Even as the Federal Reserve and the financial news network pundits continue to dangle the prospect of a booming economy in front of us, we’re seeing more and more bad news that undermines this narrative and reveals the rotting foundation of the US economy.
The wholesale inventory report that came out yesterday is the latest gloomy example.
Last week, we learned US retail sales recorded their biggest drop in more than nine years in December. Receipts fell across the board – in brick and mortar stores, online and also in restaurants. As a number of analysts put it, this suggests a sharp slowdown in economic activity at the end of 2018. Sales fell 1.2% from November to December. It was the biggest monthly decline since September 2009.
Economist David Rosenberg added another layer to this noting in a tweet that restaurant sales have declined in four of the past five months at a pace we haven’t seen in 25 years. That means worse than the depths of the 2001 and 2007-09 recessions.
Restaurant sales have declined in four of the past five months and at a pace we haven’t seen in 25 years. That means worse than the depths of the 2001 and 2007-09 recessions. Remember — they are a leading indicator.
— David Rosenberg (@EconguyRosie) February 14, 2019
Yesterday we got even more bad news indicating consumer demand seems to be declining, signaling a slowing economy. US wholesale inventories posted their largest gain in more than five years in December as sales fell off for the third straight month. As Reuters put it, this suggests “unintended piling up of goods at wholesalers that could be flagging a slowdown in demand.”
According to the Commerce Department, wholesale inventories surged 1.1% in December. Analysts were forecasting a modest 0.3% rise. As it turned out, it was the largest gain since October 2013. The Commerce Department also revised November higher to 0.4% from 0.3%. Wholesale inventories increased by 7.3% year-on-year in December.
Bank of the West chief economist Scott Anderson told Reuters that the higher inventory levels could push Q4 GDP up, but it may indicate a drop in Q1 2019 economic growth.
“While the jump in inventories in December represents an upside risk to the fourth-quarter GDP report coming out on Thursday, declining wholesale and retail sales in December could be another sign of weaker demand and slow GDP growth in the first quarter.”
Reports on business spending plans on equipment have also pointed to a slowdown in growth at the tail end of 2018, according to Reuters.
Considering that consumer spending drives the US economy, this apparent falloff in consumer demand is not good news.
And yet, the mainstream continues to talk up the US economy. During an interview about the Green New Deal last week, Peter Schiff said the real problem isn’t the climate deniers, it’s the economy deniers. Peter noted that we were in the great recession the last time retail sales came in as poorly as they did in December. He also mentioned the all-time high in auto loan delinquencies and the fact that restaurant sales are falling at the fastest pace in 25 years.
“We’d all be better off if Cortez was still waiting tables instead of working in Congress. But these crazy policies she’s advocating – look, the public just might turn to them in 2020 if we are in a bad recession and it’s all blamed on the tax cuts, on Trump, on deregulation, and the only solution left for people to grasp for is socialism. Of course, you know, it’s never worked. It’s failed every time it’s been tried. But that doesn’t stop people from trying it again.”
The Fed seems to have injected some life into the stock market with the Powell Pause, but Peter has been saying it won’t be enough. The recession is a done deal.
“Of course, stock market investors are clueless about that. They’re just having a party because the Powell Put is back on the table. And they think simply because the Federal Reserve is no longer hiking rates that they no longer have to worry about the Fed pushing the economy into a recession. Well, it’s too late for that. The rate hikes of the past have already guaranteed that the economy is headed for recession. It doesn’t matter whether they continue to raise rates in the future. The recession is a done deal. It’s just now you have that calm between the storm while investors are still clueless and haven’t yet connected those, what should be, very obvious dots.”
The latest retail sales and wholesale inventory numbers certainly give the pundits some more dots to connect.