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11 Signs That The Economic “Tipping Point” That Everyone’s Been Waiting For Has Arrived

11 Signs That The Economic "Tipping Point" That Everyone’s Been Waiting For Has Arrived

Authored by Michael Snyder via The Economic Collapse…

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11 Signs That The Economic "Tipping Point" That Everyone's Been Waiting For Has Arrived

Authored by Michael Snyder via The Economic Collapse blog,

How bad do things have to get before people start realizing that we are in the midst of a full-blown economic crisis? 

The “experts” on television are endlessly debating about whether or not we are going to have a “recession” this year, and meanwhile economic activity is imploding all around us.  The number of homes being sold in this country each month has already fallen by a third.  The number of job cuts in November was 417 percent higher than it was during the same month a year earlier, and at this point even Amazon is laying off thousands of workers.  The Federal Reserve has declared war on inflation, but prices continue to spiral out of control.  In fact, vegetables are 80 percent more expensive now than they were 12 months ago.  Meanwhile, the financial markets continue to plunge.  A third of the value of the Nasdaq has already been wiped out, and more than two-thirds of the value of all cryptocurrencies is already gone.

After everything that has already transpired, everyone should be able to clearly understand what is happening.

So many people have been waiting for an economic nightmare to come, but the truth is that it is already here.

The following are 11 signs that the economic “tipping point” that everyone has been waiting for has now arrived…

#1 U.S. manufacturing is declining at the fastest pace that we have seen since the early days of the COVID pandemic

The S&P Global U.S. Manufacturing Purchasing Managers’ Index (PMI) fell at the fastest rate since May 2020 in December, a continuing sign that the manufacturing sector is on the decline, S&P Global reported Tuesday.

The U.S. Manufacturing PMI posted a 46.2 in December, down from 47.7 in November and solidly below 50, which signals that the sector is contracting, according to S&P Global. Production levels contracted in back-to-back months, with new sales plummeting at the end of December at the fastest pace since 2007, as companies cited weakening demand amid “economic uncertainty” and inflation weighing on customers.

#2 U.S. services PMI has now fallen for sixth months in a row.

#3 We just witnessed the largest one day drop in the Baltic Dry Index since 1984

The Baltic Exchange’s dry bulk sea freight index crashed on Tuesday in the worst decline on record, sinking on prospects of a global recession.

Baltic Dry Good Index is a measure of global shipping and economic health. The overall index, which tracks rates for capesize, panamax, and supramax shipping vessels carrying dry bulk commodities, plunged 17.5% to $1,250, the most significant daily decline since 1984.

#4 Thanks to rapidly falling imports, we just witnessed the largest monthly decline in the trade deficit since the last financial crisis

According to the BEA, the November trade deficit narrowed to $61.5b from $77.8b in prior month, coming in below the median estimate of $63.0BN (and just barely missing the top end of the range of $61.3BN to $80.5BN from 42 economists).

Remarkably, the 20% one-month decline in the deficit was the single biggest drop in the US trade deficit on a percentage basis going back to the global financial crisis!

#5 In 2022, U.S. auto sales were the lowest that we have seen for a full year in more than a decade

Industrywide, U.S. auto sales totaled 13.7 million vehicles in 2022, the lowest figure since 2011 and an 8% decrease from the prior year, according to the research firm Wards Intelligence. Sales had topped 17 million vehicles for five straight years before the Covid-19 pandemic struck in 2020, unleashing supply-chain problems that have bogged down deliveries ever since.

#6 The average rate on a 30 year fixed-rate mortgage is more than twice as high as it was this time last year…

Mortgage rates inched up again last week, after a slight increase the week before interrupted six straight weeks of falling rates.

The 30-year fixed-rate mortgage averaged 6.48% in the week ending January 5, up from 6.42% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.22%.

#7 According to CNN, sales of apartments in Manhattan were 28.5 percent lower in the fourth quarter of 2022 than they were in the fourth quarter of 2021…

Higher rates and still-high housing prices cooled demand at the end of last year, causing sales to tumble. Sales dropped 28.5% in the fourth quarter compared to the fourth quarter of 2021.

