Every time the folks at the Federal Reserve talk about the “Powell Pause,” they assure us that the US economy is still strong. The president assures us that the US economy is still strong. The pundits on the financial news networks assure us that the US economy is still strong. But the US consumer doesn’t seem to be buying it.
US consumer confidence declined for the fourth month out of five in February, surprising economists who expected an increase in optimism.
The Conference Board’s consumer confidence index fell from 131.4 to 124.1. This missed every economist’s estimate in a Bloomberg survey. They were expecting a rise to 132.5. Meanwhile, consumers’ views on the present situation fell to the lowest level in almost a year, and the expectations index weakened as well.
The consumer confidence numbers come even as a major recession warning sign is flashing. Last week, the yield curve inverted. The yield on 10-year Treasurys fell below the yield on 3-year bonds for the first time since 2007 – the cusp of the Great Recession.
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Peter Schiff has been saying a recession is a done deal for quite some time. Economist Marc Faber says we’re probably already in a recession. Perhaps American consumers are figuring it out. As Bloomberg put it “dimmer assessments of present conditions suggest that weak first-quarter growth and slower job gains in February are weighing on attitudes and potentially spending.”
According to Bloomberg, the weak February jobs report likely shook consumer confidence. The economy added just 20,000 jobs last month. There are also concerns about rising gasoline prices “leaving Americans with less power to spend on other goods and services.”
Interestingly, the economists Bloomberg quoted tried to slap some lipstick on the pig, saying that consumers are overreacting.
“While economic conditions are likely to moderate this year –- meaning we’ve passed peak confidence for the cycle — this month’s slump is too severe when measured against underlying conditions.”
This underscores a point Peter made in his podcast earlier this week. The markets and the pundits still haven’t caught on to what’s going on. The Fed is giving us every signal we need. It has done a complete 180 on monetary policy. But it’s not telling the truth about why. It’s making excuses. It’s talking about a global slowdown and muted inflation. The truth is given the enormity of these deficits and the ever-upward spiraling debt, the Fed has no choice but to call off the tightening. You can’t raise interest rates in an economy built on piles of debt. But the Fed can’t tell the markets that, and at this point, the markets haven’t figured it out. Peter said they don’t really want to.
“They don’t want to admit I was right from the beginning – that the Fed checked us into a monetary roach motel and there’s no way to ever check out. But I do believe the markets are going to figure this out, whether the Fed admits it or not – during the next recession.”
The recent drop in consumer confidence indicates the American public might just be a step ahead of the markets.
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