by David Haggith, The Great Recession Blog:
Surveying just the news that started this year in The Daily Doom, things look bad for the US economy. Worse still, if you dig beneath the few rosy headlines that did greet the year in lighter tones, the bottom falls out quickly, as it does when stepping out of a high-rise window.
This weekend, for example, I’m going to be working on a deep dive in one of my special posts for patrons into the confusing swirl of conflicting employment news that sent stocks soaring skyward today. It was really far shakier than the market wants to believe it heard. (Later this month, I’ll be giving my predictions for the upcoming year in another Patron Post.)
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With the ghost of Christmas past, the Santa Clause rally fizzled into what looked like stocks were simply trying to edge upward. Stocks, finally, took a leap today; but that bolt upward was expected by many prognosticators I read on the unsustainable basis that there were a lot of losses intentionally captured during December by investors who had plenty of losses to capture from last year’s stock-market crash in order to, at least, benefit from the tax write-offs. That usually results in a quick, albeit short, rebound as the surface recoils to normal after the losses have been taken off.
Job flops
However, the market’s moves, particularly in today’s rebound, looked desperate when you consider how the market separated out a single thread of bad-news-is-good-news as the trigger for its leap. The market glommed onto a decrease in wage GAINS, because it means one of the forces driving inflation is fading to where the Fed will stop tightening the economy sooner.
Average hourly earnings rose 0.3% for the month and increased 4.6% from a year ago. The respective estimates were for growth of 0.4% and 5%.
However, the market took that leap even though the 0.1% dip below expectations for the growth rate was far from being as significant as the the manifold ways the last two days of employment reports prove the Fed will have to tightening even harder for longer. In particular …
Hiring exceeded estimates for the month and unemployment fell to the lowest in decades.
Those are intensely strong indicators that the Fed will have to tighten even harder because it is getting nowhere in reducing the inflationary effects of a tight labor market.
“A new 53-year low in the unemployment rate is a real problem, suggesting the Fed made zero progress toward relieving labor market strain in 2022.”
No kidding! Yet, the market climbed desperately up the thread of hope provided by the notion that a decrease in the rate of wage growth meant big progress that would allow the Fed to back off of its inflation-fighting agenda. (Not a chance as will be shown when I dig beneath the surface of those numbers for my patrons!)
That all got twisted into what the market wanted to hear in this confused fashion:
“A lower unemployment rate [indicating the Fed will have to tighten much harder] and weaker average hourly earnings growth [indicating the Fed will be able to back off from tightening] is certainly going to get equity market bulls’ attention. Indeed, expectations for a soft landing in the economy have likely been boosted in light of today’s jobs report. Yet, with the unemployment rate back to the historic low of 3.5%, how realistic is it to expect wage growth to move meaningfully lower? The Fed will likely be skeptical.”
I would say there was no realism at all in today’ convoluted interpretation of the news that immediately sent stocks soaring all day.
Even CNBC anchor Rick Santelli gushed over the December jobs report, calling it “historically unbelievably good!”
So, it was beyond absurd to think news today meant the Fed would stop tightening sooner. (Of course, it is unbelievably good, but for reasons no one seems to understand, including the Fed. Sere here and here.)
The start of 2023 is a tipping point for a deeper dive
For now, let’s ignore the stock market’s unreasonable gyrations and look at where we begin the year economically based on this week’s news alone because the truth is not at all as good as the jobs reports and unemployment numbers indicate. After a short reprieve in the market due to the rebound from taking losses finding a narrative it could use, the economic scenario says we have ample causes for going back to a falling market.
I want to start with a nice recap of where the economy is by Michael Snyder, who laid out “11 Signs That The Economic “Tipping Point” That Everyone Has Been Waiting For Has Now Arrived.” Here is a snapshot summary of his list:
- U.S. manufacturing is declining at the fastest pace we have seen since the early days of the COVID pandemic.
- U.S. services PMI has now fallen for sixth months in a row.
- We just witnessed the largest one day drop in the Baltic Dry Index since 1984 [which indicates shipping of bulk resources is slowing way down].
- Thanks to rapidly falling imports [due to dying demand], we just witnessed the largest monthly decline in the trade deficit since the last financial crisis.
