1) For the last few years, a number of retailers have been downsizing by closing a number of their stores across the country, something that the coronavirus pandemic has greatly accelerated. But the restaurant chains have also been downsizing as well, closing branches all across the county. Such popular names as Jack in the Box, Luby’s, Pizza Hut, Ruby Tuesday, Steak’nShake , Subway, Burger King, TGI Fridays and Applebee’s just to name a few, who are closing restaurants across the country. Each have been struggling for the last several years. This is another sign that the American consumer market is in the process of fundamentally changing.
2) The U.S. consumer spending plunged in April by the most on record because of the nation wide lock down. Spending fell 13.6% from the prior month, making for the sharpest drop in six decades. A rise in income temporarily masks the fact that people are in a fragile economic position, because the rise was a result of the one time stimulus checks. The virus crisis halted all but the most essential purchases, with economists expecting it will take a year or more before spending recovers.
3) It’s anticipated that the national debt will increase to more than 100% of the national GDP (Gross Domestic Product) by the end of the year. This will exceed the record set after World War II. The $25 trillion dollar national debt equates to $76,665 dollars per citizen or $203,712 dollars per taxpayer. The federal deficit is over $1.9 trillion dollars through April, and is expected to rise to $3.7 trillion dollars by the end of September, which is the end of the fiscal year. Such debt could draw investors to demand higher interest rates, as the federal government’s position becomes increasingly precarious. This is like an individual piling on credit card debt without consideration for the short or long term consequences to their financial position. For America, those consequences could be deep depression coupled with inflation of the dollar leaving money far less valuable than today.
4) Stock market closings for – 29 MAY 20:
Dow 25,383.11 down 17.53 Nasdaq 9,489.87 up 120.88 S&P 500 3,044.31 up 14.58
1) Another 2.1 million Americans are unemployed as the economy begins its reopening with restriction on economic activity easing in some parts of the country. One bright spot is the number of continued claims (people remaining on unemployment) dropped slightly from people returning to work. While the number of new claims continues to drop each week, it still remains at a record high, with the drop in new claims remaining higher than anticipated. The continued elevated number of claims isn’t a good sign, showing that we are not through the business shutdowns and possible closures yet, with some furloughs shifting over to permanent layoffs. The unemployment in America is now at 40.7 million workers.
2) Boeing aircraft manufacturer may be starting its recovery announcing the resumption of limited production of its 737 MAX after a five month halt. The 737 MAX has been grounded since March of 2018 because of software problems resulting in two airliners crashing. While the FAA has not cleared the airplane for return to passenger service, Boeing expects the 737 MAX to fly again in mid 2020.
3) The millennials and generation-Z are worst off economically than any previous generation, they are experiencing slower economic growth since entering the workforce than any other generation in U.S. history. It’s not just that it’s a bad recession, or that it’s hitting young people more, but rather that it’s hitting people who have already been hit by the Great Recession. Millennials have experienced slower economic growth since entering the workforce than any other generation in U.S. history, and they will bear these economic scars throughout their lives, with lower earnings, lower wealth and delayed milestones, such as home ownership. The old adage of ‘just work harder, sink or swim by your own effort’ no longer applies, because many millennials are now having to swim upstream against a much stronger current . . . from the forces of automation and technology displacement.
4) Stock market closings for – 28 MAY 20:
Dow 25,400.64 down 147.63 Nasdaq 9,368.99 down 43.37 S&P 500 3,029.73 down 6.40
1) The aircraft manufacture Boeing is laying off almost 12,000 workers this week, a result of the coronavirus crisis impact on the aircraft company. Boeing, which is the largest exporter in the U.S., is trimming its workforce by about 10% which include international locations. It is anticipated the airline industry will take some years to recover with air travel dropping a whopping 95% because of the virus, and major airlines canceling the majority of their domestic flights while suspending nearly all international flights. The company suffered a major set back with its 737 MAX grounding that resulted in near record number of order cancellations for passenger jets with zero new orders in April. This has been Boeing’s worst year in decades.
2) The discount home goods retailer Tuesday Morning has filed for bankruptcy, a result of the prolong store closings from Covid-19. The lost revenues created an insurmountable financial hurdle in a company that was thriving before the pandemic. The chain is closing 230 of its nearly 700 US stores across America. The first phase of closures of 130 stores will begin this summer. This is in line with another home goods retailer, Pier 1, which filed for bankruptcy in February, another casualty of the virus.
