Americans have STOPPED SPENDING (2023 Recession Warning)

there was just a big drop in U.S consumer spending a signal that the 2023 recession is here and it's getting worse with market watch reporting that retail sales tumbled in yet another sign of a softening U.S economy sales have now fallen in four of the past five months because Americans are now tapping out on the U.S economy everyone after two years of inflation after record low personal savings rates we are now finally seeing the consumer spending recession hit the economy in 2023 which greatly increases the chances that the unemployment rate is going to Surge home prices are going to go down and stock prices are going to go down because folks consumer spending is 70 percent of the US economy it's 70 percent of GDP and so when consumers spend less that means businesses particularly Big Wall Street corporations are earning less money with corporate America now facing its Bleak as first quarter for earnings since the pandemic started Business Insider reports that S P 500 companies could see earnings drop as much as seven percent and when businesses see earnings drop and profits go down what happens everyone What do businesses do when profits go down I'll tell you what they do they lay off workers because Big Wall Street corporations are profit maximizing machines their fiduciary duty is actually to maximize profit for their shareholders so now that people are spending less now that their revenue and profits are going to go down they're going to cut workers in a massive wave of layoffs that I predict is going to take place in the economy throughout the second half of 2023. and what's scary to me is how similar this situation looks right now in 2023 to the same time period in 2008 which you can see on this graph where we're taking a look at the year-over-year growth in retail sales and consumer spending in America and what do you notice folks back in the late 07 early 08 we saw a similar slowdown in consumer spending right around the same time period March April May of 2008 was when we had the Slowdown and then it was bam later in the year where we had the massive crash and I think we're gonna see something very similar over the summer and fall of 2023 as this recession gets worse something that you guys need to start preparing for this recession is going from being theoretical to being here in reality because we now have 3 three massive headwinds all converging on the economy at once number one we have the Slowdown consumer spending in lower Wall Street earnings I just talked about but number two we have that occurring at the exact same time as a credit crunch where banks are reducing lending into the economy which is going to cause businesses to shut down and lay off workers later in the year but that's not all number three the Federal Reserve is still hiking interest rates they're still taking money out of the system through quantitative tightening even with those massive headwinds now the betting markets are predicting 80 percent chance of a Fed rate hike in early May which is going to make the situation even worse and I just personally don't see how the US consumer can weather this storm and all these headwinds everyone we already see that the consumer is breaking and the reason they're breaking is because inflation for the last two years has been crazy whether you go to the supermarket to buy eggs or to the gas pump to buy gas or to pay rent everything costs more and this inflation the orange line over the last two years you can see how much it's gone up but the real problem is it's gone up way above the blue line which is wage growth inflation has now outstripped wage growth for the last two years which has left American households devastated in terms of their finances particularly lower and middle income households who have been most exposed to this inflation they just don't have the money anymore and finally the consumer is cracking and they will likely to continue to crack because another Trend that is now occurring is decelerating wage growth according to a new Bank of America report the growth in after tax wages and salaries has now plummeted to the lowest level that we've seen even since before the pandemic only two percent wage growth after tax right now which is a nail in the coffin on the U.S economy folks if People's wages don't go up anymore the growth slows down they have no chance of affording the higher prices the higher rents especially in the housing market folks this is a friendly reminder that we are still in the biggest housing bubble of all time right now even though home prices have started to come down over the last nine months the crashes started the overall price levels adjusted for inflation are still even higher still even higher in early 2023 than they were at the peak of the 06 bubble which is absolutely crazy peak of the 06 bubble we then had the biggest crash of all time we're still higher than that in terms of home prices walking into this consumer recession with a credit crunch which is why you need to be very very careful if you're a home buyer right now because there's certain people out there who are spinning narratives to try to fomo you into buying a house in particular I see some people saying mortgage rates are going down you should buy folks that's the wrong way to think of it mortgage and interest rates they always go down at the onset of a recession and as a recession goes on the bigger thing that you need to worry about if you're a home buyer is the recession and the layoffs and the fact that prices are still ridiculously overvalued it means that if you buy today you are very