“Recession identification requires the gift of hindsight. You only know it by looking in the rear view mirror. In other words, it includes the stuff markets have already started to, or completely, priced into the mix.”
“As the U.S. economy presses on – battling through a fragmented real estate market, a sticky lending environment, soaring food and energy prices and substantial job losses – we seek answers that may forecast the end of this mess. We want to know if our economy will be knocked on its back and when it will climb back on its feet.”
“. . . Here’s a predictor that has done a good job of forecasting the last two recessions – and may be doing it again; it’s the U.S. Current Account Deficit.”
Why is this benchmark a good predictor of recessions? It points to two things …
1. U.S. consumers are pulling in their horns and buying less and saving more.
2. Dollar liquidity is falling from around the globe – that’s bad for business everywhere and adds to the recession potential
“The way I see it, the recession is just in its beginning stages. And the growth picture will get pretty nasty before it’s all said and done. Some of the latest predictions expect unemployment to rise considerably—averaging roughly 5.6% over the next two years.”
Here are some stats from the 2006 Bureau of Labor Statistics Consumer Expenditure Survey:
-Households earning less than $70,000 per year made up nearly 70% of all U.S. households included in the survey.
-Expenditures among those households earning less than $70,000 per year amounted to $2.77 billion – or less than half of total household expenditures.
-Naturally, spending on food, gasoline and housing made up 54.7% of total expenditures among households earning less than $70,000 per year versus an average of only 48% of total expenditures among households making more than $70,000 per year.
In other words, a smaller group of wealthy people account for a disproportionately large piece of total consumption. Additionally, the larger group of less-wealthy people put up a larger percentage of their total expenditures towards necessities like eating, driving and dwelling.”
That means two things:
“First, since food and energy prices are on the rise, the majority of the population is bound to feel worse when their discretionary income goes in one end and out the other faster than before.
Second, households earning more than $70,000 per year, less affected during periods of slowdown, will still have sufficient discretionary income to keep the economy above water.
Those on the lower level of the earnings totem pole will be battling throughout the ongoing slowdown.”
What does that mean for the U.S. dollar?
The markets are always early!
“Markets tell us what we can expect; or at least what other traders and investors expect. The dollar has stabilized since hitting an all-time low on March 17. And it’s even eked out a notable rally. The buck has rallied during the last four of five U.S. recessions.”