A developing deflationary psychology is evidenced by an overall shift from an expansionary mindset to one of conservation.
This applies to creditors, debtors, producers and consumers.
Honing in on consumers specifically, that means a cutback in spending.
With that in mind, here’s a Feb. 4 headline (CNN Business):
PayPal warns that consumer spending is about to fall sharply
The monthly Elliott Wave Financial Forecast gave a heads-up about consumer spending back in November:
Consumer spending increased just 1.6% in the third quarter after rising 12% in the second quarter. But as we’ve long said, the economy lags the market. With stock indexes at new highs, many measures of economic activity will remain elevated until a bear market is underway.
Now that a downtrend in aggregate stock prices appears to be underway, expect “many measures of economic activity” to ratchet downward in the months ahead.
In a severe bear market, like what occurred in the early 1930s, declines in economic activity can be dramatic. From 1929 to 1933, GDP fell by 45.6%.
In the throes of the 2007-2009 bear market, the November 2008 Elliott Wave Financial Forecast said:
In September , we showed a picture of consumer confidence and said a previously “forecasted plunge is clearly underway.” And plunge it did. This month’s Conference Board figure fell to 31, the lowest reading in the 41-year history of the index. … On the manufacturing side, Industrial Production plunged 2.8% in September, the biggest one-month decline since December 1974, the final month of the last bear market of at least Cycle degree. What about the global economic engine that was supposed to compensate for U.S. shortcomings just a few short months ago? The Baltic Dry Index is another index that expresses the global scope of the downturn. It measures the demand for shipping capacity through dry bulk shipping rates. It is down more than 90%—since May 23, only five months ago!