, a measure of consumer spending in the U.S., decreased 0.2% in April after a dismal rise of only 0.1% in March. (Source: Bureau of Economic Analysis, May 31, 2013.)

Disposable income (what Americans have left after paying taxes) also declined in April, shedding 0.1% in the month.

Even with all the gains in the key stock indices and politicians saying we have economic growth in the U.S., the wealth of Americans is nowhere close to what it was before the financial crisis and recession hit the U.S. economy. According to the Federal Reserve Bank of St. Louis, adjusted for inflation, Americans have gained back only 45% of the wealth they lost during the Great Recession. (Source: Wall Street Journal, May 30, 2013.)

If this is what economic growth looks like, then I don’t even want to think about how horrible a slowdown in the U.S. economy will appear—which will happen because of what is going on in the global economic conditions.

If the Federal Reserve starts to move away from quantitative easing and its easy monetary policies, the actual economic growth picture for the U.S. economy will deteriorate quickly—and that’s why I believe the Fed can’t pull back on its paper money printing anytime soon.

Where the Market Stands; Where It’s Headed:

We are in a stock market that is severely overbought. The bear market has done an excellent job at convincing investors the stock market is safe again…and this time, the bear had a helping-hand—the policies of the Federal Reserve.

Even I’m surprised at how far this market has risen. But the fundamentals behind a real, sustainable stock market rally are missing. The higher this stock market goes, the further the fall. Then what? Let me guess: the Fed will buy stocks to support the crash?

What He Said:

“In 2008, I believe investors will fare better invested in T-Bills as opposed to the stock market. I’m bearish on the general stock market for three main reasons: Borrowing money in 2008 will be more difficult for consumers. Consumer spending in the U.S. is drying up, which will push down corporate profits.” Michael Lombardi in Profit Confidential, January 10, 2008. The year 2008 ended up being one of the worst years for the stock market since the 1930s.