31 July 2020

1) The American economy last quarter is the worst on record, with a 32.9% annual rate contraction (April – June). American business ground to a halt from the pandemic lockdown this spring, leaving the country in its first recession in eleven years. This wipes out five years of economic gains in just months. From January to March, the GDP (Gross Domestic Product) declined by an annualized rate of 5%. While the unemployment is declining as states open up from the shutdown, there are still about 15 million unemployed workers. Americans are spending less money during th lockdown, partly because of lost of jobs. Consumer spending is the biggest driver of the economy, and it declined at an annual rate of 34.6% for the second quarter.

2) While Walmart has posted surging sales for each month, it is still taking cost savings measures. The retailer has laid off hundreds of workers including store planning, logistics, merchandising and real estate. Also, Walmart is reorganizing its 4,750 stores by consolidation of divisions and eliminating some regional manager roles. Walmart is performing well because of high demand and low prices during the pandemic. The company isn’t opening as many new stores in the U.S. anymore, so Walmart doesn’t need as many people to find new locations and so design them.

3) Job postings in technology are 36% down from 2019 levels. This is attributed to increased competition, low priority in hiring and uncertainty over the pandemic. Therefore, the tech industry is also feeling the economic effects of the coronavirus pandemic. Sending a very significant portion of its workers remote to work at home, there were predictions tech jobs would lead the recovery with increase job numbers. The ‘work at home’ was thought to show tech jobs might be available outside the traditional hubs. Neither has proved to be true. In short, the tech jobs are faring worst than the overall economy.

4) Stock market closings for – 30 JUL 20:

Dow 26,313.65 down 225.92
Nasdaq 10,587.81 up 44.87
S&P 500 3,246.22 down 12.22

10 Year Yield: down at 0.54%

Oil: down at $40.45

The Young are getting the Worst Deal Ever!

The ever shrinking economic opportunities for the millennials and generation-Z are leaving them with the worst deal ever.

James Lyman BSAE, BSEE, MSSM

Because of the continual displacement of jobs by technology, I’ve been saying that the youth of America is getting the worst deal ever, worst than the Indians selling Manhattan Island for just $24. Now Andrew Van Dam of the Washington Post has written an article with the numbers to substantiate that premise. Dated the 27th of May this year, his article “Millennials are the unluckiest generation in US history”, shows how the millennials have experienced slower economic growth upon entering the labor market, and the generation-Zs has even less to be expected.

As with so many analysis of economic opportunity for the millennials and generation-Z, there is no consideration for the obsolescence of people, the ever increasing displacement of people and their jobs by technologies. Their decline in economic well-being is due in large part because those good paying jobs of their parents are disappearing to machines. You now have 20 to 25% of new college graduates unemployed or under employed, simply because those jobs once open to these graduates have faded away . . . largely because of new technologies.

Mr. Van Dam’s article gives the facts as the Gross Domestic Product per person, a measure of the average personal wealth. In this case, the GDP after the first fifteen years from starting work, with the dollar amounts adjusted for inflation. Coming out of the Great Depression, the World War II era people, born between 1901 and 1924, had the highest with a GDP of $59,600, while their kids, the Baby Boomers were about half as much at $35,500. In turn, their kids were again about half of their GDP with $15,400. Each generation is reaching significantly less wealth in their early working years as seen in Mr. Van Dam’s table below:

