Why the American Economy Is in Big Trouble

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Why the American Economy Is in Big Trouble

Let’s just get this out of the way now…

The September jobs report was absolutely abysmal. The U.S. added 142,000 jobs last month, widely missing estimates for 200,000. What’s more, August’s lackluster report was revised lower by 40,000 to 136,000. Back-to-back weak jobs reports are the start of an ugly trend for the American economy.

To make matters worse, the average hourly wage crept a penny lower and 350,000 people dropped out of the labor force, putting participation at its lowest level since October 1977.

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But these numbers shouldn’t have surprised Wall Street. We’ve been seeing hints of thisslowdown in the American economy for some time and it makes it very clear what the Fed is going to do for the rest of 2015.

The hints that have peppered Wall Street are the layoff announcements from the companies that are doing the actual hiring, not an estimate of who hired whom and who fired whom.

Challenger, Gray & Christmas, Inc. — a staffing company that compiles all the layoff announcements each month — posted its results for September on October 1, and it wasn’t pretty.

The amount of jobs that will be laid off, according to the company’s press release, totaled 58,877 in September, a 43% increase from the prior month.

Monthly results like this alone don’t tell you a whole lot.

But, once you put it into context, the data tells you low rates are here to stay. Let me explain.

More Economic Weakness Is on the Horizon

Two important indicators are lining up to show a significant slowdown in the American economy. An important fact to distinguish is that these two indicators have different time frames. For example, nonfarm payrolls are a lagging indicator — this hiring/firing has already happened. Layoff announcements are firing that will take place in the near future, a forward-looking indicator.

With that said, let’s take a look at the trend in layoff data. Below is a chart on the number of announced job cuts since June 2014.

Layoffs Announced Since June 2014

The jagged blue line — representing the number of announced job cuts — is drifting higher. I added the red line to highlight the direction layoffs have been heading.

Another interesting tidbit from the release by Challenger is that the company noticed that earlier in the year layoffs were focused in the energy sector, but it has now translated into layoffs in the computer industry (think: Hewlett-Packard) and consumer sectors such as retail and automotive.

This is a huge shift. It portrays the impact a slowing economy, lower oil prices and higher wages will continue to have on our employment situation.

And the trend in increased layoffs goes back further than last year. Looking at the data on a quarterly basis shows that this past third quarter was the second highest in job cuts since the Great Recession.

These layoff announcements are worrisome for the American economy, the markets and for Fed Chair Janet Yellen.

The Fed Missed Its Opportunity

Ms. Yellen routinely includes the labor market as a significant measure that’s considered when deciding whether to raise rates, which is why all eyes are on nonfarm payrolls today.

But the truth is, according to our payroll data, the Fed could have raised rates a year ago when the American economy was stronger: Unemployment was steadily falling and jobs reports were strong. The layoff announcements above tell me that this is about to change.

In short, the Fed missed its shot.

Nonfarm payrolls had been trending higher in recent years, but now those results have started to turn lower — not an environment the Fed wants to raise rates in.

This tells us one thing: The American economy will see low rates for at least another decade.

Your hunt for yield will remain unabated, and income-generating stocks will be in high demand.

Regards,
Image for American economy
Chad Shoop
Editor, Pure Income

The post Why the American Economy Is in Big Trouble appeared first on The Sovereign Investor.

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32 COMMENTS

  1. Completely agree with you, but Clinton did sign the bill and his lovely wife, Hillary along with Rubio are both for increasing H1 & L1B visas. Hillary’s been funded by TATA and Infosys both under federal investigation for the discrimination against American citizens. They bring Indians here have Americans train them, then take back their knowledge to India. It is the outsourcing of not just manufacturing right now, but in Accounting, Technology and Engineering jobs. Once the TPP gets signed, we can kiss any kind of decent paying job goodbye. I guess it has to get worse before it gets better. I hate saying this but I only support 2 candidates right now for Presidency Sanders and Trump. They seem to be the only 2 who have the balls to stand up against Washington and to say Citizens United has ruined our country. It’s we the people not we the corporations or dirty politicians. No party is representing us right now. Blame can be put on both parties, which is why nothing has changed with either party in place for the last 20 years. We used to have laws that broke up companies that had as much influence as WalMart, Google, Facebook, Microsoft, now they seem to have more influence than the average American family.

  2. Revenue is low because of the structural changes made in revenues by the Bush tax cuts in and 2003. George Aklerlof and 500 other economists signed a petition pleading with the Bush admin to not go that route. And what happened?

  3. On average how long is the period of deleveraging following a balance sheet recession?

    What does the lack of the growth of credit show?

    Are recessions that preceded weak periods of economic growth shorter or longer then usual?

    Why did the economy never recover from the jobs lost from the minor 2001 recession?

