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Look at These 2 Big Warning Signs for the U.S. Economy

Interestingly, this economic measure’s “retracement of the decline from February is a Fibonacci 61%”

by Bob Stokes
Updated: November 23, 2020

The 7.4% GDP growth in Q3 notwithstanding, the evidence shows that the U.S. economy remains fragile.

Let's start off with this chart and commentary from our November Elliott Wave Financial Forecast:

IndustrialProduction

The chart shows the NYSE Composite index along with U.S. Industrial Production. The IP index declined with the stock market into April of this year, and then rebounded with the stock rally. So far, the Industrial Production retracement of the decline from February is a Fibonacci 61%.

Another warning sign for the U.S. economy is provided by this chart -- also from the November Elliott Wave Financial Forecast. Here's the commentary:

FiveDecades

The chart shows the same retracement in U.S. Capacity Utilization, which tracks the extent to which working factory capacity is being used in the production of goods. It also reveals the presence of a steady, long-term decline. Capacity utilization has been registering lower highs and lows since the 1970s. As [Elliott Wave International] said in September with respect to a decades-long deterioration in consumer credit, the economy is up against much more than just "a short-term, pandemic-induced decline in demand."

Indeed, U.S. consumers appear to be adopting a conservative mindset.

Here's a Nov. 15 headline from the Financial Times:

Bank credit card profits in question as US consumers pay down debt

At this juncture, this developing conservative psychology portends deflation.

As the 2020 edition of Robert Prechter's Conquer the Crash says:

The psychological aspect of deflation and depression cannot be overstated. When the trend of social mood changes from optimism to pessimism, creditors, debtors, investors, producers and consumers all change their primary orientation from expansion to conservation.

Get our complete analysis of the economy and learn why Elliott Wave International anticipates a historic deflation.

You can find that analysis inside our flagship investor package: The Financial Forecast Service.

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