Danielle DiMartino Booth: Recession? We Ain't Seen Nothin' Yet!!

The cruel math says things are going to get worse from here

The Sahm Rule (aka McKelvey Rule), a widely-monitored recession indicator, triggered on Friday.

Some analysts are arguing that it's too early to worry about a slowdown, that the economy is too strong currently.

Others warn the US may already BE in recession.

So, which is it?

For answers, we're fortunate to speak today with Danielle DiMartino Booth, CEO & Chief Strategist for QI Research LLC and author of the book Fed Up: An Insider's Take on Why the Federal Reserve is Bad for America.

Danielle tracks the labor market very closely as a bellwether for recession, and her warning is: “We ain’t seen nothin’ yet!”

To find out why, click here or on the video below:

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Adam’s Notes: Danielle DiMartino Booth (recorded 8.7.24)

EXECUTIVE SUMMARY

• The global economy is currently experiencing a recession. Key indicators include Germany's economic downturn, which has seen a significant decline in trade activity, and China's imports plummeting. These developments highlight the broader trend of weakening global economic conditions, further exacerbated by reduced liquidity and slowing growth in major economies.

• The Bank of Japan's decision to halve its quantitative easing (QE) program has led to increased financial market volatility. This move marks the end of QE as a major source of global liquidity. The volatility seen in the financial markets is partially due to the anticipated unwinding of the carry trade in Japan, which has contributed to a significant reduction in global liquidity.

• We are now starting to see the delayed impacts of the end of QE and fiscal stimulus withdrawal. The higher cost structure and reduced liquidity resulting from these changes are expected to manifest more strongly in the economy soon. The significant fiscal and monetary stimulus provided during the COVID-19 pandemic and its subsequent withdrawal have created a lag effect, with the true economic impact becoming more apparent as time progresses.

• China's attempts to stimulate its domestic economy are limited by severe economic struggles, especially in the property development sector. This internal focus is evident in the consistently negative revenue per available room in Chinese hotels, as tracked by Citigroup. Despite expectations, China is not providing the anticipated boost to the global economy, further complicating global economic recovery efforts.

• There is mounting evidence that the US may already be in a recession. Rising bankruptcy rates and business closures, highlighted by data from dailyjobcuts.com, indicate deepening economic distress. The demand for bankruptcy attorneys, as shown by the highest costs on record in the producer price index, underscores the severity of the situation. Additionally, revisions to the Bureau of Labor Statistics data suggest that previous job growth may have been overstated, pointing to underlying economic weakness.

• The US labor market is showing significant signs of strain, with companies cutting work hours to the minimum feasible level. The US work week has been reduced to 34.2 hours, the same level seen nine months into the Great Recession, indicating that further layoffs may be imminent. Rising bankruptcy costs and increasing layoffs, as evidenced by high-profile announcements from companies like Intel and Dell, suggest that the labor market is under severe pressure.

• Companies are making drastic adjustments to cope with economic challenges. Intel's layoff of approximately 18,000 employees and Dell's announcement of 12,500 layoffs exemplify the significant measures businesses are taking. This trend is likely to continue as companies strive to maintain profitability amid a challenging economic environment. The focus on cost-cutting and efficiency highlights the broader corporate response to economic uncertainty.

• Danielle believes AI will indeed cause massive layoffs and cites surveys showing that a majority of CFOs are using AI to cut jobs, with 74% in Q1 and 85% in Q2 admitting to firing workers due to AI implementation. This fear of job loss is causing employees to work harder, boosting productivity to unprecedented levels. However, she notes that this might be temporary, as AI adoption will likely lead to significant workforce reductions in the long term.

• A large and growing number of consumers are indeed at recessionary levels of distress, as indicated by New York Fed delinquency data. The average American family now pays more in non-mortgage interest expenses than mortgage interest, reflecting significant debt burdens. Despite some student loan forgiveness efforts by the Biden Administration, many borrowers will see their credit scores impacted starting November 1, 2023, if they haven't been repaying their loans. This impending credit hit will exacerbate financial stress, making the current situation and the near future much worse for consumers.

• Danielle suggests that, given the accelerating layoff cycle, it's reasonable to expect deeper rate cuts. Therefore, she recommends investing in