3) More than one in every six young workers have stopped working because of the coronavirus pandemic world wide. There are fears that young workers (15 to 28 years old) could face the inability to get proper training or gain access to jobs long after the pandemic ends, maybe even deep into their careers. Of those still working, about 23% report reduction in the number of hours they work. For 178 million young workers around the world, more than 40% are in the food services and hospitality industries, which is the hardest hit sector from the virus. Three fourths of the young workers are in informal jobs or casual labor. In addition, many companies in the U.S. are cutting salaries of those who still have a job, trying to remain in business, which will reduce discretionary income that will further slow economic recovery.
4) Stock market closings for – 27 MAY 20:
Dow 25,548.27 up 553.16 Nasdaq 9,412.36 up 72.14 S&P 500 3,036.13 up 44.367
1) The local economies of oil country are being hit hard by the shale oil bust as royalties from oil pumped have shrank to near insignificance. While the oil bust has erased tens of thousands of jobs, while drying up local tax revenues, it has also greatly reduced the inflow of money to local economies from the royalties being paid out. There are about 12 million U.S. mineral owners collecting royalties for oil and gas extracted from their land. Royalties range from 12.5% to 25% of the value of gas and oil pumped, with the average oil land owner collecting about $500 dollars a month.
2) The coronavirus pandemic is causing more economic troubles with increased prices at supermarkets. The virus caused unprecedented demand, the shutdown of some food manufacturing facilities and the need for more labor to assemble orders for pickup and delivery are adding to costs of the grocery business. Since supermarket’s get all their money from the checkout lanes, this translates into higher grocery prices. Some say the grocery business will never be the same again. Furthermore, with demand driven so high by the pandemic, stores have no need to offer incentives and sales. This demand has been felt up the supply chain further increasing cost. One note, the pickup and delivery business of groceries has been catapulted ahead bringing automation to the grocery business closer.
3) The New York Stock Exchange has started a phased reopening of its trading floor, having been closed for two months because of the pandemic crisis. The NYSE has been limited to all electronic trading since March 23 in a measure to prevent the spread of the virus. But there will be fewer floor brokers, and they will wear face masks and do social distancing. Nevertheless, many brokers will continue to do their jobs remotely with electronics, and stay away from the trading floor. Another example of how American business has been changed by the need to keep people spaced apart, even isolated in order to halt the spread of the virus.
4) Stock market closings for – 26 MAY 20:
Dow 24,995.11 up 529.95 Nasdaq 9,340.22 up 15.63 S&P 500 2,991.77 up 36.32
Major technology companies such as Spotify, Apple, BarStool Sports, and Amazon, are racking up their check books in investing in podcast shows and networks.
Amazon is utilizing Audible to attain podcast shows, while Apple is using its Apple TV shows and other Apple products for podcasting viability. BarStools Sports which began as a sporting blog, has utilized its strong sports platform in the podcasting space.
Over 100 million people in the United States listen to podcast shows, one way or another. The number seems to be increasing on rolling average basis according to analysts estimates. The way that traditional radio has been digressing, don’t be surprised as podcasting surpassing the new normal. -SB
_Listen to the #EFRPodcast & #TheCastPodcast shows on the cloud, soundcloud.com/Economic-FinanceReport
1) Sales of homes in the U.S. have dropped their biggest drop in nearly 10 years, because of the coronavirus crisis in April. The upending of the labor market and the broader economy has undercut demand for housing. Sales of existing homes have plunged 17.8% with existing home sales making up about 90% of U.S. home sales. In addition, April showed a record collapse in homebuilding and permits. With unemployment up past 38 million people and still climbing, it’s expected the home sale market will remain depressed for long after the pandemic crisis is over. The problem is further exasperated by a four month inventory of homes where a six to seven month supply is considered a healthy balance between supply and demand.
2) More contraction of consumerism with more retailers announcing closing of stores. The retailers Victoria’s Secret and Bath & Body Works will be permanently closing about 300 stores in America and Canada. With the young people of America having fewer good job opportunities and less disposable income, the hyper-consumerism economy born in the seventies is finding it harder to sustain itself, raising questions of what economic model might replace the present one . . . and what the job future would be for the young.