#8 Overall, existing home sales in the United States have fallen for 10 months in a row and are now down by more than a third since January 2022.

#9 Bed Bath & Beyond is warning that the company is literally on the verge of declaring bankruptcy

Bed Bath & Beyond warned Thursday it’s running out of cash and is considering bankruptcy.

The retailer, citing worse-than-expected sales, issued a “going concern” warning that in the upcoming months it likely will not have the cash to cover expenses, such as lease agreements or payments to suppliers. Bed Bath said it is exploring financial options, such as restructuring, seeking additional capital or selling assets, in addition to a potential bankruptcy.

#10 It is being reported that Amazon has decided to lay off approximately 18,000 employees

Amazon.com Inc. is laying off more than 18,000 employees — the biggest reduction in its history — in the latest sign that a tech-industry slump is deepening.

#11 Overall, the tech industry has already laid off more than 150,000 workers over the last year.

Many more American workers will lose their jobs as economic activity slows down even more throughout 2023.

So if you currently have a good job that you value, try to cling to it as hard as you can.

The times that we are moving into are going to look completely different from the times that we have enjoyed over the past decade.

Our leaders were able to keep the party going for a long time by absolutely flooding the system with money, but now they have lost control.

We are literally careening toward disaster, but most Americans still don’t understand what is taking place.

Most Americans just assume that those in authority know exactly what they are doing and that a “return to normal” is inevitable.

I wish that was true, because the ride into the economic abyss that we are facing is not going to be fun.

*  *  *

It is finally here! Michael’s new book entitled “End Times” is now available in paperback and for the Kindle on Amazon.

Tyler Durden Sat, 01/07/2023 - 10:30

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Q4 Update: Delinquencies, Foreclosures and REO

Today, in the Calculated Risk Real Estate Newsletter: Q4 Update: Delinquencies, Foreclosures and REO
A brief excerpt: I’ve argued repeatedly that we would NOT see a surge in foreclosures that would significantly impact house prices (as happened followi…

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Today, in the Calculated Risk Real Estate Newsletter: Q4 Update: Delinquencies, Foreclosures and REO

A brief excerpt:
I’ve argued repeatedly that we would NOT see a surge in foreclosures that would significantly impact house prices (as happened following the housing bubble). The two key reasons are mortgage lending has been solid, and most homeowners have substantial equity in their homes..
...
And on mortgage rates, here is some data from the FHFA’s National Mortgage Database showing the distribution of interest rates on closed-end, fixed-rate 1-4 family mortgages outstanding at the end of each quarter since Q1 2013 through Q3 2023 (Q4 2023 data will be released in a two weeks).

This shows the surge in the percent of loans under 3%, and also under 4%, starting in early 2020 as mortgage rates declined sharply during the pandemic. Currently 22.6% of loans are under 3%, 59.4% are under 4%, and 78.7% are under 5%.

With substantial equity, and low mortgage rates (mostly at a fixed rates), few homeowners will have financial difficulties.
There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

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‘Bougie Broke’ – The Financial Reality Behind The Facade

‘Bougie Broke’ – The Financial Reality Behind The Facade

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Social media users claiming…

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'Bougie Broke' - The Financial Reality Behind The Facade

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Social media users claiming to be Bougie Broke share pictures of their fancy cars, high-fashion clothing, and selfies in exotic locations and expensive restaurants. Yet they complain about living paycheck to paycheck and lacking the means to support their lifestyle.

Bougie broke is like “keeping up with the Joneses,” spending beyond one’s means to impress others.

Bougie Broke gives us a glimpse into the financial condition of a growing number of consumers. Since personal consumption represents about two-thirds of economic activity, it’s worth diving into the Bougie Broke fad to appreciate if a large subset of the population can continue to consume at current rates.

The Wealth Divide Disclaimer

Forecasting personal consumption is always tricky, but it has become even more challenging in the post-pandemic era. To appreciate why we share a joke told by Mike Green.

Bill Gates and I walk into the bar…

Bartender: “Wow… a couple of billionaires on average!”

Bill Gates, Jeff Bezos, Elon Musk, Mark Zuckerberg, and other billionaires make us all much richer, on average. Unfortunately, we can’t use the average to pay our bills.

