America's economy is still weakening
S E E D E D C O N T E N T
Economic data released last week prove two critical points. First, the economy still does not know what it wants to do, and second, there should be no rate cuts in the first half of 2024.
Inflation is proving to be increasingly sticky, not transitory as we were promised by the Biden administration in 2021.
The Consumer Price Index, "a broad-based measure of the prices shoppers face for goods and services across the economy," according to CNBC, increased by 3.1% in January, driven primarily by shelter costs.
When examining the impact of inflation on consumers, it is important to remember that any positive inflation number, no matter how small, means that prices are more expensive than the previous period. Simply put, it is inflation on top of inflation.
The inflation rate in January 2023 was 6.4%, meaning inflation is up by nearly 10% since January 2022. Compared to January 2021, when President Joe Biden took office, prices are up more than 17.5%.
More worrisome to the Federal Reserve is that core CPI, which excludes the more volatile food and energy prices, remains close to 4%, meaning inflation is here to stay for the foreseeable future. As we head further into 2024, it is likely to get worse, thanks in part to rising freight rates and increasing energy prices.
Transiting the Red Sea remains dangerous, and more ships are opting to add two weeks to their travel times and circle the southern tip of Africa to avoid attacks from Houthi rebels.
The Panama Canal continues to operate at half capacity. As a result, freight rates are increasing. At the end of 2023, the cost of a 40-foot container moving from Shanghai to a port in the United Kingdom hit $10,000, up from an average of $2,400.
Ocean shipping rates are also increasing globally, with the average container rate at more than $3,000 for a 40-foot container, the highest level since October 2022, and more than double the pre-pandemic rates of late 2019.
The price of oil is starting to rise as well, with West Texas Intermediate up more than $6 per barrel since the start of the year. The price of gas is following, up nearly 20 cents per gallon over the past month, per AAA.
Increased ocean rates and gas prices will affect the price of everything, from televisions to broccoli.
Food prices continue to be inflationary, with grocery prices up 25% since January 2020.
And as a result consumers are starting to cut back. January 2024 retail sales declined 0.8%, following a downwardly revised gain of 0.4% in December 2023, per the Census Bureau. Sales at building materials and garden stores were very weak, down 4.1%.
Perhaps consumers have finally decided to no longer incur debt to maintain their lifestyle and are starting to make cuts to their personal budgets.
And no wonder when the total household debt rose by $212 billion to $17.5 trillion in the fourth quarter of 2023.
"Credit card balances grew by $212 billion to $1.13 trillion, while mortgage balances rose by $112 billion to $12.25 trillion," according to US News. "Auto loan balances rose by $12 billion to $1.61 trillion, and delinquency rates increased for all types of debt."
Credit card delinquencies were up by more than 50% in 2023. The quarter wasn't any better for homeowners. Foreclosures were up 9% in 2023 and nearly 200% from two years ago.
The only thing keeping the economy above water is that the majority of Americans are still employed, with the unemployment rate at 3.7% in January.
But this may be changing, as several companies, from Amazon to UPS and Mattel to Microsoft, have announced plans to reduce their workforce.
Spirit Airlines and JetBlue are working to buy out employees, and Macy's announced the closing of five of its namesake stores, cutting more than 2,300 jobs.
So, we are facing a situation where we have sticky and likely soon-to-be rising inflation, increasing consumer debt, with increasing delinquencies on that debt, and the start of mass layoffs.
The Federal Reserve will not be able to cut rates in the first half of 2024. If January's trends continue, the Fed will be faced with having to increase interest rates as the 2024 presidential election nears.
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This simply can not be true, as we have been told time and time again how great of a success Bidenomics is.
Inflation is temporary anyway, we have Joe's word on it.
The economy is so good that we only ran the highest deficit in history in a non-pandemic year and states like California and New York face huge deficits and falling tax revenue despite Bidenomics working so well.
I am kind of surprised the Bidenomics cheerleaders aren't here to defend Joe.
There's no defending the indefensible....
That’s an Amazon Fresh store in the picture. Those places are amazing. You walk in; through your stuff in the cart, and walk out. No check out, and the prices are really low.