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Profit Confidential (www.ProfitConfidential.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is warning that the U.S. economy could slip back into a recession in 2014 after the reporting of negative first-quarter gross domestic product (GDP) growth.The Bureau of Economic Analysis announced that first-quarter GDP fell unexpectedly to a seasonally adjusted annual rate of -2.9%, the 17th-worst GDP quarterly performance in U.S. history. Economists initially projected first-quarter U.S. GDP would grow around two percent. For comparison’s sake, U.S. real GDP grew 2.6% in the fourth quarter of 2013. (Source: “Gross Domestic Product, First quarter 2014 (third estimate); Corporate Profits, First quarter 2014 (revised estimate),” U.S. Bureau of Economic Analysis web site June 25, 2014; www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm.)
“It came as no surprise to me that the government’s third and final estimate of first-quarter U.S. GDP came in at a negative annual pace of 2.9%. I’ve been warning since the autumn of 2013 about the U.S. economy seeing an economic slowdown in 2014,” says economist and lead contributor Michael Lombardi. “My calls are not to scare or create fear; rather, they are based on the government’s own data.”
Lombardi explains that the U.S. consumer is tapped out, and as a result, consumer spending increased by only one percent in the first quarter of 2014; in the fourth quarter of 2013, consumer spending increased by 3.3%. The fifth year into the so-called economic “recovery” and consumers are pulling back on spending for the simple reason that they don’t have money to spend. But because the major stock market indices are in record territory, many believe the U.S. economy is doing well and there is nothing to worry about.
Going forward, many economists predict the U.S. economy will expand at a rate of 3.5% in the second quarter and average 3.1% for the second half of the year, says Lombardi. In 2013, the U.S. economy grew at just 1.9% after recording a 2.8% gain in 2012. (Source: Smialek, J., “U.S. Economy Shrank in First Quarter by Most in Five Years,” Bloomberg web site, June 25, 2014; www.bloomberg.com/news/2014-06-25/economy-in-u-s-shrank-in-first-quarter-by-most-in-five-years.html.)
“Consumer spending accounts for roughly 70% of U.S. economic growth. For the U.S. to experience economic growth, consumers need to spend, but they aren’t,” Lombardi adds. “While the data for June is not yet available, consumer spending in the first two months of the second quarter, April and May, is worrisome; adjusted for inflation, it declined in both those months. The month-over-month decline in the real consumption expenditure was 0.18% in April and 0.08% in May.” (Source: “Real Personal Consumption Expenditures,” Federal Reserve Bank of St. Louis Economic Research web site, last accessed July 7, 2014; http://research.stlouisfed.org/fred2/series/PCEC96.)
It only takes two consecutive negative quarters of GDP for the U.S. economy to be in a technical recession. Lombardi observes that while the mainstream view is that first-quarter GDP was negative because of poor weather conditions, the fact of the matter is that the just-completed second quarter doesn’t look any better.
“Since the stock market is a leading indicator of the health of the U.S. economy, its entirely possible Wall Street is already pricing in a recession,” Lombardi concludes. “After all, if the U.S. did fall back into a recession, the Fed would likely have to change its policy and start printing money again—something both stocks and gold love. Maybe that’s why they are both rising in tandem this time.”
For more information on Profit Confidential, visit www.ProfitConfidential.com.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.LombardiPublishing.com.
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