Generation Group Birth Year GDP
World War II, GI (1901-1924) $59,600

Baby Boomers (1946-1964) $35,500

Millennials (1981-1996) $15,400

The next generation, those born after about 2000, the generation-Z, for now are too young to have 15 years of working data to compare, since they are just starting to work. But there’s every indication they will do worst than their fathers. For the millennials, first 9/11 followed by the Great Recession and now the new recession, has continually set them back erasing their gains leaving them with little compared with their forefathers. While their fathers lost little in wages, which they were mostly able to recover, for the millennials there was limited recovery. The average millennial lost about 13% of earnings from 2005 to 2017 compared with 7% for the baby boomers. This lost continues with depressed life time earnings leaving the millennials with less wealth than previous generations, which translates into the homes they own, their savings for retirement, their long term debt. More importantly, for a hyper-consumerism economy, the millennials have a shrinking disposable income, which means fewer luxury things they can buy, an important part of consumerism. So this leaves the hyper-consumerism economy shrinking as evident by the decline of retailing with all the store closings across America. Estimates are that 25,000 stores will close by the end of the year, and 100,000 by 2025. But if hyper-consumerism collapses, what economic system will replace it?

More puzzling, even after years of economic growth, the millennials are below previous age groups. Why? This is the critical part so many are missing . . . the impact of automation and technology displacement. The millennials were born from 1981 to 1996, and started coming into the work force just when computers were an exploding technology finding their way into more and more of America business, and not just the large corporations, but down in the small business arena with just a few workers. For instances, look at the sophisticated accounting software that became available at that time. Less skilled people were needed to run a business, and less skill translates into lower pay. For the most part, technology didn’t directly replace millennial people with ‘robot machines’ rather technology chipped away at workers intellectual and skill levels requirements. This met that more people could do a job, and that in turn lowered the pay needed to get workers. This started the era of economic growth but with zero wage growth. To better understand, read “How to Make Obsolete People” at www.peopleobsolete.com, clicking on ‘Down Load Articles’ on the top menu, then the third article down.

The real problem for the future of millennials and generation-Z is their growing obsolescence which decreases their value and worth to the economic system. Mr. Van Dam’s article shows that the two generations has a ‘lesser future’ than previous generations, but in not considering the growing problem of technology displacement and its real impact on the employment environment, there isn’t any real understanding of why the millennials are the unluckiest generation in U.S. history.

The fact is, the millennials and generation-Z are getting the worst deal since the Indians sold Manhattan for just twenty-four dollars.

The thing to know is economic turmoil stimulates introduction of new technologies as businesses seek the means to survive, which then means more jobs lost to machines.

26 June 2020

1) General Motors is eliminating 700 factory jobs in Tennessee as a result of low sales, which they are blaming on the Convid-19 crisis. This is the third shift at their Spring Hill assembly plant, leaving 3,000 workers still employed. This plant makes Cadillac XT5 and XT6 SUVs plus the GMC Acadia. This is another sign of the weakness in auto demand, a result of record job loss coupled with people working at home and therefore putting less wear on their old cars. The GM plant for building truck engines remains unchanged, since they were working just two shifts to start with.

2) The nation wide retailer Macy’s is cutting nearly 4,000 corporate jobs, about 3% of its overall workforce. The pandemic has taken a toll on the department store chain, just like so many other traditional chain retailers. This move will save the company about $630 million dollars per year, amid a quarterly net loss of $652 million dollars. Macy’s was struggling long before the pandemic because of competition from lower priced retailers such as Walmart, T.J. Maxx and Target.

3) The U.S. GDP (Gross Domestic Product) shrank by 5% for the first quarter, compared to an increase in the previous quarter of 2.1%, prior to the coronavirus pandemic onset. This drop is attributed to a decrease in personal consumption expenditures (PCE) because people are spending less. The real gross domestic income decreased 4.4% as compared to a 3.1% increase in the fourth quarter of last year.

4) Stock market closings for – 25 JUN 20:

Dow 25,745.60 up 299.66
Nasdaq 10,017.00 up 107.84
S&P 500 3,083.76 up 33.43

10 Year Yield: down at 0.67%

Oil: up at $39.18

3 June 2020

1) The economic activity for the second quarter is down, while more than half the GDP (Gross Domestic Product) is now showing a 52.8% drop. Consequently, the personal consumption expenditures is expected to fall 58.1%, which makes up 68% of the nation’s GDP. The current recession is unique in that it was lead by the services sector instead of the traditional manufacturing or construction sectors.

