“Since 1948, every time the four-quarter change has fallen below 2 percent, the economy has entered a recession. It’s hard to argue against an indicator with such a long history of accuracy.”
The Federal Reserve said Wednesday it will shuffle $400 billion of its portfolio to try to drive down long-term interest rates and get the economy going. But economists doubted it would do much good, the stock market sold off, and the Fed itself was unusually divided over the strategy.
Lowering interest rates makes it cheaper for people and companies to borrow money and spend it throughout the economy, which has slowed sharply more than two years after the Great Recession. Consumer spending makes up most of the nation's economic activity.
But rates are already at historic lows. Americans, still feeling insecure about the future, might not be willing to take on more debt, even at lower rates. Others see no reason to jump into the housing market when prices are still falling. Others can't get credit.
"Frankly, I don't see it having any meaningful impact on the economy," said Bernard Baumohl, chief global economist with the Economic Outlook Group. "What the Fed did today was a distraction."
The U.S. economy is on a "knife edge" between growth and contraction, and if it were a dashboard, it would be flashing "watch out, danger ahead on all gauges," Dallas Federal Reserve Bank's top economist said on Tuesday.
"The economy is moving along at stall speed," Dallas Fed research director Harvey Rosenblum told a forum sponsored by the greater San Antonio Chamber of Commerce. "Unless we start moving a little bit faster, we are at a tipping point where things may not go the right way."
The U.S. jobs engine has lost momentum and could be set for further "backtracking," Meanwhile, he said, there is also a "credible" risk of rising inflation.
"We are in the midst of the Second Great Contraction," Rosenblum said, demonstrating the economy's predicament with a picture of a place on the Appalachian Trail known as "Knife's Edge."
"This patient is still not ready to get out of the hospital, there are still tubes connected to the patient, and the patient is still not responding well to all the medicine."
The grim assessment of the economic outlook came a week after a majority of the Fed's policy-setting panel backed further monetary policy easing to help support a faltering U.S. recovery.
Consumers' confidence in August dropped almost 15 points to the lowest level since April 2009 as worries about the economy fueled the wildest stock market swings since the financial meltdown in 2008.
At a time when Americans are increasingly worried about a weak job market, higher costs for food and clothing and recent stock market turmoil, the falling confidence numbers raise new concerns about their willingness to spend and jumpstart the economy. That's particularly important since consumer spending accounts for 70 percent of U.S. economic activity.
"Consumer confidence deteriorated sharply in August, as consumers grew significantly more pessimistic about the short-term outlook," said Lynn Franco, director of The Conference Board Consumer Research Center in a statement.
The Conference Board said Tuesday that its Consumer Confidence Index fell to 44.5, down from a revised 59.2 in July. The number was the lowest level since April 2009 when the reading was 40.8. It also is far below the 53.3 that analysts had expected. A reading above 90 indicates the economy is on solid footing; above 100 signals strong growth.
Americans say they feel worse about the economy than they have since the depths of the Great Recession.
Consumer confidence fell in October to the lowest since March 2009, a research group said Tuesday — an ominous sign for the economy as families begin to prepare their budgets for holiday shopping season.
The declining mood reflects the big hit that the stock market took in late summer — down almost 20 percent in one month — as well as frustration with an economic recovery that doesn't really feel like one.
The Conference Board, a private research group, said its index of consumer sentiment came in at 39.8, down about six points from September and seven shy of what economists were expecting.
The reading is still well above where the index stood two and a half years ago, at 26.9. But it's not even within shouting distance of 90, what it takes to signal that the economy is on solid footing.