Is the global consumer starting to capitulate?
Not Just EU
What About Australia?
“There are limits to the amount of spending that can continue when savings is being drawn down.“
“If these PCE figures are accurate, it looks like consumers may be moving faster than originally guessed.”
Question and Answer of the Day
“If the consumer capitulates, what will drive growth?”
Welcome to the Global Recession!
Bob Elliott and I have been in a running debate for a couple of months over jobs and a recession.
I follow him because he always makes a strong case for his point of view: No Recession.
Elliott is very data dependent, and cautious. This is the first I have seen him waver.
My “welcome” comment was not intended to be mocking, it’s simply how I feel.
To be fair, I was early again, but not as early as some. I did not bite on the two consecutive quarters of negative GDP to start the year, but I did pencil in a recession starting in May.
In October, retail sales forced me to admit my error. But in December, industrial production and retail sales put me back in the recession camp.
Let’s go over the data.
Signs Say Industrial Production Has Peaked and so a Recession is Imminent
On January 18, 2023, I commented Signs Say Industrial Production Has Peaked and so a Recession is Imminent
Industrial production decreased 0.7 percent in December and 1.7 percent at an annual rate in the fourth quarter.
Industrial Production Synopsis
- Industrial production peaked in October
- Manufacturing peaked in April with a double top in September
- Consumer durable goods peaked in April
- Manufacturing durable goods peaked in September
- Motor vehicles and parts peaked in October
Recession lead times vs industrial production tend to be very small, typically 1-2 month. 2001 and 2020 were notable exceptions.
Existing Home Sales Decline for the Eleventh Straight Month
It was nearly a clean sweep for existing home sales in 2022, down every month except January.
For details, please see Existing Home Sales Decline for the Eleventh Straight Month
December Was Another Retail Sales Disaster
Month-Over-Month Advances and Declines
- Food Service: -0.9 percent
- Food Stores: +0.0 percent
- Gas Stations: -4.6 Percent
- General Merchandise: -0.8 Percent
- Excluding Motor Vehicles and Gas: -0.7 Percent
- Excluding Motor Vehicles: -1.1 Percent
- Nonstore (Think Amazon): -1.1 Percent
- Motor Vehicles: -1.2 Percent
- Department Stores: -6.6 Percent
For further discussion, please see December Was Another Retail Sales Disaster, Even Worse With Negative Revisions
The BEA agreed with the advance numbers.
Personal Spending Hits a Solid Brick Wall in December Despite Rise in Income
On January 27, I noted Personal Spending Hits a Solid Brick Wall in December Despite Rise in Income
Brick Wall
- Consumers literally hit the brick wall then went into reverse in November and December.
- Real PCE fell 0.2 Percent in November and 0.3 percent in December.
- Real PCE Goods were negative 0.9 percent in both months.
- Real PCE Services rose 0.2 percent in November and was flat in December.
Data Consistent With Recession
Please see Alice Debates the Mad Hatter and the Red Queen on Timing the Recession
If for some reason you believe fourth-quarter GDP was robust, please see 4th Quarter 2022 GDP Is Much Weaker Than Headline Numbers, Recession Is Not Off.
Data is consistent with a recession starting in November or December.
When is the last time housing was down for a full year, industrial production down two months, and real spending down two months and the the economy was not in recession?
Factor in a decline in consumer spending in the EU, UK, and Australia and where are US exports headed?
And with consumer spending falling off the cliff, how long will jobs stay strong? Strong enough to prevent a recession that history suggests has already started?
In Wonderland, jobs will save the day, assuming you believe the December Jobs data, but I don’t.
This post originated at MishTalk.Com.
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Mish
Whether you label it a “global recession” or “slow growth” or something else, I don’t really care much. What I DO care about is that demand for energy, and in particular, oil and gas, is still rising, while global oil inventories are still declining. So upward pressure on oil prices will continue. Similarly, demand for more renewables is also increasing. These are the two areas I am focusing on, no matter how you want to label the world economy.
The January 2023 Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally correspond to the fourth quarter of 2022.
Regarding loans to businesses, survey respondents on balance reported tighter standards and weaker demand for commercial and industrial (C&I) loans to large, middle-market, and small firms over the fourth quarter Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.
For loans to households, banks reported that lending standards tightened or remained basically unchanged across all categories of residential real estate (RRE) loans and demand for these loans weakened. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Standards tightened and demand weakened, on balance, for credit card, auto, and other consumer loans.
The January SLOOS survey also included a set of special questions inquiring about banks’ expectations for changes in lending standards, borrower demand, and loan performance over 2023. Banks, on balance, reported expecting lending standards to tighten, demand to weaken, and loan quality to deteriorate across all loan types.