Warning Signs of Downturn Have Been Abundant
A shaky stock market and slowing job growth are lagging indicators of an economy plagued by fundamental problems.
Stock prices rather predictably fell sharply after the release of the national jobs report last Friday, after having suffered very big losses on Thursday. The Dow Jones Industrial average was down a further 1,100 points on Monday morning. The markets have struggled to recover since.
“The tech-heavy Nasdaq was hammered, falling more than 2.5% in recent trading and flirting with correction territory, down at least 10% from its recent high,” The Wall Street Journal reported on Friday. “Correction” is a euphemism for a massive slide in stock prices. (The Nasdaq ended the day down 2.43 percent.) The Dow dropped by 611 points, a 1.5 percent decline, and the S&P 500 declined by 1.8 percent.
Don’t look at this Wall Street Journal chart if you have a good deal of money in the stock markets:
Source: The Wall Street Journal
As the greater damage to the Nasdaq indicates, tech stocks took a beating, with Intel down by 26 percent and Amazon sliding 8.8 percent.
Additionally concerning is the fact that prices were so volatile during the selloff, as that is a strong predictor of an overall market decline. As Quoth the Raven noted at the Fringe Finance Substack, expected stock market volatility moved very high on Friday. “[W]e saw a massive spike in the VIX to end the week on Friday. Here’s how things looked early afternoon on Friday”:
“In my opinion,” Fringe Finance continues, “Friday’s trading session marks the beginning of a scenario that I have been predicting would unfold for the better part of the last two years”—a big stock market decline and a serious recession.
As noted above, the market has recovered some of the losses, and volatility has gone down since Monday. The latest jobs report, released today, showed weekly initial job loss claims decreased to 233,000 from last week’s 250,000. However, that 250,000 number was revised up this week from a lower number reported last week. If the real number for this week is going to be revised up later, as has been Biden administration’s habit, the job loss rate is not getting any better and may in fact be still worsening.
There were plenty of warning signs of a weakening economy leading up to last Friday’s disappointing employment report, which I have been writing about since 2022. Since then, the stock markets had been reaching new highs, enjoying the crack cocaine of insane federal deficit spending and loose money. Now it appears that the inevitable “correction” is on the way.
The markets seem to have arrived at the same conclusion, albeit much later. Investor’s Business Daily reports that “the weak jobs data is being taken at face value, following a number of signals on Thursday that stoked concern of a sharp economic slowdown. Those include a jump in initial jobless claims, the Institute for Supply Management's factory activity index sliding further into contraction territory and Amazon.com (AMZN) warning of rising consumer caution.”
Yes, yes, yes, and all of that is on top of the numerous other warning signals we have been noting since 2022. (You can find back issues of Life, Liberty, Property at this link.) Here are a few more from just Thursday and Friday of last week.
Rapidly rising automobile prices and increasing consumer debt are evident in a large increase in car repossessions and auto dealers stuck with unsellable inventory, ZeroHedge reported on Friday:
The private debt crisis is becoming apparent in America after car repossessions jumped 23% during the first half of 2024. Data shows that 1.6 million Americans will have their car repossessed by the bank before the end of the year, a slight increase from the 1.5 million autos repossessed in 2023 and a drastic upturn from the 1.1 million in 2021. …
Americans simply cannot afford new autos and car dealerships can do nothing to entice purchases. New car inventory in the US rose 36% this year, close to February 2021 levels before the supply chain crisis put a dent in imports. Yet, the average list price of a new car is $49,096 and far more than the average American can afford. The average new vehicle will sit in a dealer’s lot for 65 days, a 41% annual increase. …
The average new car costs about $735 monthly based on data from Experian, and $523 monthly on used models.
Those high monthly automobile payments are brutalizing consumers, as auto loans comprise about 9.2 percent of all consumer debt, ZeroHedge notes. The situation is likely to get worse in the coming months, the story reports: “Cox Automotive believes the trend of repossessing cars will increase into 2025 when they anticipate 1.7 million cars being repossessed.”
Note that inventory is listed as a positive item in calculation of gross domestic product. That is not an entirely reasonable claim, to say the least, as this situation indicates.
Meanwhile, shelter costs are rising, with Wisconsin representing the increasing unaffordability of housing across the country, The Wall Street Journal noted on Friday:
With median sale prices up 8% in the past year, according to Redfin, Wisconsin is the unhappy winner of the biggest price jump among the presidential battleground states. Prices are up here at double the U.S. average. …
A July Wall Street Journal poll showed that voters rank housing as their second biggest concern when it comes to high prices—behind only groceries. …
A protracted house hunt was enough to make Nahona Moore, 28 years old, plan to change her lifelong record of voting for Democrats.
