No recession is the mantra that is currently being rolled out by the bobbleheads in the media and the liars in Congress and the White House. This ignores the data coming from the Bureau of Economic Analysis (BEA) which showed that despite the unusual situation with import data that helped the GDP, the US economy shrunk again the second quarter. This followed a shrinking of the economy in the first quarter.
The BEA released their first estimate of the second quarter GDP [Data Here] reflecting a 0.9% drop in U.S. economic activity. The second quarter contraction follows a 1.6% drop in the first quarter, which means we now have two consecutive quarters of declining economic activity, the technical definition of a recession.
Consumers have significantly reduced spending on durable goods. They are much more focused on meeting the need for food and other essentials. Inflation, an intentional feature of the administration’s economic policies, is causing consumers to hunker down. Inflation on essential items (food, fuel, energy) is crushing U.S. consumers. As a result, spending on non-essential items is dropping. All of this is clear in the data.
Despite these clear indications of declining demand, the Fed is raising interest rates. Doing so into a recessionary period has the potential to push the country into a depression.
How is the non-recession playing out around the world?
South Korea… In June major manufacturer Samsung, headquartered in South Korea, announced they had told suppliers to stop sending component manufacturing parts for finished goods. South Korea announced that July manufacturing output contracted for the first time in two years.
Europe…Manufacturing and factory activity is also contracting with less output, higher buildup of inventory and fewer orders for finished goods.
Japan…Activity is also slowing there. Japan’s central bank actually recognizes this and has NOT raised rates.
Keep in mind that the contraction in manufacturing activity lags behind reduction of consumer spending. First, inventories build. Then manufacturing slows. That is what is happening now.
However, the Fed and other interest setting organizations around the world say there is too much demand. That is why they are raising rates, to reduce the demand that is no longer there. It is possible that future unemployment may rival the situation during the lockdowns.
When will the layoffs start? Remember that labor is a lagging indicator in a recession or depression dynamic. First, economic activity slows. Then companies start reducing work forces.
Big Tech, Oracle, Fakebook, Google and many others have already been laying off. The Bureau of Labor Statistics (BLS) reports that the number of job openings DECLINED by 605,000 in June. But, the bobbleheads claim the economy is strong.
This week GEICO announced they are closing all 38 of their California offices. How many people does this put out of work?
How many independent restaurants will go belly up? Dining out is a non-essential activity.
Construction lost nearly 18% of its job openings. On a percentage basis this is triple the drop in total job openings. Fewer new homes, fewer commercial real estate projects will affect durable goods creation in many areas.
Maersk is the international shipping company that delivers millions of containers of goods all around the world, mostly by ship. They are warning that warehouses are full of previously delivered goods, unsold consumer durable goods, as retail sales have come to a standstill. Maersk indicated that the number containers loaded onto its ships fell by 7.4% in the second quarter compared to the same time a year earlier.
But, let’s remember, Biden and his masters say the economy is historically strong. This is just a “transitory” pause so that the economy can catch its breath. I wonder how long this “pause” will last? And just what are we transitioning to?