Sunday, May 15, 2016

US IS HEADING FOR RECESSION NUMBERS SPEAKS DIFFERENT STORY

The US economy is not completely out of the ICU and its seems that very soon another recession will follow as the level of taking steroids of survival have exceeded. The point of discussion is that US economy has never learnt to get growth without borrowing. We ignored the alerts before also and now we are repeating the same. 2006 US Housing market was booming and during the same time signs of mortgage bubble was evident but media and diplomats ignored and we all paid the price in 2008.  History is repeating and this time also we are deaf. Employment growth has happened but how its quite difficult to figure out. One way is to find out the pattern of the data related to food stamps and other Medicaid facilities. Media sources are back again to create immense growth optimism but I beg to differ with the same as I can find recession is in the wings and that’s too post election of US.  Crude and Commodity have killed major industries and the ancillary industries too. Reserve capital is getting depleted and the country is getting in high levels of insolvency.  The U.S. essentially owes its lenders a staggering $13.9 trillion, or “$42,998.12 for every man, woman, and child.

 The debt levels are not coming down and corporate profits have taken a toll followed with share holders buy back strategy of share price hike has also come down. The press and financial projections have been quite strong fake as the real numbers post something very awkward for these projectors.  Reuters’ headline proclaimed that , “U.S. retail sales rise strongly, boost economic outlook”: where as the  Retail sales of $450.89 billion in April were down 2% from $460.1 billion in March.  It has become a fold paradise where everyone is looking for growth of the macro drivers but they are forgetting that these tricks have been played a decade earlier also.

 Predication and analysis of the economic growth are more important rather than just finding green shoots of growth. For example it’s a decade now that US housing market was in the Golden era of growth and during the same time every economist informed that US housing mortgage bubble will burst which was ignored by the politicians and by the world economy. We never dreamt of Lehman brothers getting sold. We witnessed that too. Now for example since July 2010 motor vehicle sales reported in the monthly retail sales data have risen at a $354 billion annualized rate. Now this is growth shoot for the economy but quickly looking into auto loans outstanding which have increased from $699 billion to $1.052 trillion.

The debt levels of the US economy in all segments are just simply growing. Recession will come back again as these mortgages will come for haunting for repayments and that’s where the income levels are low. From Credit cards, to mortgage loans, student loans all of them have only surged. The below chart depicts the story of the debt.



 Wage growth have been slower and job creation will take a halt as most of the share holders wealth creation have been buy back of shares which has stopped now. Just over 2 million supervised manufacturing workers, or about a third of the total, need food stamps, Medicaid, tax credits for the poor or other forms of publicly subsided assistance. Over here also government has tried to deploy the tax payers money. From 2009 to 2013, federal and state governments subsidized the low manufacturing wages paid by the private sector to the tune of $10.2 million per year. Here's a list of the top 10 states based on the share of their manufacturing employees that need food stamps because their wages don't fully cover the cost of household nutrition. Food stamps and Medicaid/CHIP dependence are particularly important to track because they are direct subsidies for immediate living and healthcare needs for adults and children while the refundable tax credit is disbursed annually, based on money taken from paychecks throughout the year. 

In between if you measure the average of retirement we find a country like India situation where people beyond 70. In US workers aged 50 and older are planning to retire a little later in life, at a median age of 67, according to the survey of the Transamerica Center for Retirement Studies' survey. Age of working has extended since shift in Social Security benefits to a later retirement age, and with the demise of traditional pensions (meaning the average American has to do more personal saving for retirement, something we as a country are well behind in), it makes sense that people would be waiting longer to retire. This is the key reason why the macro growth numbers should not be taken positively and cross verification and trend analysis with logics needs to be implemented. One this is clear that US did not learn to spend without borrowing. Consumption will pick up & citizens are clear that bailout will soon follow to save them.

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