Wither MAGA
Thursday, August 22, 2019 17:33
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“Wither MAGA”
by David Stockman
“The suspense: the fearful, acute suspense: of standing idly by while the life of one we dearly love, is trembling in the balance; the racking thoughts that crowd upon the mind, and make the heart beat violently, and the breath come thick, by the force of the images they conjure up before it; the desperate anxiety to be doing something to relieve the pain, or lessen the danger, which we have no power to alleviate; the sinking of soul and spirit, which the sad remembrance of our helplessness produces; what tortures can equal these; what reflections of endeavors can, in the full tide and fever of the time, allay them!”
- Charles Dickens, “Oliver Twist” (1838)
“If you needed any more evidence the Donald’s credit-card fueled 2018 sugar high is over, consider the U.S. Census Bureau’s report on wholesale sales and inventories for June. Wholesale sales came in 1.3% below the March peak. In fact, they’re now actually lower than they were back in May 2018. At the same time, wholesale inventories have been soaring. They’re now up by nearly $50 billion, or 7.8%, from May 2018.
That means the critical inventory-to-sales ratio has erupted from 1.256 in May 2018 to 1.364 in June 2019. The inventory-to-sales ratio for June, in fact, was the second-highest reading since November 2008. The chart makes plain what happened next back then…
What comes next, of course, is inventory liquidation. And, in the current instance, the imbalances are unusually unsustainable. That’s because goods inventories have been built up hand over fist by U.S. importers and distributors attempting to beat the Donald’s Trade War tariffs. Now, there’s a growing glut. And, to complicate matters, there’s the distinct certainty that payback time lies just ahead.
Similar warning signs are evident in the June report for core business capital expenditures, which excludes defense and aircraft outlays. Orders for the month came in at $69.8 billion. That’s below the $70.0 billion sugar-high peak reached in July 2018. That capex orders are rolling over is especially problematic; there’s rarely been a greater fiscal incentive for at least a one-time pull-forward and surge of investment.
After all, during 2019, the Donald’s credit-card-financed business tax cuts will leave roughly $210 billion more in business bank accounts. If that didn’t trigger a tsunami of investment, it’s hard to say what, if anything, will. In fact, notwithstanding all the White House’s boasting, boosterism, and bullshit, the June figure was nearly identical to the $69.7 billion posted in February 2012. It’s just a smidgeon above the $68.2 billion posted in December 2007.
These are all “nominal dollar” figures. Consider that the gross domestic product (GDP) deflator has risen by about 22% during the last 12 years. In real terms, then, core capex has been heading south for the entire course of this 121-months-old “recovery.” Any bump you see is short-term noise in the context a late-cycle trend.
There are no signs Trumponomics has stirred the U.S. from its long-running slump.
The Donald is just now shifting his weird, 17th century mercantilism into high gear. The irony is that his Trade War is likely to precipitate a crash of the Red Ponzi. The collapse of China’s house of cards will result in a global recession.
That, of course, will cause domestic business capex to head right back toward the May 2016 bottom, when orders came in 15% below current levels, and from there far lower toward the 2009 crash.
Wall Street’s permabulls and Imperial Washington’s cheerleaders say not to worry: The American consumer’s shop-’til-you-drop attitude will never die…
Well, in real terms, second-quarter retail sales were up just 1.5% from a year ago. They were barely higher than the punk 1.1% year-over-year gains reported for both the first quarter of 2019 and the fourth quarter of 2018.
The problem is American households are in debt like they’ve never been before. And it’s getting worse. An economy is getting healthier when leverage ratios are decreasing as the recovery cycle lengthens. Conversely, when leverage ratios are rising, an economy is getting sicker.
This one’s the latter case.
From the pre-crisis peak in June 2007, consumer debt outstanding has risen by 63%. Wage and salary income, meanwhile, has grown by 47%.
Accordingly, the already-high-by-historical-standards consumer debt-to-wage and salary income ratio of 39.4% in mid-2007 has crept to 43.8% as of June 2019. This same consumer leverage ratio stood at just 25% in 1980. It was 29% when Alan Greenspan took over the Fed in August 1987.
The process of leveraging up has accelerated since the early years of the current recovery. Between June 2007 and December 2012, annualized consumer credit growth slowed to just 2.7%. That’s only slightly faster than the 2.2% rate of aggregate wage and salary growth during that five-year period.
By contrast, during the past seven years, consumer credit growth has accelerated to 5.4% per year. That’s way ahead of the 4.1% gain in aggregate wage and salary income during the same period. In other words, the 70% share of gross domestic product Bubblevision likes to point out when it says there’s no recession in sight just isn’t what it’s cracked up to be. At the margin, consumer spending is being kept alive by Main Street households – especially the bottom 80% – that are sinking deeper and deeper and deeper into hock.
Wall Street’s traders, speculators, and grifters are troubled not at all by any of these signs. They’re that confident our monetary central planners will ride to the rescue once more. There is no MAGA under circumstances such as these.”
Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2019/08/wither-maga.html
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