Good Friday Morning! For the last few newsletters, I’ve continued recommending documentaries and YouTube talks about the economy. I have another to give you this week. Danielle DiMartino Booth, CEO & Chief Strategist, QI Research and an excellent Twitter follow, gave a long conversation about the money supply and the credit crunch titled: “The Credit Crunch is Coming: Money Supply Is Falling By Most Since Great Depression.” It’s quite good and covers some of the points I’ve written about for the last several weeks.
This week, I will cover two topics: the continuing deterioration in economic conditions and the debt ceiling fight brewing in Congress. Both are linked and will interplay with each other over the next four to six weeks. The White House is counting on this fight to help it on the economic optics front. After that, the links are at the bottom.
Where you can find me this week
Please subscribe, rate, and review my podcast on iTunes, Spotify, or Google Play — the reviews help listeners, and readers like you find me in the algorithms. Make sure to sign up for the Conservative Institute’s daily newsletter and become a subscriber at The Dispatch, where I’m a contributor.
[04/17/2023] Recession and Commercial Real Estate Implosion Incoming – Conservative Institute
[04/21/2023] Media winter enters Siberian conditions – Conservative Institute
Economic conditions deteriorate, along with debt ceiling negotiations.
In my Friday CI column, I outline the case for the deepening media winter. BuzzFeed News shuttering completely triggered that column. That’s an outlet that somehow went from publishing random viral quizzes to pumping out “Pulitzer-level” material in a few years. I use scare quotes because they also ran some shoddy pieces. Whatever you thought of them, they’re now gone.
As I note in the piece, Vice News is likely going under in the next few weeks. I also cover layoffs and pay decrease demands across the media sector. It’s fascinating to watch the press take it right on the chin while dutifully toting the White House line of “We’re not in a recession.”
Really? Because we can all see the layoffs. We can all see the dramatic downturn in tech and the media.
I’ll give you another store I’m curious about: Whole Foods. Amazon bought them in 2017 for more than $13 billion. Amazon has started corporate layoffs across Whole Foods, and we know similar layoffs have occurred at places like Walmart. While Whole Foods is still expanding, it’s an interesting moment for them to start cutting staff. I do wonder how committed Amazon is to this brand.
There’s no escaping these kinds of stories unless you’re employed in a blue-collar job, in which case you’re still in high demand. Beyond tech and media, we’re seeing more consumer brands begin layoffs. Clorox, for instance, announced layoffs of about 200 employees.
We’re seeing some of this news show up in broader statistical measures. Weekly initial unemployment claims, which are people who claim unemployment benefits from the government, are ticking up above their averages. While we’ve had layoffs for the last year, people have mostly landed on their feet. As such, we haven’t seen unemployment claims tick up that much. And even when they ticked up, we’ve seen them revert quickly.
The latest report is the first sustained move upward for unemployment claims we’ve seen in a while. That suggests we’re seeing some of these layoffs start to outpace some of the robust jobs reports we’ve had for months. Whether that keeps up is another story, but it’s natural to think we’re headed into worse waters for the jobs market.
Additionally, the residential housing market is slowing down. Home prices in March fell by the largest amount in eleven years:
March marked the 13th time in the previous 14 months that sales have slowed. The housing market had a surprisingly strong February, when sales rose a revised 13.75% from the previous month. But after mortgage rates ticked higher, March sales resumed the extended period of declines.
The housing market’s slowdown is now starting to weigh on prices, which have fallen on an annual basis for two consecutive months for the first time in 11 years. The national median existing-home price decline of 0.9% in March from a year earlier to $375,700 was the biggest year-over-year price drop since January 2012, NAR said.
Median prices, which aren’t seasonally adjusted, were down 9.2% from a record $413,800 in June. Home prices in the western half of the U.S. experienced some of the biggest gains for many years but are now falling the fastest.
The housing sector isn’t in the same state as the commercial real estate market, but it’s not great. These kinds of news stories are getting combined with others that look at company earnings reports.
Every quarter, public companies release their earnings reports. Individually, it gives you a look at the health of that company. On a larger level, combining them gives you a look at the broader economy. Investors reading these reports aren’t seeing good things:
That tepid trend has deepened concerns that the Federal Reserve’s effort to fight inflation by raising interest rates is pushing the economy toward a recession.
“The tone of earnings reports has been pretty downbeat,” said Edward Park, chief investment officer at London-based Brooks Macdonald. “It’s not really pushing back against the recession narrative, and equally it’s not endorsing it.”
I know I’ve beaten this drum for a while: the economy is in a bad spot, and the Fed has the economy headed for a recession. That picture is starting to take focus as broader trends are pointing downward.
Politically, this is all getting ignored. No one cares, yet.
