The United States economy is teetering, despite what the stock and job markets are saying. The US economy is consumption-centric. Growth in the current recovery has focused on three sectors that have fed through to consumption in its various forms: autos, energy, and financial services.
The scariest set of financial indicators to emerge in decades reveals what is crushing the dreams of record numbers of young, middle-class and older Americans.
While nationwide unemployment is down to 4.3 percent, policy experts and economists are warning of disturbing signals in the economy.
As any industry veteran can tell you, those on the sell-side are the second-to-last to surrender to a downturn in economic activity. A 401K Advisor or money manager will not produce negative forecasts when their most important objective is keeping its customers completely invested in risky assets.
United States Economy
The Citi Surprise Index shows a big disconnect between the economy and Wall Street.
The disconnect will not last for long as the chart above shows. Either the economy improves a lot over a short period of time, else the stock market comes plunging down to earth. It’s easier for the stock market to come down than it is for the Federal Reserve and republicans to somehow get this economy going, a feat that has remained elusive for the last 8 years.
Debt is what has kept the United States economy going for the last 8 years. Debt placed a floor under and then helped commercial property reach for the skies. Debt kept dying retailers alive. Debt also caused back-to-back years of record car sales.
Salaries for the typical American worker have hardly grown for decades, well-paid middle-class jobs are disappearing, and lots of the new jobs are from the low-wage service sector.
Consumers are being crushed by high healthcare costs and it partially explains why the American population grew at a small 0.7 percent this past year, the lowest rise since the Great Depression. As Russ Zalatimo of HudsonPoint Capital said, the tendency around recessionary times is that the birth date really drops like we are now seeing.
Bank of America Merrill Lynch stated autos are headed for a “decisive downturn” that will trough in 2021 at about a 13-million-unit annualized rate, down from last year’s blistering record 17.6 million. A week earlier, Morgan Stanley, whose numbers aren’t quite as grim, also reduced its revenue forecast, recognizing that the best days of this cycle have come and gone.
With the Trump White House scrambling to advance different measures to fuel economic growth – tax reform, infrastructure spending, maintaining jobs from fleeing abroad, some analysts say more radical steps are desperately needed.
Manufacturing isn’t just dead, say analysts. But it’s no longer dominated by smokestacks and rudimentary assembly. There are about 360,000 jobs in US manufacturing that are vacant and not being filled and companies are saying, “We need people to fill them.”
Meanwhile, retailers are currently choking on their debt as profit margins implode. Restaurants today employ 10.6 million individuals.
According to the Tax Policy Center, Trump’s tax reform could cause overall tax cuts of $6.2 trillion over the next ten years.
Losses on securities backed by automobile loans are piling up even as the unemployment rate has hit 4.3 percent, the lowest since 2001.
Additional evidence that the United States economy is teetering is becoming more and more apparent in credit card delinquencies. Experian reported that the domestic bank card default rate climbed to 3.53 percent in May, a four-year high. There are even nascent signs that families have started to struggle to make their mortgage payments.