Why is a recession next year more than likely?

 To say the consumer is strong today, meaning you are going to have a booming environment for years, is a huge mistake.                                                                                          

 Jamie Dimon

Here is the visual reality for the American consumers:

More than 75% of Americans think consumption will turn negative by early 2024. Considering that consumer spending is the engine that powers the U.S. economy, this is a huge warning sign. 

Have we already passed the risk of recession? Many big guys in the Street are saying so but I'm not so sure. I even think the risk is more than likely as we move into 2024. 

Here is a more detailed analysis to support this view:

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Below, we look at data from the Fed, showing the percent change for average shelter costs in the U.S. After topping out last December, it’s been dropping steeply.

Hooray! We’re saved!

But remember – this reflects a percent change. What’s the status of the absolute dollar value that American families are spending on shelter costs?

It’s at all-time highs.

All that the first chart showed us is that shelter costs aren’t getting more expensive as quickly as before.

It’s the same thing with food costs.

Below is what the talking heads are telling you – food inflation is crashing! Prepare for a soft landing!

And yet, as you know from your own grocery bills, we’re not saved.

Here’s the reality: The absolute dollar amount of elevated food prices is emptying your wallet more than ever before.

 Whether or not we fall into a recession largely reduces to the U.S. consumer. That’s because consumer spending accounts for roughly 70% of our economy.

Now, we have three crudely simplistic scenarios for the U.S. consumer…

Healthy green light: Here, the U.S. consumer has income that exceeds expenses. Spending comes from disposable income, expanding the economy in a sustainable manner.

Cautious yellow light: The U.S. consumer has income that isn’t regularly exceeding expenses, however, he/she is still spending. This is coming from a mix of some disposable income along with savings and/or debt. Though the spending expands the economy, it’s not sustainable long-term.

Unhealthy red light: The U.S. consumer has insufficient income to match expenses. Savings are depleted. Spending is primarily sourced from debt, though there are limits to that spending due to swollen credit balances and interest rates. The economy contracts and corporate earnings suffer.

This year’s economic data have shown the U.S. consumer moving deeper into yellow, getting ever closer to red.

 

Jeff Remsburg