Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
S&P 500’s Downward Reversal or Just Profit-Taking Action? - 18th April 19
US Stock Markets Setting Up For Increased Volatility - 18th April 19
Intel Corporation (INTC) Bullish Structure Favors More Upside - 18th April 19
Low New Zealand Inflation Rate Increases Chance of a Rate Cut - 18th April 19
Online Grocery Shopping Will Go Mainstream as Soon as This Year - 17th April 19
America Dancing On The Crumbling Precipice - 17th April 19
Watch The Financial Sector For The Next Stock Market Topping Pattern - 17th April 19
How Central Bank Gold Buying is Undermining the US Dollar - 17th April 19
Income-Generating Business - 17th April 19
INSOMNIA 64 Birmingham NEC Car Parking Info - 17th April 19
Trump May Regret His Fed Takeover Attempt - 16th April 19
Downside Risk in Gold & Gold Stocks - 16th April 19
Stock Market Melt-Up or Roll Over?…A Look At Two Scenarios - 16th April 19
Is the Stock Market Making a Head and Shoulders Topping Pattern? - 16th April 19
Will Powell’s Dovish Turn Support Gold? - 15th April 19
If History Is Any Indication, Stocks Should Rally Until the Fall of 2020 - 15th April 19
Stocks Get Closer to Last Year’s Record High - 15th April 19
Oil Price May Be Setup For A Move Back to $50 - 15th April 19
Stock Market Ready For A Pause! - 15th April 19
Shopping for Bargain Souvenirs in Fethiye Tuesday Market - Turkey Holidays 2019 - 15th April 19
From US-Sino Talks to New Trade Wars, Weakening Global Economic Prospects - 14th April 19
Stock Market Indexes Race For The New All-Time High - 14th April 19
Why Gold Price Will “Just Explode… in the Blink of an Eye” - 14th April 19
Palladium, Darling of the PGEs, Shifting into High Gear - 13th April 19
MMT is a spectacularly Dem idea - 13th April 19
The 'Silver Lines' of Opportunity - 13th April 19
Gold Stocks Bull Market Breakout Potential - 13th April 19

Market Oracle FREE Newsletter

Top 10 AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Why a U.S. Recession Within the Next 12 Months Is Inevitable

Economics / Recession 2013 Jul 15, 2013 - 06:02 PM GMT

By: Profit_Confidential


Michael Lombardi writes: One fact has become quite clear: if we want to see robust growth in our gross domestic product (GDP), then there needs to be a significant change in consumer spending.

But current consumer spending in the U.S. economy is looking bleak, and it makes me skeptical about the GDP growth ahead. We’ve already seen GDP in the first quarter revised lower due to consumer spending; and it won’t be a surprise to me if something similar happens in the second quarter.

Don’t just take my word for it. Look at what the CEO of Family Dollar Stores, Inc (NYSE/FDO), Howard R. Levine, said about consumer spending while presenting his company’s corporate earnings for its fiscal third quarter (ended June 1, 2013):

“Our consumables sales remained strong and we continued to gain market share. However, our discretionary sales remained challenged as our customers have been forced to make spending choices between basic needs and wants. Consistent with market trends, we expect that our customers will continue to face financial headwinds…” (Source: “Press Release; Family Dollar reports Third Quarter Results,” Family Dollar Stores, Inc. web site, July 10, 2013.)

Remember: retailers like Family Dollar Stores see the patterns of consumer spending first-hand—their opinions shouldn’t be taken lightly.

More proof that consumer spending (which makes up a major portion of our GDP) isn’t as robust is the fact that wholesale trade sales are down and inventory figures are up. Inventories at wholesalers in May were up 3.3% as compared to a year ago. And inventories of durable goods were up 4.8% in the same period. (Source: U.S. Census Bureau, July 10, 2013.)

Inventory build-up is an indicator suggesting consumer spending isn’t what it was expected to be. In addition, surging durable goods inventories also suggest that consumers are not spending on their wants, but instead focusing on their needs for now.

Consumer spending on nondurable goods—goods that don’t last for long periods of time, like clothing—isn’t great either. From the fourth quarter of 2012 to the first quarter of 2013, real personal consumption—consumer spending adjusted for price changes—increased by just $14.6 billion, or 0.7%. (Source: Federal Reserve Bank of St. Louis web site, last accessed July 11, 2013.)

I can’t stress this enough: consumer spending won’t improve and the GDP will remain depressed until the average Joe American feels confident spending money.

Nothing has changed in the U.S. economy. The daily struggle for many Americans continues. Following the financial crisis, many Americans are now working at jobs that pay minimum wage or have part-time positions, while others are losing their skills the longer they are out of work.

That’s why I’m predicting the opposite of what so many analysts and economists are forecasting: they see growth, while I see the U.S. headed back to a recession within the next 12 months.

Michael’s Personal Notes:

Did the Federal Reserve just tell us it wants much higher inflation?

In the most recent meeting minutes from the Federal Open Market Committee (FOMC), it said:

“Most [members], however, now anticipated that the Committee would not sell agency mortgage-backed securities (MBS) as part of the normalization process, although some indicated that limited sales might be warranted in the longer run to reduce or eliminate residual holdings. A couple of participants stated that they preferred that the Committee make no decision about sales of MBS until closer to the start of the normalization process.” (Source: “FOMC Minutes,” Federal Reserve, July 10, 2013.)

Simply put, the majority of the members of the FOMC think the Federal Reserve shouldn’t sell the MBS it has accumulated on its balance sheet through its multiple rounds of quantitative easing.

While the key stock indices rally, and stock advisors continue to say we are going much higher, if the Federal Reserve doesn’t go ahead with this action and keeps the MBS on its balance sheet, this move could have serious implications ahead.

Mark my words: the biggest problem will be inflation.

This is how it works: if the Federal Reserve keeps the MBS it has bought from banks for the sake of providing liquidity to the financial system, then that will increase the money supply—which always causes inflation.

Take a look at the chart below. This chart sums up the relationship between the money supply and inflation. It compares M2 money stock (a measure of money supply and the consumer price index as indicated by the black line) and the “official” measure of inflation (marked by the red line).

Chart courtesy of

Clearly, the correlation between money supply and inflation is very high and shouldn’t go unnoticed.

My problem is that the Federal Reserve still hasn’t stopped quantitative easing. The damage has already been done—through quantitative easing, the Federal Reserve has inflated its balance sheet to more than $3.0 trillion, and the money supply has increased significantly. Just like throwing more fuel on a fire, the continuation of quantitative easing will only make inflation soar higher.

We are already seeing some inflation, even if the official numbers suggest otherwise. Some mainstream economists are even saying we may see deflation ahead. They will soon find out they are wrong.

Dear reader, I am a consumer, and I go out and shop. I notice that the price of gas has increased substantially, and containers of our favorite foods are shrinking in size with a “no price change” tag slapped on them. Inflation will get much worse, and possibly even get out of control, unless the Federal Reserve starts pulling back on its $85.0 billion-a-month printing program.

Source -

Michael Lombardi, MBA for Profit Confidential

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

© 2013 Copyright Profit Confidential - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Profit Confidential Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules