So is the long-predicted recession near — or here already? Depends on who you ask.
The traditional bellwether of a recession, gross domestic product (GDP), says it’s not. After all, GDP grew by 2.8% in the 2nd quarter of 2024, a marked improvement over Q1.
But 60% of Americans emphatically say “yes” — the current environment feels very much like a recession:
- Employers shed more than a million full-time jobs dating back to last fall.
- The average weekly hours worked per employee is down to 34.3 according to Bureau of Labor Statistics.
- “Bloody Monday” signaled a possible end to the stock market bull run.
- Folks who are still fully employed are stressed out. Inflation, high interest rates and the threat of getting laid off is on a lot of people’s minds.
CFOs Saw Signs Earlier than Most
For a while now, business owners and CFOs have been tightening the belt and making tough cuts. This year shareholders are pushing publicly traded companies to go even leaner and keep the focus on efficiency. It’s a bad time to be a smaller company needing an injection of capital with loan rates at 6% and above.
Other signs are popping up on the horizon suggesting a serious economic slowdown is near. Since the mainstream media is focused 24/7 on the election, don’t count on hearing much about any of these signs or the word “recession” until after November 5.
1. Manufacturing Orders are at Record Lows
The Institute for Supply Management (ISM) Manufacturing Index shows manufacturing orders are shrinking steadily. Factory output shrunk for the fourth month in a row following a short uptick earlier this year. Factories are struggling to churn out product and keep employment steady.
Manufacturing is in a historic slump. “The industry has only ever seen a longer period of contraction once, during the late 1990s when it contracted for 26 months,” notes the Kobeissi Letter. Following that slowdown came the dot-com bubble burst and a recession in 2001.
The market’s gone bearish on manufacturing as a result. Hedge funds started selling off industrial stocks at the end of July in favor of commodities and energy, according to Bloomberg.
2. Consumers are Cutting Back on Favorites
Higher prices on food and beverages this decade hasn’t put a dent the profits of Americans’ favorite chains. Until now.
Case in point: McDonald’s sales dropped for the first time since 2020. The worldwide burger giant’s profits are down 12%. Starbucks also saw sales dip for the first quarters of the year — more so in China where store sales plummeted by 14%.
Home and car insurance rates are popping by as much as 20% in many states. Average home prices in every major and mid-sized city start at $1 million-plus. Consumers are tapped out, and it’s evident in the number of people cutting back on take-out coffee and the like.
Consider that Amazon’s annual Prime Day in July offered an average of 20% in discounts on products across the board to boost sales. Its discount rate in 2023? Twelve percent.
3. Banks are Loading Up on Gold
Janet Yellen and Jerome Powell love to tell investors that they’re bullish on the dollar. Then why are the Federal Reserve and other nations’ reserve banks stocking up on gold?
Central banks now own 17% of all mined gold, and their share could go higher this year. The banks bought up 290 metric tons in Q1 2024, their biggest purchase of gold since 2000. Reserves are clearly hedging their bets on the dollar and the health of the U.S. economy.
4. National Debt is Spiraling Out of Control
CFOs say their top worry is the national debt, according to a recent Conference Board survey. The current trajectory of our $35 trillion debt is pointing straight up. The models forecasting Social Security will go broke by 2033 didn’t factor in the government spending trillions on COVID-19 relief and green energy.
Beginning in May, the government began to spend more servicing the debt than on defense. Federal debt is at 97% of GDP, which is an all-time record. The government’s spending at a rate not seen since World War II.
The Federal Reserve will probably cut interest rates in September now that inflation’s cooled. Powell and company may opt for a half-point cut or higher after holding rates steady for so long. The Bank of England and other European central banks started reducing rates months back. Of course, the low rates to borrow of the past decade are a lo-o-ong way’s off.
To his credit, Powell is warning lawmakers that the debt is too high. If government doesn’t make substantial spending cuts soon, the dollar will keep losing value and inflation will continue surging. But so far Donald Trump, Joe Biden and now Kamala Harris aren’t talking much about spending or the $35T debt.
