Struggling American Consumers Foretell Recession Ahead
Fact: You can’t expect the U.S. economy to show stellar performance with struggling American consumers. A recession is a likely scenario when this happens, not economic growth.
The stock markets may trick you into believing that all is well in the U.S. economy and that solid growth is ahead. Sadly, the reality is the complete opposite. American consumers are struggling. A recession is brewing. There’s strong evidence of this.
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Mind you, don’t just trust the numbers stated here. Look at the American consumer data yourself. It’s bleak.
Consider consumer bankruptcies, for example.
In times of economic growth, you would expect fewer consumers filing for bankruptcies. This could be because they have a job, savings, or they are able to pay off their debts.
In the second quarter of 2017, there were 224,020 consumer bankruptcies in the U.S. economy. This was the highest figure since the third quarter of 2016. Quarter-over-quarter, bankruptcies increased by over 10%. (Source: “Household Debt And Credit Report (Q2 2017),” Federal Reserve Bank of New York, last accessed November 7 2017.)
First-Time Home Buyers Refrain from Buying
But don’t just stop here. There’s more evidence suggesting that American consumers are struggling and that the economy could be closing in on a recession.
The housing market is another great place to see how consumers are feeling. First-time buyers are especially worth keeping a close eye on. If they are buying houses, it suggests they are comfortable with their financial situation, have a job, have savings, and are optimistic about the future.
In September, first-time home buyers were behind just 29% of sales of existing homes—these are already built homes. This was the lowest number since September of 2015! (Source: “Existing-Home Sales Inch 0.7 Percent Higher in September,” National Association of Realtors, October 20, 2017.)
In a normal housing market, first-time home buyers are usually behind 40% of existing home sales.
One could say first-time home buyers aren’t buying because mortgage rates are increasing. This is not true. We are seeing the opposite. In January of 2017, 30-year fixed mortgage rates were 4.15%. In September, they were 3.81%. The mortgage rate seen in September was one of the lowest since November of 2016. (Source: “30-Year Fixed-Rate Mortgages Since 1971,” Freddie Mac, last accessed November 6, 2017.)
Where Do We Go from Here?
It can’t be stressed enough that without American consumers, the U.S. economy doesn’t go far. Right now, the average consumer seems to be struggling. This is not good.
The headline economic data still shows that there’s some economic growth in the U.S. economy, but this may not be the case going forward. I repeat, a recession could be brewing in the U.S.
I will not be shocked if a slowdown in the U.S. economy begins in early 2018, and by mid-year, the economy is in a full-on recession. Investors who ignore the data now could be in for a surprise then. And they could be running for the exits.