2) Because of the Convid-19 shutdown, the retail industry has a mountain of apparel stock piling up in stores, distribution centers, warehouses and shipping containers. Those retailers now face the difficult decisions of what is best to do with this overstock and choked supple chain. Their options are to keep it in storage, hold sales, offload to ‘off price’ retailers who then sell at deep discounts or move it to online resale sites. None of these options are ideal, but they do limit the damage to company’s bottom line. For apparel that isn’t so fashion sensitive, such as underwear, t-shirts and chinos, warehousing for a short time to wait for demand to return is a viable option. But storing inventory cost money. The opposite strategy is to hold sales and sell stock to the off-price retailers. The ‘in store’ sales is usually better because dumping in bulk to the discounters usually brings only pennies on the dollar for retailers. This amounts to huge losses for the retailer. The most lucrative option is moving merchandise to online re-sellers who take a commission on sales, however this is largely only open for high end brands. No matter what options a retailer takes, it all spells out large losses for them because of the pandemic.

3) Southwest Airlines is offering buyout packages and temporary paid leaves to employees in an attempt to ensure survival, in anticipation of a slow recovery. The airline company has not imposed any layoffs or furloughs in its 49 year history, and while overstaffing isn’t tied to 100% capacity levels, it has never faced the drastic drop in passenger service as now seen with the pandemic. Therefore, Southwest if seeking to voluntarily reduce workforce as softly as possible.

4) Stock market closings for – 2 JUN 20:

Dow 25,742.65 up 267.63
Nasdaq 9,608.38 up 56.33
S&P 500 3,080.82 up 25.09

10 Year Yield: up at 0.68%

Oil: up at $36.90

2 June 2020

1) Experts say it could take as much as a decade for America’s economy to fully recover from the coronavirus and the subsequent massive shutdown of businesses. Presently, it’s expected that the GDP (Gross Domestic Product) will decrease about 3% from 2020 to 2030 or about $7.9 trillion dollars. It’s expected that the measures to counter the virus, the business closures and social distancing measures, will reduce consumer spending, which in turn will cool the economy. With 41 million people now unemployed, more layoffs are expected for the next week with an unemployment rate of 19.6%. Furthermore, it’s expected that the coronavirus will cost the economic about $7.9 trillion dollars.

2) The reopening of America from the lockdown was going to be difficult enough, but now the growing violence of protest is threatening to hamper that recovery. Stores in the protest areas are closing for the protection of its employees such as CVS and Target, with doubts mounting if some of the stores will ever reopen. Mayor Lightfood of Chicago said the continuing violence is making the city reconsider the opening of Chicago’s businesses. Also, the wireless carriers T-Mobile has closed Metro and Sprint stores over the same consideration of possible violence.

3) China has stopped some imports of U.S. farm products such as soybeans and pork meat. This is the latest sign that the January phase one trade deal between the world’s two largest economies is unraveling. The halts come after President Trump’s criticism of China’s efforts to bring Hong Kong under the firm control of the communist. The president is threatening to strip Hong Kong of some of it’s special privileges, which in turn would make Hong Kong less valuable economically to China. Further aggravating U.S. and Chinese relations is the charges that China shares some responsibility for the Convid-19 pandemic.

4) Stock market closings for – 1 JUN 20:

Dow 25,475.02 up 91.91
Nasdaq 9,552.05 up 62.18
S&P 500 3,055.73 up 11.42

10 Year Yield: up at 0.66%

Oil: up at $35.56

1 June 2020

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

10 Year Yield: down at 0.65%

Oil: up at $35.32

19 May 2020

1) The managing director Kristalina Georgieva of the IMF (International Monetary Fund) says the Fund is likely to revise downward its forecast of a 3% contraction of the GDP (Gross Domestic Product) for 2020. In turn, this will most likely cause a revision of the IMF’s forecast for a partial recovery of 5.8% in 2021. This means a longer time for a full economic recovery from the virus crisis. The IMF had forecasted that the business closures to slow the virus would throw the world into the deepest recession since the 1930’s Great Depression.

