The U.S. economy is running out of breath.
As you probably know, the U.S. economy has been “recovering” since 2009. The current recovery, now seven years old, is one of the longest in U.S. history.
It’s also one of the weakest.
Since 2009, the U.S. economy has grown at just 2.1% per year, making this the slowest recovery since World War II. Last quarter, the economy grew at just 1.1%.
We won’t know how the economy did during this quarter until late October. But we don’t expect good news, and that’s because signs of a stalling economy are everywhere.
• They’re in the job market. The U.S. economy created 29,000 fewer jobs last month than economists expected.
• They’re in corporate earnings. Profits for companies in the S&P 500 have been falling since 2014.
• They’re even in the price of oil. Right now, U.S. demand for gasoline is weak, which tells us Americans aren’t driving as much.
Today, we’re going to look at even more evidence that the economy is struggling.
If this flood of bad economic data continues, the U.S. could soon enter its first recession in seven years. Normally, this wouldn’t worry us. After all, recessions are a normal part of the business cycle.
But we don’t expect the next downturn to be a “run-of-the-mill” recession. According to Casey Research founder Doug Casey, the next financial crisis will be “much more severe, different, and longer lasting than what we saw in 2008 and 2009.”
The good news is that there’s still time to protect yourself. We’ll show you how at the end of today’s issue. But first, you need to understand why we’re so worried about the economy.
• The U.S. auto market is cooling off…
The auto market has been one of the economy’s bright spots since the financial crisis. Auto sales have climbed six straight years. Last year, the industry sold a record 17.5 million cars.
Many analysts see the booming auto market as proof that the economy is heading in the right direction.
Like a house, a car is a big purchase. Most people will only spend thousands of dollars on a car if they think the economy is doing well. After all, you wouldn’t buy a new car if you thought you were going to lose your job next month.
Because of this, car sales can say a lot about consumer confidence.
• Auto sales plunged last month…
Yahoo! Finance reported last week:
The seasonally adjusted rate of motor vehicle sales decreased to 17 million from 17.88 million in July. Both car and truck sales were down for the month…
For August, total vehicle sales were 1,512,556, down from 1,577,407 for a decrease of 4.1%.
After rising 66 straight months, retail car sales have now fallen four out of the last six months. And this trend is likely to continue.
According to The Wall Street Journal, the CEO of Ford (F) said he expects his industry to sell fewer cars this year than they did last year. He expects sales to fall even more in 2017.
This isn’t just bad news for automakers like Ford. It’s a problem for the entire economy.
If people buy fewer cars, they’re probably going to take fewer vacations. They’re going to eat out less. They’re going to buy new clothes less often.
In other words, the big drop-off in car sales could mean U.S. consumers are starting to cut back.
• The U.S. manufacturing sector is weakening right now…
Last week, the Institute of Supply Management (ISM) reported that its Purchasing Managers’ Index fell from 52.6 in July to 49.6 in August.
This index measures the strength of the U.S. manufacturing sector. When the index dips below 50, it signals recession.
• The U.S. services sector is hurting too…
The services sector is made up of businesses that sell services instead of goods. It includes industries like banking and healthcare.
The ISM Services Index fell from 55.5 in July to 51.4 last month. While this doesn’t indicate recession, last month’s sharp decline was still a major disappointment. Economists expected the index to hit 55.0. Last month’s reading was also the lowest since February 2010.
More importantly, the services and manufacturing sectors are now weakening at the same time. MarketWatch explained why that’s not a good sign last week:
[I]t’s unusual that both indexes would soften so much at the same time. The manufacturing index dropped to 49.4% from 52.6% in August and the ISM services gauge retreated to 51.4% from 55.5%. The combined reading of two indexes was also the weakest in six years.
Since these indexes often track closely with gross domestic product, the surprisingly poor turn has not gone unnoticed.
• Right now, several key economic indicators are saying the economy is in trouble…
We encourage you to take these warnings seriously.
If you have any money in the stock market right now, take a good look at your portfolio.
Get rid of any expensive stocks. They tend to fall further than cheap stocks during major sell-offs.
You should also avoid companies that need a growing economy to make money. These include airlines, major retailers, and restaurants; basically any company that depends on a healthy U.S. consumer.
Avoid companies with a lot of debt. If the economy continues to weaken, heavily indebted companies will struggle to pay their lenders. You don’t want to own a company that falls behind on its loans.
We encourage you to hold more cash than usual. Setting aside cash will allow you to buy world-class businesses for cheap after the next big sell-off.
Finally, we recommend you own physical gold. As we often point out, gold is real money. It’s preserved wealth for centuries because it’s a unique asset. It’s durable, easily divisible, and easy to transport.
It’s also survived every major financial crisis in history. This makes it the ultimate safe haven asset.
These simple yet proven strategies will help “crash proof” your portfolio in case the economy continues to weaken. That’s never been more important. To see why, watch this short presentation.
It talks about a major warning sign that one of Casey’s analysts recently uncovered. As you’ll see, this same warning appeared before the savings and loan crisis of the 1980s…before the ’97 Asian financial crisis…and just before the 2000 tech crash.
More importantly, it explains how you can protect yourself today. Click here to watch.
Chart of the Day
The U.S. manufacturing sector is flashing warning signs.
Today’s chart shows the ISM Purchasing Managers’ Index (PMI) going back to 2000. As we said earlier, this index measures the strength of the U.S. manufacturing sector.
Last month, the ISM PMI hit 49.6. Any reading below 50 indicates recession.
You can see this index plunged below 50 during the last two recessions. It also sent out a few “false signals” over the years. It dipped below 50 but a recession never followed.
Like any indicator, the ISM PMI isn’t perfect. Still, it’s worth keeping a close eye on. If manufacturing activity continues to weaken, other parts of the economy will too. And the ISM PMI is just one of many economic indicators flashing danger right now.
Delray Beach, Florida
September 12, 2016
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