Get Ready For An Economic Wake-Up Call This Holiday Season

Saturday, December 7, 2019
By Paul Martin

Brandon Smith
Friday, 06 December 2019

If we are to measure the concept of “economic recovery” in real terms, then we would have to look at the fundamentals (not stock markets) and whether or not they’re improving. Unfortunately, not all economic data is presented to the public honestly. Very often it is mired and obscured in a fog of disinformation and false standards.

I would point out, though, that there is relatively accurate information out there in certain areas of the global economy, and it tells us our economic structure is destabilizing. Beyond that, even the rigged numbers are moving into negative territory. But what does all this mean for the holiday retail season, one of the mainstream’s favorite gauges of US financial health? And, if 2019’s holiday profits sink, what does this tell us is going to happen in 2020?

First, let’s start with what we know…

Since we live in a “globalized” economy where everything is supposedly “interdependent”, it helps to examine international export numbers. The US doesn’t manufacture and export much of anything anymore beyond agricultural products, but global markets do expect us to consume the goods of other nations. A decline in exports indicates a failing global economy, but in particular a failing US consumer economy.

The obvious example would be China, which has seen plunging export data at least the past three months, though many will argue that this is merely due to tariffs and the trade war. However, it’s not just China that is showing signs of collapse.

South Korea, another major manufacturing and export hub in Asia (5th largest in the world) has seen declining exports for 11 consecutive months. South Korean shipping is crumbling in November and the media is blaming the trade war, as some SK companies would be “hit indirectly” because they sell intermediate goods to China are are linked to US companies in China. But this makes little sense. Tariffs are highly targeted to specific companies and specific goods, and so far the US has not directed major tariff attention at South Korea beyond the auto market. Also, the new KORUS deal between Trump and SK is different only cosmetically to original trade agreements, yet, South Korean exports continue to fall.

The same situation can be seen in Japan, with Japanese exports witnessing a 9.2% year-over-year drop in October, the largest decline in 3 years. Japan has seen three consecutive months of declines in exports.

And what about Europe? While Germany, the manufacturing powerhouse of the EU, finally saw a jump in exports to the US this past month, overall the European Union has seen consistently poor export performance for the past year, and Germany itself is hovering on the edge of recession with 0.1% official GDP growth. Many economist already consider Germany to be in recession, as official GDP numbers are constantly manipulated by governments to the upside.

But let’s not forget about the US. Remember how Trump promised that the trade war would result in a renaissance for US manufacturing and that millions of industrial jobs would be returning to our shores? Well, as I’ve warned consistently for the past couple years, there is NO WAY corporations will be bringing manufacturing jobs and factories back to the US without ample incentives. Trump already gave companies tax cuts without demanding anything in return, and the cost/benefit ratio of building new factories and paying American workers top dollar versus keeping existing factories in Asia and dealing with 10%-25% tariffs just doesn’t add up to a new US rust belt renaissance.

While manufacturing jobs have increased, US manufacturing activity has declined. Meaning, there simply isn’t enough demand for the goods being produced. US manufacturing ISM index just sank this month and has been sinking for the past four month into negative territory. While US PMI manufacturing data jumped this month, it is still well below the 10 year average and is also very low compared to past holiday seasons, which almost always see a spike in manufacturing. US manufacturing remains at a historic low of 11% of US GDP and production output has decline steadily since January of this year.

The question is, will the vast decline in global manufacturing translate to a crash in consumer demand? We know that US credit dependency has skyrocketed in the past few years, but will more debt result in more profits for retailers? This is highly unlikely, as US retail sales growth, for example, has been in decline at the same time that consumer debt has been rising. Why? Credit delinquencies have been relatively stable (so far) this year, so my theory is that people in the US are paying off previous debts by taking on new debt. They are kicking the can on their insolvency.

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