Nearly every piece of economic data is telling us that the US economy is about to undergo a significant downshift.
Some pundits claim that the US may enter a recession later this year or sometime in 2020.
But current economic data tells a different story, one in which a recession may happen sooner than most expect.
Despite these warning signs, the stock market, even in its current near-correction phase, is still relatively surging.
In fact, stocks haven’t had such a strong start at the beginning of the year since 1987.
And as long as stocks appear to be doing well, the investing public will simply ignore the warnings signs that contradict their image of a healthy market and robust economy.
Here are 18 signs that the US economy is starting to unravel:
One: US factory orders undergoing the worst slump in three years
A drop in factory orders indicates there is less retail demand for goods, hence fewer retail orders from factories and suppliers. Currently, we are seeing the worst consecutive drop since 2016.
Two: The Philadelphia Fed Business Index had its largest decline in more than seven years
This index measures regional manufacturing growth. When the index is above zero, it means that that factory-sector growth is taking place. Below zero, it signals a contraction. Last December the index was at 17.0 before collapsing dramatically to its current level of -4.10.
Three: US exports declined by $4 Billion in the month of December
Amid rising imports and declining export, December marked a $79 Billion deficit. The deficit is up 12.8% from the November deficit of $70.5 Billion, amid a $4 Billion decline in exports and a $5 Billion increase in imports.
Four: Baltic Dry Index is at its lowest level in more than two years
The Baltic Dry Index is a leading indicator that gives investors a glimpse into future global demand for raw materials and commodities. A drop in the index is one indication of a slowing global economy.
Five: Farm loan delinquencies have jumped to a nine-year high
After years of low crop prices and foreign-buyer backlash due to President Trump’s tariffs, farmers are having a difficult time paying back their farm loans. These factors have contributed to farm loan delinquencies, the likes of which we haven’t seen in over nine years.
Six: PepsiCo is laying off workers and closing factories
In a recent SEC filing, PepsiCo stated that it estimates $2.5 Billion to be incurred in pre-tax restructuring costs through 2023. 70% of those costs are for severance pay commitments and other employee-related costs.
Seven: Tesla is closing half of its physical sales locations
Tesla initially announced that it would be closing all of its retail stores. A few days ago, Tesla reversed its decision, deciding to close only half of its retail locations, while raising the price of its higher-end vehicles. Elon Musk: “There’s no other way for us to achieve the savings required to provide this car and be financially sustainable. I wish there was another way, but unfortunately, it will entail a reduction in the workforce on the retail side, no way around it.”
Eight: JC Penney is closing another 24 stores
Having announced three store closures due to poor sales and high costs, JCPenney said that the closures may serve as a potential real estate monetization opportunity. Shortly after this announcement, JCPenney announced 24 more closures. To date, the total number of JCPenney stores marked for closure is 27.
Nine: Victoria’s Secret announced plans to close 53 stores
Over the last two years, Victoria’s Secret has lost approximately 3.8 million customers to rival online retailers. Having seen a 7% decline across all stores during the last quarter, the company seeks to cut its losses by shutting down 53 stores.
Ten: GAP closing 230 stores over the next two years
Most of the stores to be closed are located in the US. Analysts estimate that 130 of the closings will take place in 2019.
Eleven: Payless shoe stores is declaring bankruptcy and closing all 2,100 stores
In addition to shuttering its physical store locations, Payless will also be closing down its e-commerce site. This marks the largest closing of a single retailer this year, doubling the year’s number of retail store closures.
Twelve: January sales of existing homes fell 8.5% from the previous year
This marks the third month in a row where the declines have been at least 8%. For the real estate industry, this emerging trend is nothing less than catastrophic as home sales dropped 8.9% in November and 10.1% in December from the previous year. We haven’t seen these kinds of declines since 2011.
Thirteen: Pending home sales across the entire US have fallen on a YoY basis for 13 months in a row
A leading indicator of housing sales across the US, pending home sales generally provides perspective on the health of the country’s housing market. The current indication points to negativity in the sector.
Fourteen: December US housing starts are down 11.2% as compared to the previous month
Housing starts were expected to recover between November and December. Instead, it collapsed by 11.2%.
Fifteen: Home sales in SoCal plunged 17% in January from a year earlier, lowest sales since 2008
Median home price across six counties rose by only 2%. Despite the modest gain, home sales declined to a level not seen since 2008.
Sixteen: December home sales in Sacramento county dramatically plunged by 22.5% year-over-year
Sacramento’s regional economy, labor markets, and real estate market are slowing down. Declining by a troubling 22.5%, home sales in Sacramento County have now matched the lows last seen in 2007, right before the 2008 financial crisis.
Seventeen: Student loan delinquencies have climbed to more than $166 Billion, a record
Defaults and delinquencies over 90 days have remained steady at 11% representing all outstanding student loan debt. But total student loan debt in 2018 has also risen to approximately 1.46 Trillion, further “fragilizing” the US economy.
Eighteen: Over 7 million Americans are 90 days behind on their auto loan payments
Another record, this figure is higher than it was in 2010 when delinquency rates were at their highest.
We’re presenting this data to show you a sample of the kind of economic data that the typical investor tends to miss.
Upon seeing this data, it’s hard for anyone to claim that the US economy is robust. Quite the contrary.
Last year’s GDP number came in below 3%. This tempered performance has been consistent over the last decade.
The last time we had a boom in GDP was in 2005.
But what is even more troubling is that since 1930, the US GDP had never gone five straight years without growing by at least 3%.
Despite trillions of dollars that the Fed has been pumping into our system, our national debt has increased by roughly $12 Trillion, the best the Fed was able to do in the last decade was to moderately stabilize the US economy.
Let’s compare this with the Great Depression. The four years following the 1929 crash saw consecutive declines in GDP:
- 1930 GDP declined by -8.5%
- 1931 GDP declined by -6.4%
- 1932 GDP declined by -12.9%
- 1933 GDP declined by -1.2%
But the nine years following these declines (1934 - 1942) saw tremendous real GDP growth by an average of 9.75%.
In contrast, we saw no major booms in GDP over the last decade.
And given the prospect that the Fed does not have the capacity to stimulate economic growth should we experience another recession in the near term, the next economic downturn may be worse than 2008.
Although many Americans continue to hold on to their optimistic views toward the stock market and economy, most global financial institutions and central banks do not.
Their outlook on the US economy being negative to dismal, financial institutions and central banks are seeking safety in the only assets that can protect them against America’s imminent economic collapse: gold and silver.