Consumers are Now Terrified About the Economy
18:57 Share

We just got another cyclical warning from consumers in the form of their credit card usage. At the same time, the federal serve says what economic weakness, we don't see anything. In fact, we just cut rates for the hell vit.

We swear what the federal reserve reported first was that consumer credit revolving credit credit card usage was basically flat in the month of september after contracting in August. But August, september are not the first time they've seen. This is actually the seven month where consumer revolving credit has been exceptional, in fact, is almost zero during that seven month period.

And and just like consumer confidence, consumer credit card usage is not about spending. It's about consumers telling us what they're feeling and thinking and seeing as far as the labor market when consumers are truly confident, I don't mean these various measures. When they feel good about incomes and job prospects, they will use their credit cards.

And that only makes sense when you you think you you think everything's going well, you're not you don't mind taking little bit of actually risk ripping up the plastic and paying for things when you start to worry, the jobs are not gonna be there, your raises and gonna there. Maybe your employers can to trim your hours. You not only stop using your credit card, you might actually pay down the bounce to give yourself a little bit more room heading into an a period of uncertainty.

That's what we're seeing and a big White scale fashion across the consumer economy. At the same time, this week, the federal reserve cut rates as expected by twenty five basis points. But then they triggered with the statement a jay power made, made some comments of his own where they're basically took not quite took back what happens in september the fifty basis point, right? A but they downplay the significance of these rate cuts because of how IT looked in september, where IT appeared as if they were panicking over the labor market.

And just to put that make that make that point even more, the fed in its latest statement, sort of downplayed the labor market entirely, which is another warning sign along with consumer credit that tells you they are actually pannick. It's sort of like lady make best protesting a little bit too much here. So Steve, Steve and meter get a couple of big things to talk about.

Her credit card usage on jobless claims, continue claims, big number there. And then I guess the fed I mean, people like to talk about fed and ray cus because why not? It's a huge topic for most of the mainstream. You and I baby, don't put as much emphasis on and put the fed cut rates again. No surprise there either.

Yeah, just talk about credit cards because you really nail this one on the head when consumers are feeling confident, and I don't mean they fill a survey and say i'm confident, mean they actually get in the car, go to the store, why something they don't need with money they don't have. Now that's confidence because IT tells you from a consumer perspective that they believe that they are going to be able to pay that back. That's just confident.

Steve. That's the american way, right? That's what we do. We when we feeling like everything is good, wipe out the place that can.

But amen to that because that's exactly the american way. You've got IT, but you're write on the other side of the story. When people start feeling less confident, what do you do? You make an extra payment on your mortgage, your car.

Now you don't do that, you start paying down revolving debt. And that's why it's so critical because as you said, you go back seven months and revolving credit pretty much as flat line. So what does that tell you about really you to state of the economy is back somewhere around marches, the economies really slow down and consumer started to realize that.

And that's the danger sign because we know in a debt based economy, you need consumers to spend. Now we talk about what's you going to take to turn the economy around. It's going to take, in the end of the day, consumers to spend.

And you point in out job when they're worried about their incomes. Maybe they are not in hours, maybe the other they are afraid of a job cut. Maybe they're just seeing of things that works.

Slow down. They start to panic. They stop using the credit cards energy point out if they can paigning down. They absolutely.

you need a little bit of extra liquidity cushion when you're really uncertain because you never know. You get a couple of hours caught and what are you going to do? You're going to need your credit card to just buy groceries and get through.

So I mean, to make sense in that respect, us what's really compelling about this data mean on a zone, you look at credit card revolving, revolving credit usage that would already be a big red flag. But as you said, Steve, it's consistent with everything that we've seen since around march and April, including the labor market statistics, which now also feature the establishment survey, the payer report for october. While everybody was paying attention to storms and strikes and everything else, to me that the the october payer report wasn't really about october at all.

IT was about the revisions previous to that, especially August. Thank you about of this way the federal serve cut by fifty basis points september because they were panic really about the july report, which shows payroll are growing by one hundred and fourteen thousand. That was revised up a little bit.

But now we got revisions to August a month later, which were under one hundred thousand, just seventy eight thousand private payroll at thirty seven thousand, which were almost certainly negative in amount of August. So if the fed was pannick in the fifty over the july report, what would they do for the August numbers that just came out? Then of course, september rebound and then october storms or not, there was a weak number anyway.

Now they're saying, oh, no, we're not worry about the labor market at all. We just cut rates for the heck of cutting rates. Nobody buys this, right?

No, not at all. I mean, we do know that, that is worried about that mean course pocus. And well, we think everything's in baLance, which is interesting that he said that, that you know the inflation in labor markets and baLanced and he says, look, this thing can go wrong if we make the wrong move and city can either be on the inflation side with the labor market time instead.

Yeah, captain obvious. Did you see the continue claims data? Yeah probably did. Because well, you were inventors when IT was least. And what have we seen that numbers now pushing one point nine million, seasonally adjusted. And yes, I F I know historically that number is low and that's not the issue is we're coming off a very low number.