- In 2022, U.S. auto sales were the lowest that we have seen for a full year in more than a decade.
- The average rate on a 30-year, fixed-rate mortgage is more than twice as high as it was this time last year.
- Sales of apartments in Manhattan were 28.5 percent lower in the fourth quarter of 2022 than they were in the fourth quarter of 2021.
- Existing home sales in the United States have fallen for 10 months in a row and are now down by more than a third since one year ago.
- Bed Bath & Beyond is warning that the company is literally on the verge of declaring bankruptcy.
- Amazon has decided to lay off approximately 18,000 employees.
- Overall, the tech industry has already laid off more than 150,000 workers over the last year.
The two biggest factors that emerge there are the sharp fall-off in the US economy’s main driver — housing — and in retail, resulting in layoffs and even a likely bankruptcy in a once strong retailer that has struggled due, it claims, primarily to Covid-related shortages and falling consumer demand under higher prices and tighter margins. So, let’s explore in more detail the retail crash in both online and brick-and-mortar as exemplified by Amazon and BB&B.
Digging deeper into retail
That is a good whirlwind list to which I will add the following observation about the retail scenario:
“Retail sales in the US just experienced their third-worst week in history!” You may have actually heard news that touted holiday retail sales as being strong. I know I did, but that was a veiled lie that requires digging deeper. As I’ve noted before, retails sales are measured in dollars. The growth in sales was due entirely to inflation in prices/devaluation of the dollar. Factor out the hot inflation that made retail seem good year-over-year, and you have a REAL decline in sales during the holiday season.
One article in this morning’s Daily Doom noted the main reasons for BB&B’s share-crushing bankruptcy warning:
Struggling Bed Bath & Beyond warned on Thursday that there’s substantial doubt about the company’s ability to continue as a “going concern” as sales continue to drop and it struggles to attract shoppers…. Shares fell 30% to $1.69 on the news.
The company’s assessment came as its dismal performance continued through the holiday season….
The company’s CEO and president Sue Gove blamed the poor performance on inventory constraints and reduced credit limits that resulted in shortages of merchandise on the shelves.
Just yesterday, an article in The Daily Doom reported,
The retailer, citing worse-than-expected sales, issued a “going concern” warning that in the upcoming months it likely will not have the cash to cover expenses, such as lease agreements or payments to suppliers. Bed Bath said it is exploring financial options, such as restructuring, seeking additional capital or selling assets, in addition to a potential bankruptcy.
That comes after a horrible time since the Covidcrisis for BB&B, after which it announced back in August it would close 150 stores and slash its workforce by 20% in order to massively reduce costs. It estimated those moves to save a quarter of a billion dollars. Now it’s digging deeper. Unfortunately, it also needs to borrow more money, and that comes at a much higher cost, thanks to the Fed’s tightening. So, one way the Fed crimps inflation is by helping to crush retailers out if existence. This isn’t entirely the Fed. It is also the shortages and inflation’s impact on retail; but what I said early last year would become true for zombie companies is now arriving.
BB&B’s chief financial officer was one of the early ones to literally jump out of a Manhattan window and end his life this fall. That happened shortly after its CEO got ousted. So, yes, we are back to those kinds of days where a formerly flourishing company has been hit so hard, particularly by the Covidcrisis and then the Fed’s raising of its interest on credit that was floating the struggling company along, to where executives are leaping out windows, and now retail publications are putting the toe tag on it:
Neil Saunders, managing director of GlobalData Retail, wrote in a report Thursday that Bed Bath & Beyond is “too far gone to be saved in its present form.”
The company made its own branding missteps but particularly struggled along as a borderline zombie corporation during the Covid lockdowns and then the supply shortages that came afterward, and now the debt that floated it through those times is no longer sustainable. That its bankruptcy warning hit as a shock can be seen in the 30% one-day cliff-fall its stocks took. But that is the way of zombie companies that I told Patrons early last year we’d be seeing down the road: they look fine on the surface to most people until the ugliness underneath breaks through when they can no longer float on the surface tension of the debt that is supporting their image of success. Suddenly we see the monstrosity they became:
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