2) Gold markets have risen to their highest in more than seven years, a result of the Federal Reserve saying stocks and asset prices could suffer a significant decline as a result of the coronavirus crisis. The economic recovery could go to the end of 2021, depending on the arrival of an effective vaccine. Owning gold is considered to be a safe haven in times of economic turmoil, able to retain its value when other assets are sinking in value. Other precious metals such as silver, platinum and palladium are also experiencing a swing upward in price, but since these are commodities, their value may drop in a slower economy and reduced industrial demand.

3) The price of oil is above $30 a barrel for the first time in two months as U.S. and other country producers continue to cut production in order to restore the balance of the oil market. The world wide shut downs from the virus has drastically reduced the demand for oil world wide, with the world’s storage capacity quickly filling to maximum capacity, and for a time, producers having to pay to have their oil production removed. While the price of oil is still too low to salvage the shale oil (fracking) business in America, it still bodes well for the U.S. and world economies. Nevertheless, expectations are it will be well into the next year for the oil markets to be fully restored. Oil futures contracts that are due in June, show few signs of a resulting plunge in oil prices as when the May contracts came due and investors had to pay others to take their oil away.

4) Stock market closings for – 18 MAY 20:

Dow 24,597.37 up 911.95
Nasdaq 9,234.83 up 220.27
S&P 500 2,953.91 up 90.21

10 Year Yield: up at 0.74%

Oil: up at $32.21

7 May 2020

1) The bust in the Texas oil fields is the worst in memory, says the billionaire Russell Gordy. The coronavirus pandemic has triggered an unbelievable collapse in crude oil prices that is sinking fortunes across Texas, with no clear way out visible in the near future. Texas accounts for 9% of the nations GDP (Gross Domestic Product), so as oil pulls Texas’ economy down, it will undoubtably pull the nations down too. In the past, declining energy prices have helped the U.S. economy, but this time its likely to cut into investment and employment. Texas may lose 1.3 million jobs by June, as the virus puts an end to the U.S. shale oil revolution, which may spill into a broader downturn for Texas, that will also drag the rest of the country down too. Furthermore, Americans are driving and flying much less, which has reduced the demand for oil, bringing on a crisis in storage for the oil surplus. There are expectations that home prices will decline during the remainder of this year and into the next. This in turn will impact the construction industry.

2) As a result of the pandemic, the mortgage industry is implementing reforms that will be long lasting in terms of how lenders operate and how consumers obtain financing. It’s anticipated that digital mortgage processing will become more prevalent as people seek to minimize contact with others. Relators are seeing as much as a 500% increase in home video tours. Reports are that many people are seeing involuntary credit reductions and even terminations of their credit cards as banks seek to reduce their exposure to risk in a troubled economy where jobs are at risk of elimination. This means a further reduction on consumer spending.

3) Disney has seen a 91% plunged of it profits last quarter, a direct result of the coronavirus crisis. The operating profits in Disney’s parks lost about $1 billion dollars to add to a total loss of $1.4 billion dollars in total operating income. Disney has had to close its Walt Disney World and Disneyland theme parks, plus its Disney Stores and the suspension of its cruises and disruptions of its supply chain . However, its new video streaming service Disney Plus grew 26% to 33.5 million subscribers last quarter with revenues up 260%

4) Stock market closings for – 6 MAY 20:

