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.
Dustin Koski hopes a recession doesn’t happen, if for no other reason than because fewer people would check out his fantasy book A Tale of Magic Gone Wrong.