What we have seen in the past few weeks are skyrocketing yields on U.S. bonds--suggesting that long-term interest rates are rising. The effects of this will eventually trickle down to places where consumers in the U.S. economy borrow in order to buy. Just one example of this kind of "place' is the automobile sector.
So consider this: Car and light truck sales WERE on path to increase beyond 15 million units this year in the U.S. economy--whereas in 2009, they stood at 10.4 million. (Source: Wall Street Journal, June 26, 2013.) But will consumer spending on cars be the same if interest rates on car loans start to increase? Of course not.
And then there's the second major threat to consumer spending--unemployment and underemployment. In May, there were 1,301 mass layoffs in the U.S. economy, involving 127,821 workers, an increase of 8.5% over April. (Source: Bureau of Labor Statistics, June 21, 2013.) When a person is unemployed, their spending is of course down and large credit purchases like cars go by the wayside.
Even worse: If consumer spending in the U.S. economy continues to struggle, it will start to show up in the corporate earnings of companies which are currently able to buy back their own shares and cut expenses to make their numbers appear better. But looking at the prospects of anemic consumer spending in the U.S., it becomes apparent that this buyback is going to slow down and stop.
Conclusion: The optimism of many economic observers is based on nothing but blind hope. Once the hangover from the Fed's easy-money policies goes away, U.S. GDP numbers will turn negative. And yes, that means back to recession.
Source of the information in this analysis: Email from financial analyst Michael Lombardi, who has included me on his mailing list.
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