Leading Economic Indicators
Why pay attention to national and global shipping patterns?
Although we seem to be pretty good at pattern recognition, Jill and I have the advantage of many years enrolled in the school of hard knocks, we consume a lot of information, we listen to many different voices, but we are not economic analysts. However, some things just seem self evident. For instance, Jill and I predicted the COVID supply shortages well before they happened with the COVID-19 Alpha strain in 2020, and wrote about what to expect in our banned book, published March 2020. Our predictions last fall of food prices continuing to rise due to Hurricane Tonga was pretty much spot on. We also predicted almost on the day the Ukrainian war was announced that grain prices, certain metals and other items produced by Russia and Ukraine would skyrocket in price. Accurate predictions like these are not hard to make if you have your eyes and ears open.
And Jill and I often observe that our Lusitano horse sales (a non-essential luxury item) seem to be a leading indicator of near term economic trends.
In general I try not to over-analyze, but instead just note the patterns that indicate trouble ahead.
So, just like many others, we often scan specific economic indicators, and recently we have been seeing some red flags. Particularly red flags relating to shipping patterns. Why shipping? Shipping is a key indicator of international commerce. I will never forget that as the Great Recession (2007-2009) began, shipping collapsed - all over the world, ships were just not leaving port. Lesson learned. So we pay attention to shipping traffic. And what we are seeing in the present is not encouraging.
This amazing video illustrates typical shipping patterns. At the outset of the Great Recession, this type of tracking showed that all of this movement suddenly stopped- the sea lanes were empty.
And so this morning we decided to lead off by alerting our readers to some of the recent economic indicators which are really concerning many. Is it time to batten down the hatches? I will leave that assessment up to you, and to the many economic prognosticators that do this for a living. But from where we stand, Jill and I think that it is time to clamp down on spending and prepare for a turbulent fourth quarter. Maybe you may also find this information helpful in guiding your own “kitchen table” economic planning.
COPENHAGEN, Aug 4 (Reuters) - Shipping group A.P. Moller-Maersk (MAERSKb.CO) warned on Friday of a steeper decline in global demand for shipping containers by sea this year, prompted by muted economic growth and customers reducing inventories.
The company, one of the world's biggest container shippers with a market share of around 17%, said it expects container volumes to fall by as much as 4%. It had previously forecast a decline of no more than 2.5%.
Maersk transports goods for retailers and consumer companies such as Walmart, Nike and Unilever, and is seen as a barometer for global economic and corporate health.
CEO Vincent Clerc said he saw no sign that the destocking which has curbed global trade activity would end this year.
Maersk posted record earnings last year due to high freight rates caused by strong consumer demand and pandemic-related logjams at ports. But freight rates have tumbled this year amid a global economic slowdown.
Since peaking during the pandemic, the transportation industry has faced a protracted slump.
An index that tracks global container rates has plunged 75% from a year ago.
The downturn has also affected the US trucking business, prompting the Fed to acknowledge the "freight recession"
After over 100 years in the trucking business, Yellow Freight has declared bankruptcy. Although the company singled out the Teamsters as being one of the primary drivers, the truth is the the downturn in the shipped goods transport traffic had more to do with their closure than union contracts.
The overall U.S. supply chain has recovered substantially from pandemic-era disruptions as economic growth has slowed, countries have reopened and shoppers have shifted their spending away from goods and toward services.
As a result, the trucking industry has been in something of a recession for the better part of a year, said Rachel Premack, the editorial director of FreightWaves, a provider of global supply chain market intelligence.
As long as the government is printing money to prop up the military-industrial complex and the democrats need to have a war in Ukraine to create a regime change in Russia, a full blown recession is hard to imagine.
However, a downgrade in the AAA rating of the US government’s credit worthiness is a big deal by anyone’s standard.
But the US government isn’t the only one in trouble…
Credit-card debt surpassed the $1 trillion mark during the second quarter, a milestone pointing at consumers’ continuing willingness — or need — to resort to credit cards in order to meet rising prices.
Americans’ collective credit-card bill rose to $1.03 trillion from $986 billion in the first quarter, according to the household debt report released Tuesday by the Federal Reserve Bank of New York.
Overall, Americans are taking on more debt and largely paying their bills on time, but cracks appear to be showing.
