Juggling Dynamite

Danielle was a guest with Jim Goddard on Talk Digital Network, discussing recent world economy and market developments. You can listen to an audio clip of the segment here.

The unemployment rate has climbed a median of 200 basis points through past recessions while central banks were aggressively cutting policy interest rate targets. The consensus is predicting that this time will be different.

US Auto loans that were more than 90 days delinquent in the second quarter were the highest since the second quarter of 2010 (blue line below since 2004, via Arbor Research and The Kobeissi Letter). Auto loan debt held by Americans rose to a record $1.63 trillion (red line), 92% above 2008 levels, while auto insurance costs jumped by 15% in the first half of 2024. The masses are financially strained. The percentage of US consumers expecting to fall behind on their debt has been rising, now the highest since early 2020 at the outset of the pandemic (below courtesy of The Daily Shot).US bankruptcy filings are already the highest in over a decade and more than in 2020 (via Bloomberg).At the same time, the S&P 500 is trading at 3x sales (second only to the 2021 peak) and well above the 2.4x sales paid at the 2000 cycle peak (shown below since 1990, via Bloomberg).The S&P 500’s price-to-earnings ratio has risen with bullish sentiment and equity volatility (euphoria meter in red below since 1992, courtesy of ISABELNET.com) to the highest level in at least 32 years (with S&P 500 price on top in black).

Major retailers have noted a pullback in consumer spending, and same-store traffic is down across restaurants this year, particularly at sit-down chains. Most are ramping up discounts and promotions to lure customers. See, After years of Increases, Companies are Rolling Back Prices:

Retailers, restaurants and other companies spent years lifting prices. Now that consumers are closing their pocketbooks, some companies are turning to discounts to win back business.

Businesses that sell a range of products from IKEA sofas to Air Jordan sneakers have said in recent weeks that they have lowered prices this year. Many companies increased prices in the pandemic when supply chain and labor costs rose, and consumers were willing to pay more.

But demand for many goods that aren’t necessities, such as home furnishings or pricey sneakers, has fallen, leaving companies sellers in a battle for a larger piece of a smaller pie.

Price cuts and slumping demand compress corporate revenue and, finally, profits. US corporate profits, at 12% of GDP, are off all-time cycle highs (top panel below since 1960, courtesy of The Daily Shot) even as stock prices have continued to rise. Historically, corporate profits have reliably been mean-reverting, leading employment lower (bottom panel below) as they fall (unemployment rising, middle panel shown, with recessions in grey bars). Maybe this time is different.