Is U.S. Heading Toward Recession?

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Downturn: Stocks are diving, retail sales are slumping, and economic bellwether Wal-Mart is shuttering 154 U.S. stores. Meanwhile, China's markets are in free fall. Is it too early to mention the "R" word?

We've been accused of being Pollyanna-ish in our views, which tend toward the optimistic when it comes to the flexible, naturally buoyant U.S. economy.

And, to be sure, the stronger employment growth - payroll jobs increased an average 230,000 a month last year - and the decline of the unemployment rate to 5% are both positive signs.

But not everything is going so well - starting with the stock market. The S&P 500 has skidded 8% since Jan. 1, its worst start ever. As USA Today reckons, $2.3 trillion in shareholder wealth has been wiped out - a huge hit that will be felt across the economy.

Even before the market decline, however, clouds were gathering. Retail sales fell 0.1% in December and were up just 2.2% year over year. And Friday's announcement by Wal-Mart that it's closing 269 stores - 154 of them in the U.S. - can only be bad news.

Then there's China. Its stock market index has plummeted more than 40% since the middle of 2014 as the nation's once-booming export- and investment-driven economy goes bust. Around the world, factories and businesses built to satisfy China's insatiable demand for raw materials and capital goods have fallen silent.

For the U.S., that was a lot of lost momentum going into the new year.

The Atlanta Fed's widely followed gauge of current economic output suggests fourth-quarter annualized GDP growth was just 0.8% or so - within spittin' distance of recession territory.

So, yes, as we start 2016, a recession is a real possibility. Add to that the likelihood of three or four Fed rate hikes this year, and the economy's brakes will be on.

What do we do? The standard Keynesian answer is to boost consumer spending by redistributing money from the 1% to the middle class and by more government "stimulus." After all, consumers are two-thirds of all spending. So they need to be stimulated for the economy to grow, right?

Wrong. This would be a huge mistake - as it was in 2010. What really ails the economy right now is a lack of business investment. That's real stimulus. Investment creates consumption by making products to consume, and the income with which to buy them.

Unfortunately, orders for nondefense capital goods, a proxy for business investment, have fallen 11 straight months, averaging a 3.4% year-over-year decline every month in 2015 - a sign of extraordinary weakness.

How can this be after years of record-low interest rates and stock market gains?

Obamanomics has created the most anti-business environment in postwar history. Businesses face a record onslaught of regulation, a world-high 35% tax rate, higher minimum wages, hostile legislators who routinely demonize profits and success, an erratic Fed and growing uncertainty about the U.S.' political future. Why invest?

The bigger point is, recessions don't just happen; they're made. And it looks like we're making one now.

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