And if that number starts to get above, say, two million, I think we start to see a bit of a snowball effect, which is what palette ally said he like, look, we think we're imbaLanced, but if we get this wrong at all and things go opposite what we're hoping for, it's going to get out of control and quickly. He knows. IT.

no, no, you think, Steve, too. This is something I keep coming across um that the continued claims in particular is understating labor market weakness because you get what twenty six weeks of unemployment in most states, it's a little bit longer, a couple of other states, but just on average, get twenty six weeks of unemployment. So if you were laid off six months ago, which would have been around march in April, when everything started to turn, you were one of the unfortunate few that have got laid off because there's always laid, ffs, in an economy. So you get laid off, you go to the unemployment office and say, I need some ages to get through.

They say, okay, you've got twenty six weeks and then got to be done with you and you think, well, i'm going to get another job because jay Powell says the economies red hot, you know, inflations the biggest risk that you you're very optimistic that things are moving in your direct, but then you sit on unemployment week after week after week, month after month after month because there's one thing that everyone can agree on, the optimist as well as the pessimist. There has been very little hire ing going on in the U. S.

economy. What we can disagree about the significance of that, what that means for the future, but everyone admits all the data shows have been very little hiring. So if you put on unemployment for twenty six weeks and you get to that, you're twenty six week you you just done, you roll off the numbers.

You disappear from continue claims entirely, not because you have another job, but because you exhausted your eligibility, you've got nothing left. So if continued claims continue to rise, that's in spite of many people exhausted their eligibility. So in reality, continue claims aren't just reflecting what's in the unemployment, right? They're really understating the fact that unemployment is piling up because there is no hiring.

right? Jeff and I could be worse than than that because there could be people losing their jobs are getting severances. And we know if they are getting that, they certainly can't apply for benefits. I've known some my friends who have lost her job and being ineligible ble from unemployment due to how their employer got rid of them.

So there could be some other issues on top of you know, we have companies like amazon that are pushing your workers to come back to the office and saying, look, if you don't come back, your jobs gone well, that means they're clicking essentially if they don't come back to work, not getting fired, but you certain ly don't get unemployment then. So there's a big question about you know I think is in when we look at continue claims of the unemployment, right isn't really giving us an accurate picture of what we're seen in the economic data. I'm not sure that.

that is yeah, that's when we come back to the federal reserve. Now what the fed did this this week was past week was they come by twenty five basis points. And then as you as you mention the about with this usual comments that said, h, we're not worried about the economy anyway.

We're just doing the side of abundance of caution. But what caught a lot of people's attention as they altered the language in the statement that's released, the initial statement that comes out with the the policy announcement, the press release itself is really not long. It's only a couple of paragraphs just meant to be a very broad and general description.

So making the substantial changes in the text of the statement sort of a signal. We talk about this all the time. The fed uses every opportunity to make any kind of public announcement as a way to try to manipulate behavior.

And so it's very transparent what they did here. If you look at the actual statement, they removed the reference that was in september. Where is that? Job gains have slowed.

They didn't like that because that sounds a little bit too much like maybe a downturn slow. We don't like that. So theyve got rid of job. Job gains have slowed and replaced IT with labor.

Market conditions have generally eased and that just sound so much more pleasant and Better because generally eased almost sounds like this is exactly what the fed wants. They want as power set of the press conference, everything to be and baLances. We don't want.

We don't want the labor market to be too hot. We don't want to be too cold and jobs gains that have slowed sounds a little bit too cold. But in reality, there is no difference between no statement.

So it's very it's very clear and transparent why they would change IT. And the other major change that they they did for the statement was they completely removed the reference that said that they had gained greater confidence over consumer Prices. Suddenly they removed that one. The only they don't have confidence over consumer Prices.

And the only reason to do that would be to try to make the claim that power just did that they're not focused on employment, right? Because if you say i've got great to comfort on on consumer places, that that means that your full focus in terms of risk is on the employment side. So they had to get rid of that in order to try to say the risks are actually baLanced.

And so what they're really doing is reacting and responding to the all the data we're talking about here. They know all of the stuff. They know about continue claims and know about the unapproved tent, right? They know the economy is heading in the wrong direction. They may disagree about what that means, the probability of recession, but they're definitely concerned about IT, but they don't want to come across is too concerned. And that's what that's the transparent reason for everything that just happen.

yes. And that's just jeff, because if the fed comes out, this is, hey, we're really concerned at the time when course, many americans were very excited about you trump winning the election. You could really take perhaps the juice off that because you you have to get the feed position here, what they really need to see as they kind of want to see a repeat of twenty, sixteen and maybe from their perspectives.

St, what have we see stocks going up? Maybe that means consumers will get confident, pull out their credit card and go spend in. If they do that, you get that feedback loop where money starts being created, money starts moving around the economy.

And next, I know the fed gets a free pass, gets out of this powers and combat. They look, we engineered the soft landing. Everything went great. The problem is I don't think he's worried about inflation going out. I think he's worried about IT going down.