Dow 23,664.64 down 218.45
Nasdaq 8,854.39 up 45.27
S&P 500 2,848.42 down 20.02

10 Year Yield: up at 0.71%

Oil: down at $24.35

27 April 2020

1) People are tantalized by the incredibly low oil prices, thinking only of lower gas prices. But economically, there is much more to oil and its low price. First, there is the destruction of America’s shale oil (fracking) industry, which has made us independent of foreign oil. There are fears that if oil doesn’t pick up, then the world could see a major shift in global power. The economies of several nations are very dependent on oil sales, the revenue being the bulk of their GDP. For instance, Saudi Arabia’s oil revenues account for 60 percent of its GDP (Gross Domestic Product), two-thirds of its budget, and nearly three-quarters of its exports. For Russia, one-third of its GDP is petroleum, half its budget, and two-thirds of its exports. The turbulent Middle East has states with greater dependence on oil: including Iran, Iraq, Qatar, and Kuwait. For America, oil accounts for only 8% of our GDP. The coronavirus pandemic has drastically reduce oil consumption world wide, and if it’s slow in returning to pre-pandemic levels, some countries could find themselves in serious financial and geopolitical trouble, with their influence waning and other nations displacing them in the world pecking order. It’s anyone guess how things could settle out and in whose favor.

2) Amazon has been using data about independent sellers on its platform to develop competing products, which their stated policies forbid. Such practices would give the online retailer tremendous advantage in competing against similar products, but is using proprietary information. Information includes total sales, vendor cost for Amazon’s marketing and shipping, and how much Amazon made on each sale, and other non-public information.

3) President Trump stated he would veto an emergency loan for the U.S. Postal Service if the USPS didn’t immediately raise its prices for package delivery. The President considers package delivery prices need to be four times the present charges. He has been critical of the USPS for years, considering the postal service problems are a result of mismanagement.

4) Stock market closings for – 24 APR 20:

Dow 23,775.27 up 260.01
Nasdaq 8,634.52 up 139.77
S&P 500 2,836.74 up 38.94

10 Year Yield: down at 0.60%

Oil: up at $17.18

15 April 2020

1) A second round of layoffs is starting, the first being workers at restaurants, malls and hotels, most of them lower skill levels, but now it’s higher skilled jobs threatened. Those higher skilled jobs had seemed secure, however the ‘work at home’ people are seeing layoffs and furloughs to add to the unemployed numbers. Jobs such as corporate lawyers, government workers and managers are seeing the pink slip with a threat of a prolonged labor downturn in 2007-09 recession. Economist anticipated that 14.4 million jobs will be lost in coming months, raising the unemployment rate to 13% for June. Already, 17 million Americans have been laid off, with estimates of 27.9 million jobs to be lost. The information businesses are being hit, with revenues not sufficient to pay electric bills for servers and computers to host web sites. Even large law firms catering to the corporate world are having significant layoffs. State and local governments employ 20 million people, but as tax revenues drop, they too are faced with reducing employees. Analysts consider it will take 5 1/2 years for the labor market to recover.

2) Boeing, the airline manufacture, is further suffering business setbacks with the cancellation of orders for 150 jets in March. This is a result of a near total halt in demand for air travel because of the coronavirus pandemic. There are now nearly 14,000 jets parked by airlines around the world. Boeing did report new orders for 31 aircraft in March. While Boeing still has a backlog of orders for about 5,000 jets, there are fears that delivery will be deferred which will further add to Boeing’s financial woes.

3) The IMF (International Monetary Fund) is predicting that the Great Lockdown recession will be the worst in almost a century, warning the world economy’s contraction and recovery will be worst than anticipated. The IMF estimates the global gross domestic product will shrink 3% this year, compared to a 3.3% growth in January. This will dwarf the 0.1% contraction in the 2009 financial crisis. These forecast dashing any hopes for a V-shaped economic rebound after the virus subsides, with a commutative loss of global GDP of this and next year, of about $9 trillion dollars. Economic damage is driven by how long the virus remains a major threat.

4) Stock market closings for – 14 APR 20:

Dow 23,949.76 up 558.99
Nasdaq 8,515.74 up 323.32
S&P 500 2,846.06 up 84.43

10 Year Yield: unchanged at 0.75%

Oil: down at $20.82