February 27, 2001

Economy Moves Closer to Full-Blown Recession

Consumer confidence in the economy is getting uglier by the second. Nearly 90% of Americans don't believe that there will be any more jobs available in six months than there are now. Over 20% believe that there will be fewer jobs. With employment such a concern, it's easy to see why spending has slowed down already -- housing sales plunged 10.9% in January. And it's even easier to see that a slowdown in consumer spending, which accounts for two-thirds of GDP, will sink the U.S. into a full-blown recession.

Here's more proof: "During the past three decades, there has never been a period where the Conference Board's measure of consumer confidence has fallen as much as it has during the past few months, which was not followed by a recession," say the number-crunchers at The economy is on a downward trajectory and a recession seems unavoidable.

The stock market, of course, might not realize this for days. But when reality hits, it will slam into stocks harder than a Mac truck.

Peter Cardillo, director of research at Westfalia Investments, summed up the situation perfectly. He told Reuters that the market may rally on expectations of more interest rate cuts by the U.S. Federal Reserve, in the wake of such data, but added: "Once reality sets in, we have to realize that perhaps total recession is upon us, instead of pockets of recession."

And once investors come to grips with reality, the stock market had better look out below!

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