likely to be underwater on your mortgage over the next several years and if you don't believe me if this housing crash doesn't feel real to you I would encourage you just take a look at a city like Austin Texas data from Redfin shows that the median sale price in Austin Texas is already down by 20 take a look at this it peaked in May 2022 at 573 000 median price now we're at 457 000 median price in just 10 months that's warp speed for a housing crash and prices in Austin are likely to continue to climb another Market that's like this is Boise Idaho and Boise the median sale price according to Redfin is also down by 20 over the last 10 months you can see peaking at 547 000 in May 2022 and down to 439 000 today and so if the housing crash hasn't hit your city yet take a look at Austin and Boise to see what it has the potential to do and the lesson we can learn from those two cities is that layoffs matter Austin and Boise are two areas that have been hit proportionally by layoffs so far especially in the tech industry and so as the layoffs spread in the recession in America in 2023 we're going to see more housing markets behave like Austin and Boise we're going to see more downward pressure on home prices and one reason I feel very confident in predicting that this recession is going to get worse everyone is because I'm reading what the Wall Street companies are reporting right now in earnings it's earnings season right now lots of companies reporting earnings and the earnings reports do not look good they are showing declines in profits and these companies are giving negative guidance for the future which suggests further declines in profit and one earnings report and one company in particular that scared me you guys should be paying attention to is a company called Albertsons they are the second largest grocery chain in America predominantly in the mountain and West Coast regions of the country and they just had an awful earnings report they reported a 30 decline in net income year over year in their fiscal for fourth quarter and why that scares me so much is a grocery store is basically the lifeblood of the US economy and a grocery store should have been doing well with inflation I mean guys if you go to the grocery store you know beasts more expensive eggs are more expensive why then are grocery stores seeing a decline in earnings well it's because even though their revenues are up slightly their cost of sales how much they have to pay for all the food and the goods that's also up just as much in addition their payroll and administrative costs have gone up leaving them with less net income and declining net income is likely to mean reduced hiring at first at a company like Albertsons it's then likely to mean layoffs at some point but that's not all folks another earnings report that I read this week that scared me was from CarMax the used car wholesaler CarMax had an awful earnings report for the beginning of 2023 in particular they reported a 22 percent decline in used vehicle sales a 42 decline in wholesale sales and get this folks a 56 decline in net earnings but here's what really scared me in the CarMax earnings report it's what they said about giving loans to new buyers of you used cars they said that they were tightening their lending standards going forward in 2023 in particular they said in reaction to the current economic environment CarMax has adjusted its underwriting standards reducing its targeted percentage of tier 3 or subprime loan volume from 10 to 5 so now to get a used car loan from CarMax you're gonna have to have better credit coming with more money up front which is a good thing overall there's going to be less bad loans But ultimately this is a sign of the credit crunch happening real time in the US economy I've talked to you guys in my last couple videos about how banks are lending less there's a credit crunch which is going to restrict liquidity and money supply in the economy which is going to make this recession even worse and could even turn it into a deflationary recession and we are starting to see the deflationary pressures play out in the system folks the inflation has now come down from a peak of nine percent year over year last summer to five percent year of year today which is still high it's still elevated but no longer are we really at this 40-year High inflation we're seeing the numbers come down and I believe the trajectory over the next year is going to continue to be down maybe over certain months you'll see inflation return for a month or two but I believe we're going to continue to see this number go down because that's what happens folks when the money supply contracts and the FED actively Works to take money out of the system through quantitative tightening the money supply ultimately in the long run is what influences the rate of inflation probably on a lag of about 18 to 24 months and now the money supply is Contracting and so long as it continues to contract we're going to see inflationary pressures go down and potentially deflation but of course a huge Factor here is the banks what do the banks do over the next six months do they continue to contract credit and loans into the economy or do they at some point get more aggressive and start lending money out again well if you look at today's headlines on Bank earnings you might actually think they're going to get aggressive with big Banks like JPMorgan Chase posting record Revenue in the first quarter of 2023 their share prices jumped seven percent today Citibank in Wells Fargo also had good earnings reports beating expectations which is pretty confusing everyone how is it that the