May 27


Kennon Financial: Is the Economy Due for a Recession?

David Kennon, Kennon Financial

I read a lot of financial news, and I am usually amazed at how incredibly negative most of the reports can be.  In fact, in researching this article it took me hours to find any positive economic news at all. Is this because the U.S. is on the precipice of a catastrophic meltdown?  Hardly. The media learned long ago that a headline that tout disaster or recession is going to get a lot more “clicks” than accurate, non-inflammatory news.

Once you get past all of the doom and gloom and start looking at the data, you might be surprised at how historically strong the economy is right now.

  1. Inflation is presently at 2% (with the rest of the world being slightly lower).  High inflation is bad. Extremely low inflation or deflation (prices of goods and services decreasing) is bad.  2-3% is good. It shows a healthy economy growing at a healthy rate. That’s great news! (source)
  2. U.S. unemployment fell to 3.9%, the lowest in 17 years. (source) This is truly remarkable news considering that just ten years ago we were in the middle of the financial crisis of 2008.  In 2009, the unemployment rate was nearly 10%. This is a job-seekers market and from my anecdotal evidence in the local area, the business owners I work with are having a very difficult time finding good employees. Great news for college grads and the economy overall.
  3. GDP (Gross Domestic Product) grew at a healthy 3% last year. GDP is very simply the economic output of the entire country.  GDP is 2009 was -2.8%. A strong GDP is one of the most important indicators of a healthy economy.
  4. Corporate results in the first quarter were very good. Companies that are members of the S&P 500 saw sales grow 10%, earnings rise 24% and profit margins expand to a new all-time high of 11.6%. Think about that for a second.  Corporate sales and growth are so robust that they are literally breaking records. Why is this information so hard to find in the mainstream media? (source).  
  5. An important measure of stock performance is EPS (earnings per share).  This data reflects how much profit a company made divided by the number of shares of their stock held by people like you.  Overall quarterly EPS is 24% higher than a year ago. (source)
  6. The National Association of Manufacturers’ survey of members found that 94.6 percent of respondents had a positive outlook for their companies for 2018. That is the best result in the survey’s 20-year history.

Now does all of this incredibly positive economic data mean that the stock market is going to skyrocket upward?  Unfortunately, it is not that simple. There is a myriad of factors that determine stock values and prices- not the least of which is pure human greed and fear.  

I’m just trying to give you the other half of the story.  Like I mentioned before, I had to sort through hundreds of scary articles just to find these tidbits of positive information. Many of the articles I read had a couple of common attributes.

  1. They twist data to make things look worse than they actually are.
  2. The headlines do not accurately express the content of the article.

A good example is this article:  

The New Normal:  Carrying Debt at 75 and Up.  (source).

Here is a gem from the piece:

“Rising debt burdens also might encourage some retirees to cut costs where they probably shouldn’t, such as by foregoing medications or even meals.”

Foregoing meals?!

Are there some people in this country struggling mightily with their finances in retirement?  Of course. But we are talking about a minority of people. This article is not directed at you.  In fact, the last line of the article reveals, “today’s retirees generally are faring fairly well, from a financial perspective.”

And why is debt rising for people 75 and up?  Because interest rates are at all-time lows, and as the article points out, the vast majority of this new debt is mortgage debt. And the average debt is only $20,900.  

I think the article should be renamed:

The New Normal:  Retired People Are Actually Doing Well and Most of Them Are Satisfied With Their Financial Situation.

But who would click on that article?


David Kennon, Kennon Financial


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