Exactly What We Would Expect If A Recession Was Beginning – Sales Are Down Throughout The Economy

By Michael Snyder

All of the things that we would expect to see at the start of a major economic downturn are happening.  Retail sales are falling, auto sales have been way down, and the housing market is starting to crash like it did in 2008.  But unlike the last recession, we are also dealing with a raging inflation crisis, and this is one of the main reasons why real disposable income declined at the fastest rate that we have seen since the Great Depression last year.  At this point, close to two-thirds of the entire country is living paycheck to paycheck, and more than half the country cannot even afford to pay an unexpected $1,000 emergency expense.  We are in very dangerous territory, because most U.S. consumers are tapped out.

If we really are in the early chapters of a new recession, we would expect to see sales dropping throughout the economy, and that is precisely what is happening right now…

Retail purchases have fallen in three of the past four months. Spending on services, including rent, haircuts and the bulk of bills, was flat in December, after adjusting for inflation, the worst monthly reading in nearly a year. Sales of existing homes in the U.S. fell last year to their lowest level since 2014 as mortgage rates rose. The auto industry posted its worst sales year in more than a decade.

Everyone can see what is taking place. The economy is really slowing down and there are very dark clouds on the horizon.

The Wall Street Journal recently asked a group of “business and academic economists” if a recession was coming within the next 12 months, and 61 percent of them said yes…

Consumer spending accounts for roughly 70% of the economy. A downshifting consumer is a key reason that business and academic economists polled by The Wall Street Journal, on average, put the probability of a recession in the next 12 months at 61%.

Of course we won’t know whether or not we are officially in a recession at this moment until several months from now.

But all the signs indicate that economic conditions have already deteriorated quite significantly.

For example, demand for cardboard boxes declined “sharply” during the fourth quarter…

Demand and output for cardboard boxes and other packaging material fell sharply in the fourth quarter of 2022, according to data released by the American Forest & Paper Association and Fibre Box Association on Friday.

It’s the latest indicator that consumer demand is eroding following the pandemic. Dwindling savings, inflation, rising interest rates and fears of a recession may all be swaying consumers to spend less.

To me, this is one of the clearest indicators of what is really going on in our economy.

When there is lots of economic activity, there is lots of demand for cardboard boxes.

And when economic activity drops off, so does demand for cardboard boxes.

So it should deeply alarm all of us that we just witnessed “the most severe quarterly decline since the Great Financial Crisis”…

U.S. box shipments fell by 8.4% in the fourth quarter, according to the Fibre Box Association. KeyBanc’s Adam Josephson, who leads the bank’s analysis of the packaging industry, wrote in a Sunday note that this was “the most severe quarterly decline since the Great Financial Crisis (2Q09).”

U.S. box operating rates fell to 80.9%, the Fibre Box Association said, which was also a low last seen in the first quarter of 2009. This means nearly 20% of the U.S. capacity to produce boxes was stagnant last quarter. Supply of containerboard, which is used to make corrugated boxes, stood at 4.3 weeks, according to the American Forest & Paper Association. That’s down from last quarter, but still historically high.

Another thing that happens when a recession strikes is that a lot of people get laid off.

In recent articles I have been providing lots and lots of examples of this, and today I have a couple of new ones that are quite interesting.

During booming economic times, shipping companies tend to bring on lots of extra workers, but when things get bad they start letting people go.

And so it should deeply alarm all of us that FedEx has decided to give the axe to “more than 10% of its global management staffers”…

FedEx Corp. is laying off more than 10% of its global management staffers as the delivery company faces a shipping slowdown.

In an email to staff Wednesday, Chief Executive Raj Subramaniam said the company was reducing the size of its officer and director ranks and consolidating some teams and functions. The company declined to say how many jobs were being eliminated.

To me, the fact that Paypal has just announced that it will be laying off “approximately seven percent of its workforce” is even more troubling…

Engadget reports that the leading online payment provider, PayPal, recently announced that it will lay off about 2,000 employees, or approximately seven percent of its workforce. The layoffs are anticipated to take place over the coming weeks and will have varying effects on different segments of the business. The company says the layoffs are in response to a difficult macroeconomic environment that has prompted similar responses from other technology giants like Google and Microsoft.

If even our largest and wealthiest tech companies are laying off workers now, are any jobs in the private sector truly safe?

Many that work in the private sector are deeply concerned that they might be next, because thanks to the rising cost of living their savings are almost totally gone.  For instance, consider the plight of 32-year-old Minnesota resident Benjamin DeLong…

Recent layoff trends worry Benjamin DeLong, a 32-year-old customer-account manager at an industrial manufacturer in southern Minnesota. His savings rose to $3,700 during the pandemic, thanks in part to government stimulus. He is now down to about 3 cents.

Mr. DeLong said he had to dip into his savings to cover the rising costs of his groceries, utilities and car insurance. He has found some relief in his grocery bills since he and his partner decided last year to purchase some pigs, jointly with other families, to be raised on a relative’s farm. Their portion of meat yielded nearly 150 pounds, saving them about $500 on groceries, Mr. DeLong estimated.

This is what life is like now in much of the country.

Millions upon millions of hard working Americans are living on the edge.

Now a very serious economic downturn has begun, and things aren’t going to get any easier in the long run.

It appears that 2023 is going to be such a tough year for the U.S. economy.

Hopefully you were able to build up a sizable emergency fund while times were relatively stable.

Unfortunately, most Americans did not, and so they find themselves completely unprepared for what is ahead of us.

Article posted with permission from Michael Snyder