big commercial banks in America had a record first quarter for earnings in the midst of a banking crisis in a credit crunch well it's actually pretty simple everyone the banks have gotten pretty greedy over the last year they saw Jerome Powell and the Federal Reserve aggressively increasing interest rates and in response the banks increased the interest rates they were charging on loan for instance JP Morgan Chase from their quarterly report today shows that their interest rate on loans increased from four percent a year ago to 6.4 percent today giving them more total interest income which increased their revenue now normally the bank's expenses would need to go up because in return the bank should increase the interest rate that they give you on your deposits when rates go up but they're not really doing that with their interest bearing deposit savings rate still at 1.9 percent in early 2023 so the interest rate hike regime by the FED has basically allowed Banks to earn a higher spread on interest rates which is why they had a record quarter for profits but there's a problem here everyone and that's that the banks aren't going to be able to get away with this for much longer because people are wising up to the fact that maybe they shouldn't leave their money in a savings account that's only getting one and a half percent when you can buy a certificate of deposit for five percent or a six-month U.S treasury for five percent and so that's ultimately what is causing people now to take money out of the banks and put it into other vehicles to make money which is why we are witnessing the biggest decline in Flight of Bank deposits out of banks in U.S history according to data from the Federal Reserve minus five percent year-over-year and so where does all this leave the economy right now in the spring of 2023 going to the summer well folks I see three outcomes here on the horizon potentially number one is deflationary recession number two is inflationary burst followed by a recession then number three is stagflation and a lot of you have asked me about this stagflation and the definition of stagflation is actually pretty simple it's an economic time period that features both High inflation and high unemployment and really the only period of time we experience this in U.S history was in the 1970s where you can see the inflation line the orange line was huge throughout the 70s as was the Blue Line unemployment so we had both inflation and unemployment increasing at the same time which you could see is very rare because in most other cases the Blue Line unemployment is actually higher than inflation and normally these are inversely correlated but in stagflation we see both of them go up at the same time stagflation is bad news everyone I mean think about it both the inflation rate and the unemployment rate being 10 and the Federal Reserve being powerless to reduce the inflation I mean that's a scary Prospect and it's one that could to happen over the next couple years however the important thing to understand is that we're not in stagflation right now because the unemployment rate is still at a record low 3.5 percent and the effect that the unemployment rate is so low it is is something that is fueling the higher rate of inflation and so what we're going to watch out for and what you need to watch out for the next couple months is as this unemployment rate goes up will we continue to see inflation go down or will inflation go back up as the unemployment rate increases I personally don't think we're going to see stagflation here because I don't see how the U.S economy can support inflation if the unemployment rate doubles I mean already the U.S economy added 3.5 unemployment rate is having trouble consumers are cutting back so what does that consumer cutback look like if the unemployment rate is seven or eight percent it's going to be pretty severe which I think is going to lead to a deflationary episode and a deflationary crash over the next several years rather than stagflation however the one outcome that could cause stagflation over the long term is other countries abandoning the dog similar to what they did in the 70s we're starting to see this with countries like China establishing an Asian monetary fund with China and Brazil agreeing to trade in their own currency with rumors that the Saudis now want to trade oil in something other than dollars these are all trends of what's called D dollarization and if these Trends occur it could lead to countries dumping the roughly 6 trillion in global US dollar reserves they have back onto U.S soil which could cause the type of Perpetual money supply increase that could cause stagflation even in the face of an increasing unemployment rate and really folks we don't know for sure what the outcome is going to be over the next two years over the next 10 years but if you want to understand the direction of the economy I'm going to ask you to ask yourself a simple question and the question is this can the average American household withstand any more inflation with all the headwinds that are going on or is the consumer going to break like I said in the beginning consumer spending is 70 percent of our economy so even a small decline a one percent decline in retail sales like we saw this month that's a big big deal and it's a decline that's likely to get worse into the future

Channel: Reventure Consulting

Views: 378,965

Keywords: Consumer Spending, Federal Reserve, Jerome Powell, Interest Rates, Will Interest Rates Keep Going Up?, Will the Fed Keep Hiking Interest Rates?

Id: mlUZeQTqg2c

Length: 15min 10sec (910 seconds)

Published: Sat Apr 15 2023