Moore, a self-employed makeup artist living on the border of Milwaukee and Wauwatosa, said she blamed both Biden and Harris for “not making anything better.”
She added: “When Trump was still president, if we were making what we make now, we would be set.”
High consumer debt is causing consumers to reduce their spending on retail items, ZeroHedge reported on Friday:
For home improvement retailers such as Home Depot and Lowe’s, companywide same-store comparable sales, which compares the sales of a store open for at least a year against the previous period, have been in decline for six quarters. The same trends can be seen in the consumer electronics space, where Best Buy has posted negative same-store sales, sometimes in the double digits, for 10 consecutive quarters. Venerable Target, a traditional favorite of middle-class consumers, has also posted negative comps for a year now.
The discount stores are faring only slightly better. Dollar General, a pillar of support for low-income families, is treading water with flat sales, while Walmart has seen its comparable store sales fall from nearly 9 percent two years ago to less than 4 percent in its most recent quarter. Costco is following the same trend. For nearly all of the retailers, even those managing to grow revenue, profit margins are compressing as they are forced to discount more heavily to attract the otherwise beleaguered shopper.
The cutback in consumer goods-buying is driving companies out of business, the story notes:
For the second tier of retailers, especially those in the home products space, the pressure is too much. Furniture chain Conn’s has filed for bankruptcy and is liquidating its more than 70 stores after 134 years in operation. Big Lots, the off-price home goods retailer, is closing 150 stores and trying to raise rescue capital to avoid bankruptcy itself.
Conn’s and Big Lots aren’t alone. Over the past year, business bankruptcy filings are up 40.3 percent, and have now reached a number not seen since the second quarter of 2020, at the peak of lockdowns. American households are following along, with total bankruptcy filings up 16.2 percent in the past year, including 132,710 new filings in the second quarter of 2024 alone.
The rise in consumer bankruptcies is an important misery number. I recommend that any candidates running against the party currently holding the White House publicize this sad fact aggressively.
Big companies are feeling the pinch as well. Second-quarter sales were disappointing for chip maker Intel, The Wall Street Journal reported on Thursday:
Intel INTC -26.06% decrease; red down pointing triangle plans to lay off thousands of employees this year and pause dividend payments as part of a broad cost-saving drive more than three years into Chief Executive Pat Gelsinger’s turnaround effort.
Gelsinger laid out the plan to reduce costs by more than $10 billion next year as the chip maker reported second-quarter sales of $12.8 billion, down 1% and below analysts’ forecasts in a FactSet survey. Reaching that cost-reduction goal will require cutting jobs and lowering capital expenditures, among other moves, the company said.
The company’s stock fell 20% in after-hours trading. …
Intel reported a loss of $1.6 billion for the second quarter, compared with a $1.5 billion profit a year earlier. It said it expected sales of roughly $13 billion in the third quarter, below analyst forecasts.
The pause in the company’s dividend follows a 66% reduction of the payouts last February.
Things got even worse for Intel on Friday, as noted above.
Apple is floundering in its efforts to benefit from the rising interest in AI, The Wall Street Journal reported on Thursday:
Apple’s AAPL 1.84% increase; green up pointing triangle iPhone revenue fell for a second consecutive quarter, a soft demand signal investors hope will turn around once the company releases new AI features in the fall.
For its quarter ended in June, iPhone sales declined nearly 1% from the prior year to about $39.3 billion and overall Apple revenue increased about 5% to $85.8 billion.
Amazon’s stock was hit hard after the announcement that the retailer’s sales growth was less than expected in the second quarter, though the company is still enjoying rising sales, The Wall Street Journal reported on Thursday:
Amazon.com (AMZN -9.12% decrease) shares slipped Thursday after it projected weaker-than-expected revenue growth and said it would continue to ratchet up spending to meet anticipated demand for artificial-intelligence services. …
Shares of Amazon—which had risen more than 20% so far this year—fell more than 7% in after-hours trading Thursday.
Warren Buffett's Berkshire Hathaway has sold 90 million shares of Bank of America because the billionaire investor’s company cannot “find deals in today's overvalued and weak economic environment” and is saving up for when stock prices reach bottom, ZeroHedge reports:
The exact reason for Berkshire's BofA dump has yet to be disclosed. But raising cash could be a sign that Buffett and his team understand deals are ahead. This means valuations in overall markets must go lower.
All this desolation, and much more, was reported by just two outlets over just two days.