3) Companies have been borrowing at a rampant pace to shore up their liquidity during the pandemic. The wireless carrier AT&T is joining in with a new bond sale of $12.5 billion dollars of unsecured bonds in five parts. The intent is to take advantage of a global rally in credit to refinance their outstanding debt. Their 40 year security has a yield 250 basic points over the Treasuries. In the last few years, AT&T has been reducing its debt of nearly $200 billion dollars now down to $164 billion dollars, most of the debt coming from its acquisitions of Time Warner Inc and DirectTV.
4) Stock market closings for – 22 MAY 20:
Dow 24,465.16 down 8.96 Nasdaq 9,324.59 up 39.71 S&P 500 2,955.45 up 6.94
There are three economic forces which are now pulling down the economic future for millennials and generation-Z.
James Lyman BSAE, BSEE, MSSM
Today, the question on everyone’s minds is, ‘How long for the economy to recovery? How long before we’re back to the good times before the coronavirus?’ Well, before the pandemic hit, there were some pretty strong forces already pulling down our economy, like a heavy boat anchor hanging from our necks as we struggled to swim across the economic lake to the shore of prosperity. Actually, there are now three boat anchors, each pretty heavy just by themselves, let alone all three together.
Here’s a quick summation of those three forces:
1) Automation has been displacing people’s jobs long before the pandemic-economic crisis, with people continually struggling against the machines to have a place in the economy. But automation always flourishes in a recession with businesses continually looking for ways to reduce their operating cost. As in the past, we can expect many of the jobs to disappear to the machines, but now at a faster rate than before, leaving fewer jobs to be had.
2) Small business failures will leave fewer available jobs for the future. There are about thirty million small businesses, that’s half the businesses in America, with half of those small businesses having cash reserves for only about fifteen days, not near enough to weather the shutdown of the economy, and so a large number of small businesses will fail. About sixty million Americans work in small businesses, about half the American work force, and so a large number of people will lose jobs from these failures.
3) While America’s economy is strong, the economies of many other countries, including China, are weak and fragile. Before the coronavirus, there were fears within the economic community that those other nations could pull America’s economy down, which is now more likely with the coronavirus troubles.
Each of these forces are ‘killers of jobs’, leaving reduced economic opportunities for the millennials and generation-Z people. This makes each one a ‘boat anchor’ dragging people down as they struggle to swim and stay financially afloat. Any one of the three creates a significant challenge for people trying to stay in the economy, and if a significant number of people are unable to recover economically, then it stands to reason the economy itself will not readily recover. Looking at the 2008 Great Recession, it took almost a decade for the economy to return to what we had just before the financial crisis hit.
It’s safe to say, that with the three boat anchors pulling us down, it’s going to be quite a while for a full recovery, irrespective of what the government does. Unfortunately, in times like this, the social-economic system sluffs off those who have the least to contribute to a high technology society . . . not that I advocate that ‘sluffing off ’ process, but that’s just the way it’s always been! The hyper-consumerism economy America built since the 1970’s has really aggravated that. And if you haven’t noticed, in the last couple of years, much of that hyper-consumerism economy has been crumbling down. Noted retailers such as Sears, J.C. Penny, Pier 1, Neiman Marcus, RadioShack and Payless ShoeSource, to name just a few, have been closing stores and undergoing bankruptcy protection trying to remain in business. What’s to replace them . . . if anything?
For a large portion of Americans, their real value to society has been as consumers, working in the service sector of the economy to support other consumers, who in turn work to support other consumers. But as consumerism shrinks, these are the people being sluffed off by the social-economic system as surplus to the needs of a modern society. Add to that, the disposable income for the younger generation is also shrinking making them less valuable as consumers able to support hyper-consumerism.
The truth is, the American consumer based economy was in trouble before the pandemic forced the economy to shutdown. The pandemic only compressed what was already happening down to a very short time interval. Bottom line- it’s going to take a long time to try and rebuild the economy back to what it was . . . if indeed it can be rebuilt to what it was. Most likely, a new economic system will emerge less dependent on pure consumerism, but a fair number of people will be left behind. More people living on the edge, only to fall off for one reason or another, to slide into the ranks of those ‘tent people’ you frequently see pictures of, living on the sidewalks and underpasses of American cities. For those who are able to remain in the social-economic system, the recovery will be slow, many months at least, more likely years judging from the past. Society is already puzzling over what to do with the tent people, with no viable solutions in sight. With a sudden surge in numbers, this problem will be even more critical with a steady movement towards eventual formal reservations, a solution loaded with a mirid of troubles and problems. For the millennials and generation-Z the future is rather dismal despite what the professional politicians say. A few years ago, the political buzzword was wanting to ‘fundamentally change America’. What they didn’t realize, was there had already been a fundamental change and it didn’t include many Americans – those who had failed to advanced technologically.
