Investment Contrarians

U.S. Recession 2013

After a robust year in 2012, the stock market is expected to experience real turbulence in 2013. America could experience an economic slowdown, one that could rival Europe’s.

Speaking at a campaign event in downtown Madison, Wisconsin, the day before being reelected President of the United States, Barack Obama said, “The war in Iraq is over. Osama bin Laden is dead. Our heroes are coming home. We’ve made real progress. But our work’s not done. Our fight goes on.”

He’s right. Domestically, we have a lot to accomplish. Unemployment remains stubbornly near eight percent, housing prices are still down 41% from the 2007 peak, a record number of Americans are on food stamps, and one-third of Americans are living at or below the poverty line. Despite the optimism on Wall Street, the U.S. economy contracted in the fourth quarter of 2012, for the first time since the recession.

When President Obama first took office in January 2012, the unemployment rate was 7.8%. The following month, it cracked eight percent and stayed there until September 2012, when it touched 7.8%. While the official unemployment may have dipped below eight percent, more telling, perhaps, is the underemployment rate, which has held steady near 14.7%.

While U.S. home prices are up the most since 2006, the picture remains grim. In fact, 10.5 million homes in the U.S. are in negative equity territory, meaning 21.5% of all residential homes in the U.S. are worth less than their mortgages.1

Since President Obama took office in January 2009, the U.S. government has implemented more fiscal stimulus and monetary intervention than ever before, yet real GDP has slowed from 2.4% in 2010 to two percent in 2011. In 2012, despite all the additional government intervention, GDP growth was just 2.2%.

Without a substantial improvement in the labor market, the housing market will continue to struggle. So, too, will consumer spending and the entire U.S. economy. At roughly 70% of America’s GDP, consumer spending is a major economic stimulus.

During his election campaign, President Obama said that over the next four years, he plans to move the economy forward by keeping the current policy framework in place. Sadly, deficit spending and a growing dependence on the Federal Reserve to buy the government’s excess debt have yet to produce real results.

In spite of weak economic indicators, the Dow Jones Industrial Average and S&P 500 are doing well. But remember, stock indices are only as good as the companies that make them up; if they don’t do well, the indices won’t do well. America entered 2013 with depleted saving and increasing costs on the heels of a devalued dollar. Despite a 4+ year bull market, a U.S. recession in 2013 is all but inevitable.

Source:

 

1.         Panchuk, Kerri Ann. “CoreLogic: 10.4 million mortgages still in negative equity,” housingwire.com March 19, 2013; http://www.housingwire.com/news/2013/03/19/corelogic-104-million-mortgages-still-negative-equity