According to Wikipedia, Bill Gates is one of 756 billionaires living in the United States. Many of these billionaires became much wealthier due to the pandemic as their investment fortunes proliferated.

To appreciate the wealth divide, consider the graph below courtesy of Statista. 1% of the U.S. population holds 30% of the wealth. The wealthiest 10% of households have two-thirds of the wealth. The bottom half of the population accounts for less than 3% of the wealth.

The uber-wealthy grossly distorts consumption and savings data. And, with the sharp increase in their wealth over the past few years, the consumption and savings data are more distorted.

Furthermore, and critical to appreciate, the spending by the wealthy doesn’t fluctuate with the economy. Therefore, the spending of the lower wealth classes drives marginal changes in consumption. As such, the condition of the not-so-wealthy is most important for forecasting changes in consumption.

Revenge Spending

Deciphering personal data has also become more difficult because our spending habits have changed due to the pandemic.

A great example is revenge spending. Per the New York Times:

Ola Majekodunmi, the founder of All Things Money, a finance site for young adults, explained revenge spending as expenditures meant to make up for “lost time” after an event like the pandemic.

So, between the growing wealth divide and irregular spending habits, let’s quantify personal savings, debt usage, and real wages to appreciate better if Bougie Broke is a mass movement or a silly meme.

The Means To Consume 

Savings, debt, and wages are the three primary sources that give consumers the ability to consume.

Savings

The graph below shows the rollercoaster on which personal savings have been since the pandemic. The savings rate is hovering at the lowest rate since those seen before the 2008 recession. The total amount of personal savings is back to 2017 levels. But, on an inflation-adjusted basis, it’s at 10-year lows. On average, most consumers are drawing down their savings or less. Given that wages are increasing and unemployment is historically low, they must be consuming more.

Now, strip out the savings of the uber-wealthy, and it’s probable that the amount of personal savings for much of the population is negligible. A survey by Payroll.org estimates that 78% of Americans live paycheck to paycheck.

More on Insufficient Savings

The Fed’s latest, albeit old, Report on the Economic Well-Being of U.S. Households from June 2023 claims that over a third of households do not have enough savings to cover an unexpected $400 expense. We venture to guess that number has grown since then. To wit, the number of households with essentially no savings rose 5% from their prior report a year earlier.  

Relatively small, unexpected expenses, such as a car repair or a modest medical bill, can be a hardship for many families. When faced with a hypothetical expense of $400, 63 percent of all adults in 2022 said they would have covered it exclusively using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as “cash or its equivalent”). The remainder said they would have paid by borrowing or selling something or said they would not have been able to cover the expense.

Debt

After periods where consumers drained their existing savings and/or devoted less of their paychecks to savings, they either slowed their consumption patterns or borrowed to keep them up. Currently, it seems like many are choosing the latter option. Consumer borrowing is accelerating at a quicker pace than it was before the pandemic. 

The first graph below shows outstanding credit card debt fell during the pandemic as the economy cratered. However, after multiple stimulus checks and broad-based economic recovery, consumer confidence rose, and with it, credit card balances surged.

The current trend is steeper than the pre-pandemic trend. Some may be a catch-up, but the current rate is unsustainable. Consequently, borrowing will likely slow down to its pre-pandemic trend or even below it as consumers deal with higher credit card balances and 20+% interest rates on the debt.

The second graph shows that since 2022, credit card balances have grown faster than our incomes. Like the first graph, the credit usage versus income trend is unsustainable, especially with current interest rates.

With many consumers maxing out their credit cards, is it any wonder buy-now-pay-later loans (BNPL) are increasing rapidly?

Insider Intelligence believes that 79 million Americans, or a quarter of those over 18 years old, use BNPL. Lending Tree claims that “nearly 1 in 3 consumers (31%) say they’re at least considering using a buy now, pay later (BNPL) loan this month.”More tellingaccording to their survey, only 52% of those asked are confident they can pay off their BNPL loan without missing a payment!