Household debt climbed to $17.06 trillion, up just 0.1% from the previous quarter. This figure counts debts including mortgages, credit-card bills, car loans and student loans. Credit-card debt increased at the sharpest rate of all debt categories, researchers noted.
Meanwhile, delinquency rates pushed higher. The share of credit-card debt that was at least 30 days past due increased to 7.2%, up from 6.5% in the first quarter. That’s the highest level since the first quarter of 2012, New York Fed data shows.
For car loans, the share of auto loans past due by at least 30 days climbed to 7.2% in the second quarter from 6.8% during the prior quarter. That’s the highest since the first quarter of 2018, data shows.
“Credit-card balances saw brisk growth in the second quarter. And while delinquency rates have edged up, they appear to have normalized to pre-pandemic levels,” Joelle Scally, regional economic principal at the New York Fed’s Household and Public Policy Research Division, said in a statement.
It looks to me like the current financial storm is brewing ever larger. The question is how to prepare?
The ages old advice of saving money, buying hard assets that are resistant to recession (and inflation), and not taking on more debt are classical responses to impending recession and the need to preserve capital so that you can weather impending financial storms.
And yet we are getting bombarded these days by various enticements to taking on more consumer debt. Maybe you are also getting lots of those enticing credit card and loan solicitations? Never forget - in the modern world, debt is a form of indentured servitude. And with the impending CBDC/Social Credit Score push, it will only get worse.
If you are one of the ones that absolutely must preserve your freedom, my gentle advice is to start by avoiding indebtedness. There is no way I would have been as comfortable speaking out during the COVIDcrisis if Jill and I had not cleared off our debt before that storm hit.
I keep talking about my “past lives,” and in one of those lives, I was an economic analyst. That was in 1969, right after I had completed my first course in macroeconomics.
When the US government “prints” $2 trillion of funny money, and then just gives it away to ease the pain and fear they caused with the COVIDCrisis, you’re going to have supply shortages and inflation. Any freshman Macro 101 student knows that.
But, when the US government prints $6 trillion of funny money, and gives in all away, that government is going to cause worldwide supply shortages and hyperinflation. Again, any young adult with half a brain might know that, or they might be able to be taught that ... assuming you can pry them away from TicToc and Instagram for twenty minutes.
Hello Dr. Malone & Jill. You two might not have degrees in the dismal science, economics, but this article sure reads that way. My undergraduate degree is in economics & public policy analysis. So, my reading this article kind of makes me feel this was written by Peter Navarro, Ph.D., economics (Harvard University), & Professor Emeritus, economics and public policy analysis, University of California, Irvine.
I'm not suggesting at all Dr. Navarro had anything to do with your's & Jill's economic analysis, here written. I'm just complimenting both you & Jill on what I feel is a well thought out analysis any economist would be happy to claim his own. I'd love to see Dr. Navarro chime in on your article. I'm willing to bet he'd agree with me.
I'm a huge fan of Maria Bartiroma's morning programs on the Fox Business Channel, Mornings with Maria. Maria, who I consider to be a genius, offers thoughtful debates on the US economy, with some of the best minds in the business.
Maria is of the mind we're headed for a recession later this year. Her panelists who agree with her often site several factors: rising interest rates created by the Federal Reserve to curb inflation, the inverted yield curve where short term bond interest rates are more attractive to investors than long-term ( &, therefore, lack of funding into the futures bond market due to poor ROI compared to short-term bonds results in less investments in the future). Another point ofter made is the pending refinancing of close to $2 trillion in commercial real estate mortgages due in 2023 (by commercial real estate investors overlevaged & very possibly unable to refinance their commercial properties, causing defaults in the crucial part of the US economy).
Dr. Malone, you & Jill have touched upon some of the signs & symptoms of our global US economy that are indeed troubling. And, the advise you give. I believe is solid.
But, one huge problem USA Residents have is living on the very edge, or beyond the edge, of what they can afford financially. And, about 60% of USA Residents have $1000 or less in their bank accounts to rely on. These same Folks are usually maxed out on their credit card debts & paying ridiculously high usury interest rates on their card balances. Loss of a job, even a part-time job, could cause a collapse of their abilities to make the minimum payments on their accumulated debts.
And, the list of indicators goes on & on. Time will tell if Bidenomics succeeds or fails.
But, as you & Jill have suggested, plan for the worst, and hope for best.