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During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Stealth Slowdown Unfolding


As the chart shows, real personal income and consumer spending growth are both in cyclical downturns.



Contrary to the notion of a “strengthening” economy, consumer spending growth has fallen to a 4 ¼-year low, as personal income growth continues to undershoot spending growth.

The consumer -- which makes up about 70% of the economy -- is getting hit with a six-year highs in inflation, so real wages are actually lower than a year ago. 

The chart also shows that the income shortfall relative to spending is increasing, and since 2015 the cumulative shortfall is over 1% of GDP. Necessarily, that gap is financed by consumers taking on more debt.

Away from the trade war rhetoric, which hasn’t really made a big impact yet, the lack of real income gains is why many are having a harder time making ends meet.

The expected strength in Q2 GDP growth comes in large part from energy production and a temporary fiscal boost, which are both non-cyclical events. Of course, higher gas prices also hurt the consumer.

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