Wage Growth

Wages have been growing above trend since the pandemic. Since 2022, the average annual growth in compensation has been 6.28%. Higher incomes support more consumption, but higher prices reduce the amount of goods or services one can buy. Over the same period, real compensation has grown by less than half a percent annually. The average real compensation growth was 2.30% during the three years before the pandemic.

In other words, compensation is just keeping up with inflation instead of outpacing it and providing consumers with the ability to consume, save, or pay down debt.

It’s All About Employment

The unemployment rate is 3.9%, up slightly from recent lows but still among the lowest rates in the last seventy-five years.

The uptick in credit card usage, decline in savings, and the savings rate argue that consumers are slowly running out of room to keep consuming at their current pace.

However, the most significant means by which we consume is income. If the unemployment rate stays low, consumption may moderate. But, if the recent uptick in unemployment continues, a recession is extremely likely, as we have seen every time it turned higher.

It’s not just those losing jobs that consume less. Of greater impact is a loss of confidence by those employed when they see friends or neighbors being laid off.   

Accordingly, the labor market is probably the most important leading indicator of consumption and of the ability of the Bougie Broke to continue to be Bougie instead of flat-out broke!

Summary

There are always consumers living above their means. This is often harmless until their means decline or disappear. The Bougie Broke meme and the ability social media gives consumers to flaunt their “wealth” is a new medium for an age-old message.

Diving into the data, it argues that consumption will likely slow in the coming months. Such would allow some consumers to save and whittle down their debt. That situation would be healthy and unlikely to cause a recession.

The potential for the unemployment rate to continue higher is of much greater concern. The combination of a higher unemployment rate and strapped consumers could accentuate a recession.

Tyler Durden Wed, 03/13/2024 - 09:25

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The most potent labor market indicator of all is still strongly positive

  – by New Deal democratOn Monday I examined some series from last Friday’s Household survey in the jobs report, highlighting that they more frequently…

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 - by New Deal democrat


On Monday I examined some series from last Friday’s Household survey in the jobs report, highlighting that they more frequently than not indicated a recession was near or underway. But I concluded by noting that this survey has historically been noisy, and I thought it would be resolved away this time. Specifically, there was strong contrary data from the Establishment survey, backed up by yesterday’s inflation report, to the contrary. Today I’ll examine that, looking at two other series.


Historically, as economic expansions progress and the unemployment rate goes down, average hourly wages for nonsupervisory workers improve at an increasing rate (blue in the graph below). But eventually, inflation (red) picks up and overtakes that wage growth, and a recession occurs shortly thereafter. Not always, as we’ll see in the graph below, but usually:



As you can see, there have been a number of exceptions to the rule, chiefly where inflation outstripped wage growth, but no recession happened anyway. Typically this has occurred because of the entry of so many more people (like women in the 1980s and early 1990s) into the labor force.

And we certainly see that inflation outstripped wages in 2022, not coincidentally when there were several negative quarters of real GDP. But with the decline in gas prices, in 2023 inflation subsided much more sharply than wage growth, and the economy improved more substantially. That has remained the case in the first two months of 2024.

But an even more potent indicator is one I have come to rely on even more: real aggregate payrolls for nonsupervisory workers. Here’s its historical record up until the pandemic:



There’s not a single false positive, nor a single false negative. If YoY aggregate payroll growth is stronger than YoY inflation, you’re in an expansion. If it’s weaker, you’re in a recession. Period.

And here is its record since the pandemic:



Real aggregate nonsurpervisory payrolls are positive, and they got more positive in 2023 compared with 2022. Currently they are 2.6% higher YoY than inflation.

In addition to the YoY comparison, real aggregate nonsupervisory payrolls have always declined, at least slightly, from their expansion peaks before every single recession in the past 50 years except for when the pandemic suddenly shut down the economy:



Not every slight decline means a recession is coming. But if real aggregate payrolls are at a new high, you’re not in a recession, and one isn’t likely to occur in the next 6 months, either.

And in case it isn’t clear from that long term graph, here’s the short term graph of the same thing:



Real aggregate nonsupervisory payrolls made a new all-time high in February. Despite the negative metrics in the Household survey, this is *very* potent evidence that not only are we not in a recession, but one isn’t likely in the immediate future either.


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