Second U.S. Recession in Four Years a Lot Closer Than Most Think

Consumer confidence in the U.S. economy is turning pessimistic. In January, the Conference Board reported that the consumer confidence index plummeted and erased all the gains the index made in 2012. The index stood at 58.6 at the end of January compared to 66.7 in December—a decline of more than 12% in just one month. (Source: The Conference Board, January 29, 2013.) Consumers losing confidence is not a good sign for consumer spending in the U.S. economy.

The realities for American consumers today: prices are rising, savings are declining, and jobs growth is stagnant. Consumers are scared, and they have every right to be.

When I look at consumers in the U.S. economy today, my reading is that they are only buying things they need and very little more. I see this in the retail sales numbers. In January, retail sales increased 0.1% from December. A closer look at the numbers shows that retail sales of motor vehicles, furniture and clothing actually declined in January. (Source: U.S. Department of Commerce, February 13, 2013.)

We are already seeing signs of a pullback in consumer spending affecting businesses in the U.S. economy. And to compensate for a “tighter” consumer, companies continue with their rigorous cost-cutting plans. For one thing, employee travel by air is being scrutinized. Some companies in the U.S. economy are imposing harsh travel policies and charging their own employees for travel in some cases. (Source: The Wall Street Journal, February 12, 2012.) Diebold, Incorporated (NYSE/DBD), a large maker of ATM machines, has cut its travel spending by 10% to 20%.

Moving away from consumers to business people, executives of companies in the U.S. economy continue to hold a negative view. The Conference Board’s measure of CEO confidence in the fourth quarter of 2012 stood at 46 points—a reading below 50 points represents negative sentiment. (Source: The Conference Board, January 7, 2013.)

According to the Conference Board, in the fourth quarter of 2012, only 13% of the business leaders in the U.S. economy agreed that conditions in their industries improved. In the third quarter, this number was 14%. Don’t forget that executives and business leaders are at the front end of any issues; if consumer spending slows in the U.S. economy, their companies are often the first to feel the effects.

Dear reader, thrifty consumers and pessimistic business leaders are not good signs for what’s ahead for the U.S. economy. U.S. economic growth is highly dependent on consumer spending. We saw the U.S. economy contract in the last quarter of 2012. If consumer spending doesn’t pick up, it won’t take much for the U.S. economy to contract again in the current quarter, pushing the U.S. into a technical recession for the second time in four years.