    Why was the economic growth in the 2000’s not sustainable?

    What role does wealth play in consumption patterns?

    Why has the velocity of the M2 money stock been in constant decline since 1997?

    “Lets see, who has been President for the last 7 years? Oh yeah, the community Organizer with all his business acumen.

    Had you ever bothered to study economics you would see that the role of community organization is active in just about every country in Europe.

  4. “States are cutting the funding to keep balanced budgets and that irks liberals.”

    Actually it’s because budgets are being balanced off the backs of the working class, the ones that didn’t cause the financial crisis or corresponding global recession.

  5. Look at the voting history of the bill. It really doesn’t matter because as Adam Smith clearly stated and history has also shown that the owners of the means of production dictate foreign policy in the U.S and U.K.

  6. Is that the stimulus that was going to “create 2,000,000 new jobs” that, after all the money was spent but no new jobs were created?

  7. And CA INCREASED sales and income tax rates, and the gas tax, to balance the budget.
    Then they extended health insurance to children of illegal immigrants, and are now attempting to cover the adult illegal immigrants themselves, which will cost billions per year and result in….wait for it….a deficit

  8. Hospitals are getting more $$ because more people showing up are insured. Although there is some offset because fewer uninsured are showing up in very expensive emergency rooms. That’s why hospitals were among the most adament supporters of Obamacare.

  9. There was no reason for the debt to increase, but Conservatives insist we undertax the wealthy. The wealthy were the prime beneficiaries of the spending since 2008, since the wealth of the top 1/10 has grown by over $20 trillion – dwarfing the $8 trilion increase in debt. But Conservatives insist we privatize their wealth gain while socializing the debt from the spending that made their $20 trillion wealth gain possible.

  10. I agree interest payment will grow do to debt spending. But the wealth of Americans incresed from $59 trillion Dec 2008 to $84 trillion dec 2014 – a $25 trillion increase with $20+ trillion going to the top 1/10. If we had just taxed them $8 trillion more – there would have been no debt increse – and the wealthy would still have gained over $12 trillion of wealth in just 5 years. Growing the debt from the spending that took place was completely unnecesary.

  11. My God! Revenues are low because Reagan and Bush both cut taxes for the wealthy – you know – the ones with the money. The GOP targeted transportation-infrastructure spending – both at the Federal level and in many states that they control.
    Defense spendng did drop as two wars wound down – but that earlier defense spending still employed Americans and stimulated the economy – and it wasn’t replaced with infrastructure spending because of Conservatives in Congress who couldn’t wait to end Obama’s stimulus.

  12. Says the 2 dummies who haven’t even looked at a graph. ei.marketwatch.com//Multimedia/2012/05/21/Photos/ME/MW-AR658_spendi_20120521163312_ME.jpg?uuid=3666ead6-a384-11e1-827e-002128049ad6

  13. All your stupid post does is show that you don’t understand math or economics. Yes Reagan paved the way by setting in motion tax policy and budgets that to this day don’t meet the needs of the public and let the rich rape and pillage while paying a pittance.

  14. It was inevitable. Ever since Reagan the righties have been slashing taxes, letting infrastructure rot, devaluing wages and gutting unions. Their policies have piled unaffordable costs for housing, food, education, and healthcare on the middle class to the point it doesn’t even exist anymore. A strong middle class requires commitment and active help by government to exist, selfish and greedy desires have made us a shadow of our former self and a weak breeze could now implode what used to be the greatest country on earth.

  15. 40 years of republican outsourcing and destruction of wages are going to ruin this country. It is also the reason why so many are deep in predatory debt for college, because guys like Mitt shipped away every good paying entry to mid-level job we had. There are a ton of old folks who think finding a job is as easy as looking in the newspaper, they don’t realize newspapers and jobs have both been nonexistent for young people for 20 years.

  16. The U.S. has gotten itself into a real pickle this time. For years, the U.S. Central Planning Regime has banked on inflation to help wipe out at least part of the huge national debt. During the same time, instead of using all that borrowed money for things that actually increased value and/or wealth, it was used primarily for transfer payments, government salaries/pensions and military spending, which has gradually hammered the economy into a shadow of its former self. So, now, because of the gov’t policies that have destroyed the economy, the FED has to keep interest rates at zero to keep everything from totally imploding, which results in zero inflation, which keeps the national debt growing at an unsustainable rate. It will be interesting to see how this plays out in the end, or should I say end of times.

  17. They don’t make money on medicare, Obamacare kills them due to less revenue from Emergency room visits which are 4 times higher in reimbursement. The hospitals don’t get more money from medicare, they get less and those with regular insurance reimburse for more money which is why our insurance goes up as more people go on medicare. Small hospitals won’t exist long in the current environment and will be absorbed by the bigger networks, this is the Ma Bell/Banking world merger scenario being played out. These very large networks will soon be able to offer their own insurance as well and will destroy the health insurers.