And I also to think he really knows what's going on the labor market because he was asked by one of the real press, hey, do you talk to CEO and what are they saying? He's like, oh, well, I don't really do that but he says, you know, all of the other members of the board what they do and he didn't kind of you act like there was a strong sense of, hey, they're really excited. They are gone to go out and hire.

They're ready to invest in the economy. He really didn't say that because he didn't want to tell the press in the world that know we do talk all these people and know it's not that great. And that's really reason we're cutting rates because we think I could get worse.

We saw the baseball great, Steve. I mean, that's basically what the fed does when they go out, consult with with the participant real economy, the branch level and perspective. They talk to seals.

And so that beige walks, husband IT was really bad a couple of beijing walks ago, and the last one was slightly Better, but not really a whole lot. So yes, paul didn't want to answer that question because he won't had to have said yes. We talked to CEO and it's not looking all that good.

So can you can take back the september payroll number and put that one aside and IT doesn't really change anything anyway because whether it's a data, whether consumer behavior, terms of credit card and even consumer confidence and know we want to talk about that just a second. Um consumer confidence, all of its coming back, saying that consumers are looking at the economy the same way business leaders are. They don't want to hire consumers.

No, they don't want to hire. Maybe they don't want to lay off workers and fire them, but that doesn't mean they don't want to get rid of workers. As you mention amazon, there was a bunch of others to return to office policies. They are definitely trying to lower their headcounts, just not not triggers a mass wave of laos.

So when you put all the stuff together, that's what we keep coming back to power can claim the effect can claim and use all these different statements and avenues to say we're not that really concerned about the labor market, but it's not what they say or not what they write. It's what they do at the end of the day, they cut by two thousand five basis point anyway, and we know they're going to cut again in december at the very least because the reality is it's not like the september payer report that was the outlier and even the fed knows IT. Absolutely.

jeff, because we were talking about before the show, it's all about incomes in the other day, when incomes are rising, people spend, when people spend good, move off the shelf and when they the orders for new stuff get to the factories and the next no ceos get excited, the same look, there's a man, we're going to make new stuff, design new stuff because people want stuff.

But what's the issue here? When you look at average hourly earnings, particia production and not to provision level, the trend is down. You look at hours work for the same group, it's flat.

So we're not seen any sense here that there's a big turnaround for employees. Yes, of course, they're going to continue to get raises. And a lot of people to understand that, that, yes, people do get raises during recessions is very simple because when that happens because other people are getting fired.

And that's why you want to keep your best employees. You get rid of your worst employees. That's why you see productivity go up. These are all factors that we tend to see.

And the issue again IT comes back to, is there anything in the short term or from the election is going to sell workers? yes. Now your incomes are going to go up and it's going to go up enough where you're going to feel ahead of inflation.

I don't see IT. But yet when we look at the university of michigan systemic survey and all the sudden you're seen this mig surge and confidence. But in the end of the day, jeff, I doesn't matter how confident people are as we started to show up, are they going to plod their credit cards and spend? Because if they do, then yes, maybe we will see this mysore soft lani. But if they don't, there's nothing. This can change the trajectory where this economy is going.

Yeah, the biggest number that to me, the week to pair report came out, which is a week before last, the biggest estimates that the biggest economic account that was reported wasn't actually payroll nor is IT really jokes to me. IT was nominal incomes from the personal spending in in incomes statistics. Normal incomes have slowed way down into recession territory.

And that's what consumers are reacting to, at least that's what consumers reacted to and what they do. As you said, the university mission ing came out on friday and the headline number jumped to what was at seventy three, which was the high since April, which isn't all that impressive, at least it's moving in the right direction. But the expectation the expectation estimates sore to seven, eight and half, which was the highest sand twenty, twenty one, though to be fair and honest, that was just barely above where IT was earlier this year.

But still expectations went up. But the most interesting part of all of that was the current index or the the assessment by consumers of the current situation, which fell to sixty four point four. This is november, by the way, sixty four point four, down from sixty four point nine, which is very close to a record low and is still down in the same territory where spend sense march in April.

So what consumers are basically saying is we see a couple of things that maybe we're hoping go in the right direction. So our outlook is improved, but we don't see any of that in the current situation, which goes back to everything that we started out with your consumer credit card usage as well as nominal incomes that are falling. Consumers are hoping that something turns around incomes in the near term, hopefully, it's in the near term and at the long term, but they don't see that yet because the the signal indications all across the economy are still moving in the wrong direction. And there's like you just said, there really isn't anything to turn that around.

no. And when you kind of look at what I like to look at, jeff, is inflation adJusting or real retail cells, you go back over two years, they're negative. Now grand, they are slightly negative.

But if confidence is rising, which IT has been what we're not seen as a transmit into the real economy. So to me, this rise and confidence means nothing again until the plastic comes out and hits the course. The cash register when that happens, then i'll i'll be convinced or seeing internal that's just hustly.

But we're also we're also an agreement with jay power. The fatal reserve here is uncomfortable, that is. But that's I mean, final far is if the fed sees IT too, that really tells you everything you need to because they they are perpetually optimistic that they're absolutely wanted put the best possible face in the economy they possibly can, which they actually did in the written statements. But as I said, it's actions that speak louder than words.