With the unemployment rate at a 50-year low, the hope is that the U.S. consumer will more than offset an otherwise faltering economy. Don't bet on it.
Clearly, the broad economy is not only weak, but weakening. The yield curve has inverted, with 10-year Treasury note yields falling below two-year yields. Every time that has happened in the postwar era, a recession has followed if it hadn't already commenced.
Manufacturing indexes are showing contraction. Capital spending also is down, according to different indexes.
A year ago, Wall Street analysts expected S&P 500 index operating profits to rise 10% this year. But now they look for just a 1.9% gain.
Real consumer spending is 70% of GDP. It declined in seven of 13 postwar recessions, though it rose in the other six. Still, even a slowing of growth in household outlays, combined with weakness in capital spending, housing and foreign trade, will push the economy into decline.
Job growth is slowing with an average of 154,000 new monthly payroll jobs in the last six months, compared with 204,000 in the previous half-year period. Average hourly earnings growth slowed from 3.2% in the year ending in August to 2.9% in September.
Consumer confidence and expectations can have significant effects on future spending, and both the University of Michigan and Conference Board surveys have fallen in recent months.
A New York Fed survey shows a precipitous drop in consumer expectations of inflation, and the central bank rightly fears that households will hold off buying in anticipation of lower prices.
The University of Michigan survey finds continuing declines in households' evaluation of buying conditions for vehicles and houses.
Increases in auto, credit card and student loans are pressuring consumers to restrain spending. Total household debt leaped from 65% of after-tax income in the early 1980s to 133% in 2007. Mortgage repayments and write-offs have reduced it, but only to 99%.
It will probably return to its long-run norm, especially as the baby boomer generation is forced to save if it doesn't want to keep working long after retirement age.
If there is weakness in employment and consumer spending in the coming months, it will seal the case for a recession.
Shilling, president of consultancy A. Gary Shilling & Co., writes for Bloomberg Opinion.