  18. Have no fear, Summer is just around the corner & we were told that there would be a Summer of recovery by VP Biden. Hold on everyone, help is on the way.

  19. Hospital are laying off like crazy , everywhere! Why , Obamacare. The hospitals aren’t getting their federal kickbacks for medicare now in such huge chucks its wiped out most hospitals bottom lines.
    States are cutting the funding to keep balanced budgets and that irks liberals.

  20. A little deceptive writing on your part Rick. The large cutbacks in spending were a result of huge cuts in defense spending and transportation spending. These are a direct result of Democrats cuts and not Republic cuts. Remember that Democrats were in total control for 4 of the last 6 years. Revenues are also very low which is putting us deeper in debt. We cannot continue to bankrupt our country with all of the debt spending. The CBO is estimating a huge jump in healthcare costs of the ACA due to current assistance from the government structurally ending for insurance companies which will cause their rates to jump greater than before. Also, the CBO is anticipating our interest payments to jump substantially as the carefully structured shift to longer term loans that Ben Bernacke did run out and costs to the country grow astronomically. Not a bright future and it is all due to debt spending.

  21. Its all Reagans fault? Lets see, who has been President for the last 7 years? Oh yeah, the community Organizer with all his business acumen.

  22. Are you insane?
    The Debt has exploded under this current Regime. TRILLIONS of dollars of added debt has been added in the last 6 years alone. Government spending does NOT help at all. In fact it makes it much worse. If that is the case why have a budget? Just spend us into economic salvation. This Regime has spent more money then any other President. Ever!
    Yet, you claim we need more Debt? Do you run your house hold like that?

  23. The growing wealth gap is a big reason the economy is in trouble – as the bottom 9/10 are already spending all they can afford to spend while the top 1/10 are already spending all they care to. That leaves very few with both the desire and ability to increase spending and drive demand, investment, expansion, and hiring.

    The wealth gap has been growing STEADILY since Reagan cut top marginal tax rates from 70% to below 40%. Since then the share of wealth for the bottom 9/10 has fallen from a 35% share to a 22% share. While investment income for the bottom 9/10 fell with their lower share of wealth/assets, their wages have been in decline as well from Conservative free trade and anti-union policies and the reduced demand for labor that occurs naturally as techmology-driven productivity gains reduce the precentage of the work force required in private industry.

    Meanwhile, the 50 years before Reagan with top marginal tax rates above 70%, the share of wealth for the bottom 9/10 grew from a 16% share to a 35% share. Before FDR. the GOP cut top marginal tax rates from 73% to 12.5% in 1922, and the share of wealth for the bottom 9/10 dropped from 23% to 16% in just 7 years before the Great Depression and no doubt one of its causes.

    If you want the wealth gap to reverse and the economy to improve, you first need to undo Reagan tax policies and Conservative free trade and anti-union policies.

  24. The American economy is in trouble because government spending is too low – zero growth under Obama while government spending grew 7.8% per year under Reagan 2001-2008 and 7.1% per year 2004-2006 when the economy added 6.5 milion jobs under GW Bush. Those were years of economic growth that Conservatives crow but, so why not repeat that winning formula of increasing spending? We need more govt-funded jobs because the private sector is using a shrinking percentage of the work force.

    Year — Federal spending
    FY1980 $591 billion
    FY1988 $1064 billion – that’s 80% spending growth or 7.8% per year under Reagan 1981-1988 with Congress under mixed Dem-GOP control

    Year — Federal spending
    FY2003 $2.160 trillion
    FY2006 $2.655 trillion – that’s 23% spending growth or 7.1% per year under GW Bush 2004-2006 with Congress completely in GOP control – 6.5 million jobs were added 2004-2006

    Under Obama, spending growth has been flat – the main reason for the slower economy. The CBO projected FY2009 spending at $3.543 trillion in Pub 41753 dated Jan 7, 2009, two weeks BEFORE Obama took office, based on what Bush had already signed and previous year spending.
    Actual FY2009 spending = $3.518 trillion (CBO MBR, November 10, 2014)
    Actual FY2014 spending = $3.504 trillion (CBO MBR, November 10, 2014)

    That’s 0% spending growth under Obama or 2% annual spending growth if you subtract $350 billion one-time TARP spending in FY2009.

    Now the GOP insists on saboraging the economy under Obama with spending cuts – the exact opposite of the Keynesian approach that propelled growth and job gains under Reagan and GW Bush – proving these candidates are only about ideology and about winning the next election at the expense of the American economy and the American people – ignoring what worked in the past.

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