The cyclical nature of boom and bust capitalism
has been held off for an unusually long time.
On average, the US economy is supposed to
go through a recession every 57 months.
At present it’s been more than 10 years.
Whichever policies have staved it off to date,
it’s left much of the populous so confident
that there are many people in comment sections
across the internet that will smugly insist
a recession won’t happen for years to come.
It seems fair to say a lot of that confidence
is based on incomplete information.
Trade wars, the stock market, unemployment
rates; those are some of the factors that
have been covered by the mainstream media
at length to show how strong the US economy
is.
Inevitably a number of economic developments
get lost in the shuffle.
They paint an ominous picture.
10.
Housing Market
You probably don’t need anyone at TopTenz
to remind you how subprime mortgage fraud
was one of the major causes of the Great Recession
of 2008.
Today there’s no evidence that the housing
market is being set up to fail in a similar
way.
Real estate development rates are signs of
trouble, rather than the causes.
For example, the St. Louis Federal Reserve
Bank reported in December 2018 how 30-year
fixed mortgage rates were beginning to peak.
They asserted that these rates had historically
signaled the end of economic expansion and
the shift toward recession within a few quarters.
Then the Washington Post reported fixed mortgage
rates had dropped, which was in keeping with
the pattern.
As the Council on Foreign Relations reported
in October 2019, there is a growing gap between
average U.S. wage/salary increases and home
price inflation.
Between August 2018 and August 2019, average
income increased 1.3% while home prices went
up 4.7% on average.
There are countermeasures the Federal Reserve
can take to offset this, primarily in the
form of lowering interest rates to encourage
loans, as it has done three times to date
in 2019.
Still, the Council on Foreign Relations International
Economics Director Benn Steil predicted that
adjusting interest rates would not be sufficient
to combat declining household spending if
the trend continued.
9.
Income Inequality
There have been many mentions made in recent
years that America has its lowest unemployment
rate in decades.
What you don’t hear nearly so often is how
much a huge percentage of those jobs pay out.
More than 50% of workers in the US make $30,500
or less.
A third of the American workforce doesn’t
even make $20,000 a year.
More than two-thirds of them make barely $50,000
a year, and many of them have to reside in
places with higher costs of living.
A conservative estimate is that many households
will be spending roughly $1,300 a month on
food, which will be just over half the income
for single-earner households.
Add on insurance premiums, which have greatly
increased in price in recent years, as well
as food costs, and many households will have
little money left over to help sustain the
consumer spending which represents 70 % of
the US GDP.
However powerful the US economy may seem at
the top, it’s pretty precarious if the base
is this vulnerable.
8.
Auto Loan Defaults
Historically, auto loans have been one of
the things American citizens most consistently
pay off, even more than their mortgages and
credit card bills.
So it was quite perplexing for analysts at
first glance that there were seven million
Americans that were three months delinquent
on their auto loans in February 2019.
Auto loans amounted to $1.3 trillion, a massive
business to be showing signs of trouble.
The reasons for this are pretty varied.
For one, vehicles have become so much more
expensive that over the past three years new
car owners have to pay 10% more a month.
Also, standards for loan clearance dropped
over that time, and many consumers were given
auto loans without providing proof of income.
While subprime auto loans are not directly
comparable to subprime mortgages in market
terms, they strongly indicate a major market
that has been unsustainably inflated.
7.
Gold Prices
To a significant extent, major economic recessions
can be self-fulfilling prophecies.
So if there’s some indicator that people
don’t have trust in the market, that can
cause a panic even when the economy is otherwise
strong.
Gold is such an indicator because in times
of uncertainty it’s the main secure alternative
to the stock market.
During the US-China Trade War, gold prices
rose 17% by September 2019.
It was poised to climb to the highest value
of all time by 2020 if the uncertainty of
the trade war continued into a third year
and the Federal Reserve kept cutting interest
rates for regular savings accounts to prop
up the stock market.
This means that despite all the reports and
record highs, investors believed, and likely
continue to believe, that there’s trouble
brewing beneath the surface.
6.
Declining Truck Sales
Sales of Class 7 and Class 8 semi trucks,
the heavy rigs that often get called 18-wheelers,
were extremely recessed for 2019.
For example, Class 7s in May dropped 71% from
their rates in 2018.
Class 8 trucks got it even worse with an 81%
plunge from 2018.
While 2018 was a very good year for big rigs,
these are not sales returning to anything
like normal numbers — they’re the lowest
sales rates seen since 2009.
There have been plant shutdowns that are planned
to last a few years, such as in Marysville,
Ohio.
Overall, heavy duty truck manufacturing is
expected to decline 22% for 2020, according
to the research group FTR.
Weakening sales are noted as being one of
the most consistent early recession indicators
for decades.
Since 1968, on average peak heavy duty truck
sales followed by a sharp decline preceded
recessions by an average of 14 months.
Well, as the Dayton Daily News noted, 2018
featured all time heavy duty truck sales.
5.
Manufacturing Recession
One of the larger expectations in the wake
of the 2016 election was the return of robust
manufacturing employment in the US.
When the US-China Trade War began in 2018,
it had bipartisan support, such as the president
and senate minority leader Chuck Schumer.
