Popular Posts

Friday, February 7, 2020


If Recession Happens in 2020 for the U.S., Negative Interest Rates Could Become Reality.The Next Recession Brewing in 2020? It’s Possible
You really have to wonder if 2020 could be the year when the U.S. economy falls into a recession.
Why? Because the economic data has been taking a turn and it says the outlook seems gruesome.If you listen to the mainstream media and pay attention to just the headline data like gross domestic product (GDP), you could have a completely different take on the U.S. economy. At this point, you could be thinking that growth, rather than a recession, is ahead.
You must dig into the details, however. Look at the data below the surface.
U.S. Manufacturing Sector Says Recession Likely Ahead
Look at the manufacturing sector of the U.S. economy, for instance. It could be considered a leading indicator of recession or growth.
If manufacturers are operating in full gear, it’s a sign that things are improving.
If we see the opposite, a lot of trouble could be ahead. In fact, it wouldn’t be wrong to say that, if manufacturing activity in the U.S. drops, it could be an indicator that the economy is in a recession or fast approaching it.
With that said, look at the chart below. It plots the year-over-year change in new orders of durable goods at manufacturers in the U.S. economy.
This is a troubling chart, and it’s very unlikely that you will see it often. Mind you, durable goods are products that last for long time—things like appliances and furniture.
In August 2018, new orders for durable goods were growing in the double digits.
Now the situation is completely different. In November 2019, new orders for durable goods at manufacturers declined 3.4%. Since April 2019, on year-over-year basis, these orders have declined every month except July.
Why the Next Recession Could Be a Problem
Dear reader, this is all too scary.
I am watching the manufacturing activity in the U.S. economy and it’s concerning. I ask if it is hinting at a recession for the U.S. economy or if the economy is in a recession already.
Here’s why I am really worried.
You see, recessions are part of the business cycle. Every economy goes through recessions and growth; it’s normal. For the U.S. economy though, the next economic slowdown could be very critical.
We already have low interest rates, something that the Federal Reserve uses to manage the economy. Between 2015 and 2018, the Fed tried to raise rates, but it sent shocks to the economy. I am worried about what will happen in the next slowdown. How low could the Fed take interest rates in order to fight the slowdown?
I worry that the next recession could trigger the Federal Reserve to implement a negative interest rate policy (NIRP) and print a lot more money than it did in the previous recession.
We won’t even need a financial crisis like the one we had back in 2008–2009 for the Fed to take extreme measures.
Let me end with this: NIRP and printing more money would be a major problem. Negative interest rates and printing money reduces the buying power of Americans and causes bigger problems in the long term.Soaring Inflation Ahead for the U.S. Economy? Here’s Why It Could Happen.Inflation Tamed for Now, But Could Be Much Higher in Coming Years
High inflation could be ahead for the U.S. economy. If this happens, it won’t end well for consumers or investors.
Before going into any details, let’s get some basics out of the way.Inflation is when the general level of prices in an economy increases. You could also call it diminishing purchasing power or a decline in the value of money.
The Federal Reserve targets inflation in the range of two to three percent per year. What’s considered high inflation for the U.S. economy? Five percent or higher.
At the moment, if you listen to mainstream economists, none of them expect inflation to soar, and the official figures say inflation is under control.
In the first 11 months of 2019, the consumer price index (CPI), an official measure of inflation in the U.S. economy, increased 2.2%.Skyrocketing Money Supply to Trigger High Inflation
Now, digging in to the details…
In the short term, inflation in the U.S. economy may not be an issue. In fact, it wouldn’t be shocking to see it a dip a little in the near term.
But, in the long term, inflation could become a major problem.
You see, there are a few causes of inflation. One of the biggest ones is when there’s too much money in the supply. This is simple economics: as more money is added to the supply, each dollar becomes worth less. This causes inflation.
In the U.S., sadly, the money supply continues to increase. What’s more troubling is that the money supply is increasing faster than the pace of U.S. economic growth.
Look at the chart below, which plots the money supply in the United States:At the beginning of 2010, the total money supply in the U.S. was around $9.5 trillion. At the end of 2019, it was almost $17.2 trillion.
Simple math here: the money supply grew by almost 80% over the decade.
In this time frame, the gross domestic product (GDP) of the U.S. economy grew from $14.7 trillion to $21.5 trillion (to the third quarter of 2019). This is an increase of 46%. Why Surging Inflation Matters
Dear reader, it would make sense if the money supply was growing at the same pace as the economy. But it has been much quicker.
I believe this could be a problem over the long term.
As there’s more money in the supply, it essentially means we have monetary inflation. And this could eventually make its way to the prices of the goods that we all consume.
Never forget this: if prices start to jump, it will be American consumers who suffer the most. Their wages aren’t increasing, so higher inflation could really hurt their buying power.
For investors, soaring inflation could really eat up their investment returns. One could even call it an extra tax on investment.
This 1 Trigger Could Cause a Recession in the U.S. Economy in 2020.A Recession Could Be Just Around the Corner
Here is a bold claim, but one worth making: 2020 could be a dismal year for the U.S. economy. Investors beware: a recession could be ahead.
While the mainstream media is busy talking about how well the stock market has been performing, know that the U.S. economy isn’t in great shape. In fact, it wouldn’t be wrong to say that the economy is on the edge of a cliff.In 2020, things could fall apart further.
Here’s some perspective.
Look at the Federal Reserve. It’s not as upbeat as it used to be. For 2020, the Fed expects the U.S. economy to grow just two percent.Keep in mind, the Federal Reserve’s estimates tend to be very optimistic. You really have to wonder what will happen in 2020 if those who are generally more optimistic about the future aren’t excited.
Watch the American Consumer
But look beyond the Fed and pay close attention to the economic data. It continues turn dire.
You see, American consumers are leveraged.
As of the third quarter of 2019, aggregate household debt in the U.S. has grown to almost $14.0 trillion. That’s $1.3 trillion higher than the previous peak of $12.7 trillion. Here’s the kicker: consumer debt in the U.S. has been increasing for 21 consecutive quarters.
Don’t forget, debt increasing in the short term is fine, but if it continues to grow, it’s troublesome. If consumers take on more debt, they have to pay more money in order to service that debt. What happens when someone has higher debt payments? They spend less on things they want and need.
Pay attention to the chart below. It plots the debt service payments as a percentage of disposable income for consumers in the United States.
Debt service payments are already moving higher.Broadening the horizon a little bit more, the U.S. economy is heavily reliant on consumers. If consumer spending increases, the U.S. economy improves. If consumers pull back on spending, a recession follows.
How big of a force is the American consumer?
One measure of American consumers’ strength is personal consumption expenditures. On an annual basis, personal consumption expenditures in the U.S. amount to close to $15.0 trillion. The entire U.S. gross domestic product (GDP) is roughly $21.0 trillion, so that means spending by American consumers accounts for about 70% of U.S. GDP.
U.S. Economic Outlook for 2020
Dear reader, I am skeptical going into 2020.
Consumers in the U.S. have taken on a lot of debt. This may not end well for the U.S. economy.
I am keeping a close watch on indicators like consumer sentiment, job numbers, consumer debt, and several others to see the health of the U.S. consumer. If Americans stop spending, a recession will follow very quickly.

No comments:

Post a Comment