But the joker in the deck is going to be the oil! Despite this sudden reprieve of oil availability, the problem hasn’t gone away, and it will be the principle forcing function of the future.
1) Again, there is additional unemployment this week with 2.4 million people filing for unemployment benefits this last week. This brings the total U.S. unemployment during the pandemic up to 38 million, with continuing claims at 25.07 million, the highest level on record. The good news is the filings continue to decline from previous weeks. So far, there’s no indications that the easing of the lockdowns is having any effect on the unemployment dilemma.
2) The apparel retailer chain ‘The Gap’ is accelerating its implementation of robots in warehouses to assemble online orders, thus avoiding the use of human contact during the pandemic. The Gap is tripling the number of item picking robots in use to 106 by the fall. With the pandemic forcing the closure of its stores nationwide, their online sales shot up just when social distancing rules reduced their staff. Each robot does the work of four humans in a warehoused that was already highly automated. This is an example of increased automation occurring during times of economic shock, leaving fewer jobs for when the economy improves. These are times when employers shed less skilled workers by replacing them with technology and higher skilled workers thereby reducing their labor cost.
3) The second crisis for the American economy is arriving. The pandemic is having sever consequence for state and local governments with lockdowns eviscerating their finances. Monies needed to pay for public services and infrastructure have withered leaving governments to do triage of the services they provide. Basic services such as police, fire fighting, health, trash and water/sewer services are threatened with curtailment for lack of monies to pay salaries and supplies such as gasoline. Such actions is politically dangerous which can fuel political extremism that threatens democracy. Losses of state and local revenues are estimated to be 15 to 45 percent, or an overall loss of $1.75 trillion dollars a year. With growing doubts of re-employment after the crisis passes, this economic crisis is long term.
4) Stock market closings for – 21 MAY 20:
Dow 24,474.12 down 101.78 Nasdaq 9,284.88 down 90.90 S&P 500 2,948.51 down 23.10
1) The Federal government is moving to address the record deficits that America has amassed. One method is to stretch out the time over which the deficit is paid off. Part of that plan is the reinstating of the 20 year bond, which was last issued in 1986. The Feds will auction off $20 billion dollars worth of bonds Wednesday, with an expected return of 1.21% verses 0.70% for the 10 year bonds and 1.42% for the 30 year bonds. The government is also considering 50 and 100 year bonds, but there doesn’t seem to be any demand for such financial instruments. It’s expected that the deficit will be $3.4 trillion dollars for fiscal 2020 and $2 trillion dollars for 2021.
2) The CBO (Congressional Budget Office) estimates the nation’s unemployment rate will exceed 15% through September then remain above 11% for the rest of the year. For 2021, they estimate an average of 9.3%. For the second quarter of 2020, the labor market is projected to see the steepest declines since the 1930’s. These high unemployment rates are expected to persist despite lawmakers’ efforts to counter with injections of cash into the economy. Further layoffs are expected despite the $660 billion dollar Paycheck Protection Program, but a partial rebound is possible in the last three months of the year, with as much as 30% of laid off workers being rehired.
3) Housing sales are way down, the lack of inventory has propped up prices with bidding wars from the limited availability of properties. The health guidelines have made it more difficult to market homes, another fallout of the pandemic. Since the pandemic began, the demand has fallen off, with the number of sellers also contracting, therefore the limited availability of properties. Despite the economic uncertainty, the supply shortage prior to the Covid-19 crisis still remains. Nevertheless, the housing market has cooled, with sales of existing homes projected to fall 20% in April compared to March, which had a 8.5% drop. Construction of new houses is down as contractors wait out the virus. While loan interest rates are low, lending institutions have tightened up their loan standards.
4) Stock market closings for – 20 MAY 20:
Dow 24,575.90 up 369.04 Nasdaq 9,375.78 up 190.67 S&P 500 2,971.61 up 48.67