This morning an important economic indicator, Consumer Sentiment, showed a big drop. The talking heads blamed it on higher interest rates and consumer fears that those higher rates would choke off improvements in the housing market. What improvements? Most of the movement in the housing market has been due to hedge funds and other big investors buying bank REO (real estate owned) and troubled properties. New home sales, an area of the housing market that represents individuals buying homes, has been performing poorly.
Retail Sales, the economic indicator that measures about 70% of domestic US economic activity, also reported a disappointing number that was not in keeping with the image of economic recovery that has been promoted. That is particularly worrisome since August and September are ‘Back to School’ months that rival Holiday Season consumer spending.
And in case you haven’t noticed the price increases during your last trip to the supermarket, the Producer Price Index (a measure of wholesale prices) was up mostly from food and energy prices.
The Stock Market is still surging because the big institutional investors, who are mostly in the driver’s seat on Wall Street these days while average individual investors have been notably absent, expect the Federal Reserve to continue dumping money into the economy — money that is clearly not making its way to Main Street USA.
I have clients desperate to get funding for their good solid businesses, but the banks are not lending. And why should banks lend? Banks make more money when they can charge higher interest rates. These days, they are making their money off overdraft charges and account fees — waiting for the Fed to allow interest rates to rise.
If you have been following this blog, you know I have been warning about the signs we are moving into another recession. If you think doing business has been tough, be prepared for more difficulties on the way. Conserve your cash and start talking with your partners and employees about how to survive an economic downturn.
I am putting together an online session to talk about how to survive another economic downturn, so stay tuned …
If you want to set up a private session, email me at email@example.com …