They will, though. and that’s because of politics.
Coming up, we have the debt ceiling fight. I suspect the White House plans to use the debt ceiling fight to blame declining economic conditions on Republicans. Unfortunately, I expect Republicans to take that bait.
This week, House Speaker Kevin McCarthy released a proposal from Republicans to lift the debt ceiling with conditions on lowering spending. I’m not going to focus on the particulars of it because the only thing that matters is that this proposal doesn’t align with what the White House wants.
The cynical play by the White House is to invite Republicans to shut down the government over a debt ceiling fight. Democrats believe, correctly, that if Republicans are dumb enough to repeat what happened under Obama, Biden will reap the benefits in the press and polls. Plus, because the economy is on edge, Biden will spend the next year blaming the economic downturn on Republicans, using the shutdown as a cudgel.
He will do that anyway, but he wants to use the debt ceiling as his foil. So far, it’s unclear whether McCarthy has the votes to pull anything off. Like the previous shutdown, the Freedom Caucus in the House leads the way while everyone else balks. That cuts both ways, though, because Biden doesn’t have margins in the Senate right now, either.
Any shutdown will likely happen in June, give or take a few days. That could change depending on tax revenue brought in at the last minute by the IRS. Political strategist Liam Donovan, who you all should follow, keeps asking, “When will markets notice the debt ceiling debacle ahead?” It’s a fair point. The answer is that markets aren’t paying attention yet. They’re fully aware of the possibility of a shutdown, but for now, everyone assumes everyone will figure something out.
Also, markets have a lot more on their plate at the moment. Between the lingering banking crisis, a looming commercial real estate crash, more Fed hikes, and deteriorating economic conditions, no one wants to think about a shutdown right now.
But the timeline to a shutdown is a short one – roughly a month away. We’ll likely be playing a game of chicken up until the stroke of midnight on a decision. Because of the narrow margins on both sides, I think the odds of a shutdown are higher than most. The Freedom Caucus has sway, Trump will put pressure on it, and the White House is incentivized to get Republicans to take this track, for a while anyway.
As I noted in my Monday column, the evidence for a looming recession is growing. That’s why I started with some of the stories from the last few days. Cracks are showing in the economy, and we’re seeing signs of a credit crunch taking hold. The economy isn’t strong, and a debt ceiling default combined with a government shutdown would have a more significant impact than usual.
I prefer that Republicans wave a red flag like they’re pushing for a fight but ultimately let the debt ceiling pass. There’s nothing to be gained, from policy to optics, with this fight. Passing the debt ceiling does nothing to the trajectory of the economy or government spending. The time to cut spending to have any impact on inflation is long gone.
Biden thinks this is an excellent economy. Let him defend it and the trajectory we’re on.
Unfortunately, we’re not going to get that solution. I do think Republicans will bite on the shutdown bait. We’re likely already headed for a downward market trend in May. I’ve seen a few analysts call for that regardless of the debt ceiling. Biden wants to blame that on the debt ceiling fight with Republicans. Denying him that puts the blame on the economy back where it belongs: him.
Will the press carry water for Biden? Undoubtedly. But then again, look around. The press is shuttering outlets, laying off people, and demanding pay cuts from talent. They talk loudly, saying one thing, but their money says another.
In a recession, money talks very loudly. Listen to that.
Links of the week
Chinese police stations in NYC are part of a vast influence operation – Josh Rogin, The Washington Post
Hidden Hand: Biden Campaign Was Behind Intel Officials’ Letter Characterizing Hunter Biden Laptop as ‘Disinformation’
Former CIA deputy director Michael Morell says he organized the letter to help Biden ‘win the election’ – Washington Free Beacon
Ex-CIA chief spills on how he got spies to write false Hunter Biden laptop letter to ‘help Biden’ – Miranda Devine, NYPost
Federal prosecutors have considered four possible charges against Hunter Biden: Possible charges are two misdemeanor counts for failure to file taxes, a single felony count of tax evasion and a felony count related to a gun purchase. – NBC News
The Repo Man Returns as More Americans Fall Behind on Car Payments: Pandemic relief measures shielded many people from repossession, but that’s changing as interest rates and auto prices soar. – Claire Ballentine, Bloomberg
Determined to Flee China, Thousands Take a Long, Dangerous Route to the Southern U.S. Border: In search of economic opportunity or political freedom, Chinese contend with smugglers, bandits and treacherous jungle on trek through Latin America – WSJ
Why DeSantis Has to Run – Ross Douthat, NYTimes
Twitter Thread(s) of the week
Satire of the week
Sudan Situation Now So Bad You’re Actually Considering Reading Article About It – Waterford Whispers News
Thanks for reading!