As of late 2019, despite reports that deals
are being reached, the manufacturing sector
in the US has still hit a recession.
For example, in Northern Indiana, recreational
vehicular production and shipment was down
20%.
This has entailed Pennsylvania losing 8,100
manufacturing jobs, North Carolina shedding
7,700, and Wisconsin 6,500 by September.
If you’re wondering why this recession isn’t
dominating the news media with recession fears
so abundant, it’s because manufacturing
is supposed to be a small part of the US economy.
Public Broadcast Service reports that manufactured
goods comprise only about a third of the US
gross domestic product.
However, many of the jobs in the manufacturing
sector provide good pay and benefits, along
with secure employment.
The average employee in this sector is paid
roughly $47,000 a year, more than 50% above
the 30-ish grand half the workforce earns.
If this trend is not reversed, the ripples
will be felt much worse than trouble in the
various service industries.
4.
Municipal Revenue Decline
A common portrayal of the US is that many
rural areas or relatively small towns are
in dire straits, while cities are doing better
than usual.
To illustrate the point, roughly one in five
rural hospitals are reportedly on the brink
of closure.
This is why residents of less populated areas
have been popularly labelled “forgotten”
in recent years.
However, it’s in the urban sector that many
administrators are seeing signs of trouble
that could derail the national economy.
As reported by Axios in October 2019, roughly
two-thirds of finance officers asked in 554
metropolitan areas told National League of
Cities that their revenue sources were “shrinking”
and that their budgets were under increasing
pressure.
In the American Midwest, the region where
the problem was the worst, there was roughly
a 4.4% revenue dip in cities.
Some, such as Chicago, have been experiencing
as high a decline as 11.7%.
Problem areas included decreasing property
tax revenue.
This would have marked the first time since
2013 that cities were experiencing these sorts
of revenue problems.
While it left many convinced a recession would
occur in 2020 or 2021, on the bright side
roughly 75% of the officers stated that they
believed the budgets would be able to meet
the demands of their communities.
3.
Global Slowdown
The US exports $2.5 trillion in goods and
services, which is a bit over 10% of the US
GDP.
The fact that industrial goods comprise $539
billion of those exports shows that slow down
in that area could significantly exacerbate
the manufacturing sector’s 2019 problems.
Unfortunately the global economy’s near
future seems bleaker than the US’s.
In October 2019 the International Monetary
Fund released a report saying that global
economic growth had slowed to 3%, a rate not
seen since 2008 when the Great Recession arrived.
The IMF report had some politically loaded
points, such as claiming that a large escalation
in the US-China Trade War could mean as much
as 0.8 points lost, which would take the global
economy well under the 2.5% rate that was
flatly asserted as the recession point.
Still, there are some ominous signs of trouble
abroad.
For example, Germany is undergoing a manufacturing
recession, and its economy avoided a full
technical recession by 0.1%.
As Germany has the largest economy in the
European Union and manufacturing is the largest
sector of its economy, it seems like massive
economic problems for Europe that would ripple
around the world have been delayed, rather
than outright avoided.
2.
Declining Heavy Industrial Sales
Like most issues in the manufacturing sector
overall, heavy industrial equipment revenue
such as tractors and combine sales doesn’t
get much coverage in the mainstream media.
If it did, there would be even more bad news
reaching audiences.
For example, metalworking and construction
equipment dropped as much as 5% in the second
quarter of 2019, putting the manufacturing
index at the worst it had been in the past
three years.
Companies such as John Deere reported that
sales of their farming equipment were down
as much as 6%.
In the first quarter of 2019 alone farm equipment
sales dropped $900 million.
These sales problems highlight the fact that
while farm bailouts for lost crop sales are
being distributed to battle the highest farm
foreclosures since 2011, farmers still won’t
make the investment in new equipment if they
don’t know if they’ll be able to sell
their crops, and the bailouts don’t cover
companies for those losses of sales.
1.
Retail Problems
The notion of a “retail apocalypse” has
been commonplace since reports came out that
foot traffic in brick and mortar stores dropped
50% between 2010 and 2013.
Well it turns out that there was still a lot
of room for the situation to worsen, and to
worsen at an accelerating rate.
In the first quarter of 2019, more retail
stores closed (5,994) than in all of 2018
(5,864).
This rate slowed for the rest of the year,
but it’s still predicted to total 9,100
for 2019.
By contrast, in both years fewer than 3,300
new stores opened, according to the Coresight
Research.
As Marketwatch.com reported, strong retail
spending is a vital component of keeping the
US out of recession, so significant changes
in the sector can be devastating if the infrastructure
for them isn’t in place.
The retail sector situation for the end of
2019 is not reassuring.
For example there were three consecutive quarters
of corporate earnings declines.
If that holds true for the fourth, then it
would be the first time that happened since
2015.
The Holiday shopping season has been forecast
to provide low growth by Bank of America,
just as the 2018 holiday sales did.
If you want a foreboding vision of the future,
the United Kingdom is already experiencing
a major decline in retail earnings in nearly
60% of its stores.
If that trend is reflected in the US, very
little will be able to distract the American
public from the problems with
its economy.
