Troubling economic data is rushing in on many fronts, from employment to not-falling-fast-enough inflation. Here are three overlooked but reliable indicators I’m watching closely…
From Peter Reagan for Birch Gold Group
Key Takeaways
- Small businesses are more pessimistic now than during the covid panic
- The banking sector’s fiscal position may decay further
- Credit card delinquencies are hitting Great Financial Crisis levels
If you look beyond the corporate media headlines that appear to be campaigning for another Biden term, you’ll notice something disturbing…
Bad economic news is pouring in furiously from many different directions. Here are just a few of many examples:
- Since January 2021, the Biden economy has been dominated by historic and still persistent inflation.
- Family food costs have been soaring to all time highs on an annual basis according to the USDA.
- Some Americans have resorted to skipping meals just to pay their mortgages.
- Since the economy is interdependent, the inflation problem has started crushing the housing market through high rates and out of control home prices.
- While GDP might still be staying afloat, economic prosperity is starting to feel like a thing of the past for a growing number of Americans.
Following this onslaught of bad news, there are three more signals we are watching closely. Taken together, they point to an economic recession that we expect will become official before the end of the year.
Here are the numbers we’re watching closely…
#1: Small business owners struggling more than ever
Small businesses represent the backbone of the U.S. economy.
According to the Small Business Administration, and reported by Forbes, they are responsible for 62% of the new jobs created between 1995 and 2020.
But that’s not all, they are also responsible for a surprisingly large portion of the nation’s economic activity:
“The small business sector is responsible for the production of over 40% of GDP and employment, a crucial portion of the economy,” said NFIB Chief Economist Bill Dunkelberg.
This sector represents nearly 2/3 of the nation’s job creation and a significant portion of overall GDP.
Small businesses are not just important, they’re vital to a healthy economy.
That’s why this continuation of Dunkelberg’s quote is troubling:
“But for 29 consecutive months, small business owners have expressed historically low optimism and their views about future business conditions are at the worst levels seen in 50 years. Small business owners need relief as inflation has not eased much on Main Street.”
NFIB Chief Economist Bill Dunkelberg
The author, Jennifer Nash, concluded the report by warning us that a similar decline Small Business Sentiment was a leading indicator for the previous two recessions.
You can see that the last time sentiment was THIS low was during the Great Financial Crisis 2008-2011.
Today, small business owners are actually more concerned than during the Covid panic!(source):
Healthy economy? Not for this engine of economic growth.
Now, because the economy is incredibly complex and massively interconnected, this next indicator could actually be contributing to small business struggles…
#2: Banks are not out of the woods yet
After last year’s banking crisis, you might be thinking that banks would shore up their assets and at least create the impression that they are safer now.
Unfortunately, we already know that they can’t afford to do that, thanks in part to new banking regulations that were put in place last year.
But it gets worse for the banks. Thanks to a nationwide shift to telecommuting and working from home (and Americans who are trying to reduce transportation costs), the commercial real estate market – mostly for office buildings – is falling to pieces:
By one estimate, the work-from-home trend could fuel a 30% peak-to-trough price correction for office properties, and vacancy rates have only kept rising, hitting a record high of nearly 14% in May, the National Association of Realtors found.
According to Fitch ratings, the office sector could even suffer a financial crisis of its own:
“The recovery of the office sector will be slower and more drawn out during this cycle than following the global financial crisis and will lead to permanent impairments in property values, weaker performance, and higher loan losses,” Fitch wrote on Friday.
Here’s why that matters: Commercial real estate transactions are financed by bank loans. When the value of that real estate declines, the banks that financed it face two challenges:
- Losses on their loan portfolios
- Delinquencies and defaults from borrowers who now owe more than their property is worth
Banks are taking it on the chin, according to the FDIC:
Total unrealized losses of $516.5 billion were $38.9 billion higher than the previous quarter.
The number of banks on the [FDIC’s Problem Bank] list increased from 52 in the fourth quarter 2023 to 63 in the first quarter 2024.
It’s hard to realize just how astonishingly huge these unrealized losses are. Take a look at the FDIC chart below:
The same FDIC report revealed that the number of banks on their top-secret Problem Bank List increased by a staggering 21%.
When banks are under pressure, they make fewer loans. (Maybe that’s one reason the small business sector is struggling?)
When households are under pressure, they stop paying their bills – which only increases the pressure on banks…
#3: Credit card delinquencies are skyrocketing
Consumer spending currently represents a little over 67% of the total GDP – an even bigger portion than small businesses.
The credit cards in our pockets, in our wallets and purses, are the gasoline that powers the economy.
But total household debt sits at an incredible $17.5 trillion, which is a new record, and a big problem.
That’s because everyday Americans have been resorting to using credit cards (even buy-now-pay-later financing!) to pay for food and gas. That’s what happens when prices rise faster than incomes for 27 consecutive months…
And, when people run out of money – when they just can’t make ends meet any longer, what falls through the gap?
The credit card bill.
The number of credit card accounts falling into delinquency is rising faster than ever (source):
This is a serious development:
Notably, the percentage of credit card balances in serious delinquency (90 days or more late) climbed to its highest level since 2012.
These levels of credit card delinquencies are not necessarily by themselves a recession indicator.
Rather, they’re an indicator that broad economic activity will slow down – because American families are going broke.
Small businesses, banks and consumers are each indicating imminent economic trouble in the near future.
And since these three sectors represent the economic backbone of the nation, you can understand why we’re keeping a close eye on them.
So what can we do about it?
Will Santa bring us a Christmas recession this year?
Let’s hope not!
However, it’s vital to remember one thing: Recessions are part of the economic cycle. Like death and taxes, they’re unavoidable.
That means your financial planning and retirement savings must take this into account. Whether we find a recession under the Christmas tree this year or next year, eventually we’re all going to open the gift no one wants.
The good news is, you have a chance right now to diversify your retirement savings to endure and even thrive in bad economic times. Take a moment to learn about the benefits of owning physical precious metals like gold and silver.
Gold especially is a countercyclical or contrarian asset that tends to hold its value, or even rise, during times of economic crisis.
Thorough diversification offers stability and a firm foundation for your savings. When you’re properly diversified, you can face the future with calm and certainty. You won’t have to constantly be on the lookout for recession warnings or scrutinizing the FOMC press release like it’s a sorcerer’s crystal ball.
Make the changes you need to diversify and protect your savings now, so you can stop worrying and start living.