People get nervous

May 25-31, 2024

Big news is a sharp drop in GDP estimates to 1.3% QoQ growth (Q1 24 relative to Q4 2023) compared to 1.6% according to expert estimates. At the same time, the main drop occurred due to a decrease in consumer demand (which forms about 70% of GDP).

It is important to note that this entire picture was formed with clearly underestimated inflation. Therefore, in reality the picture looks much worse (the US economy has been in decline since the beginning of autumn 2021). But the main thing here is that all other parameters, in general, did not change in relation to the experts’ assessment. But consumption is really bad.

This is unacceptable in an election year. That is why the US monetary authorities have begun to ease monetary policy (reducing the sale of securities from their balance sheet), although the rate has not yet been touched. But many are already starting to think about this topic, see the third section of the previous review: https://fondmx.pro/en/weekly-wrap/gold-above-all/ .

And at the end of this section, we will add that, as will be seen below, we are not talking about an unexpected deviation from the normal development of the situation, but about a global trend.

Macroeconomics. Industrial production in Japan -1.0% per year, the 6th negative in a row and the 9th in the last 10 months:

Industrial sales in Italy -5.1% per year, the 12th minus in a row and the worst dynamics in 3.5 years:

China’s manufacturing PMI (an expert index of industry conditions; its value below 50 means stagnation and decline) (official version) returned to the recession zone (49.5) after a 2-month respite:

The Chicago Reserve Bank area PMI shows depression (35.4) and is at its lowest since 2009 (not counting Covid):

The index of industrial activity in the Texas Fed zone has been in the red for 25 months in a row; it was worse only in 2007/09 (27 months):

The service sector index of the same region has already repeated the anti-record of 2007/09 (24 months in a row in the red):

The US merchandise trade deficit is at its highest in 2 years:

Construction work in Australia -2.9% quarterly, the worst dynamics in 5 years:

And building permits in Australia have fallen to 2009/12 levels:

Pending sales of secondary housing in the US -7.7% per month.Not counting Covid, this is the weakest indicator in 14 years:

Housing prices in the USA from Case Shiller +1.6% per month, annual maximum:

Business expectations for growth in selling prices in the eurozone are the highest in more than a year:

Loans to households in the eurozone +0.2% per annum, 9-year minimum:

Consumer credit in Britain is minimal for 2.5 years:

Consumers in Japan are the most pessimistic in six months: 

Household spending in France -0.8% per month, the worst figure in 1.5 years:

Retail in Germany -0.6% per year, the 24th minus (or zero) in a row. Anti-record for the entire 30-year history of statistics:

In other words, the negative situation with consumer activity in the United States is not accidental, it is a general trend!

The Central Bank of South Africa left its monetary policy unchanged.

Main conclusions. The structural decline of the global economy continues. For political reasons, great efforts are being made to show that the crisis either does not exist, or is already ending (formally, they explain everywhere that “there is no recession yet”).

It makes no sense to comment on this disgrace from an economic point of view; that is, there are various polit-oaf-gists and in-flea-nsers whose responsibility for their words is close to zero. We will add additional analysis by Pavel Ryabov on corporate reporting in the USA.

“Is there progress in the growth of corporate profits of American companies? Net profit increased to $2.75 trillion for the year as of 1Q24 – at the level of a historical maximum at par.

This data from the BEA combines the earnings of ALL U.S. companies, including small and midsize businesses, generated entirely within the United States, so the statistic is different from the corporate earnings of the S&P 500, which only includes large companies, including earnings in global markets.

Over the year, nominal profit grew by 6.6%, over two years the increase was 10.3%, and compared to 4Q19 the increase was 25.2%, which is lower than S&P 500 companies – about 40% from 2019.

If we evaluate the average quarterly rate, from 2019 to 1Q24 the profit growth is estimated at 1.33% on average per quarter, and from 2010 to 2019 inclusive – 1.09%.

Taking into account inflation, everything is completely different, because… 2021-2023 there were very high rates of price growth in the USA. For the year, profit grew by 3.9%, over two years it grew by 2.2% and only 5.4% from 4Q19 in real terms.

The long-term profit growth rate (2010-2019), taking into account inflation, was 0.68% on average per quarter, and since 2019 only 0.31%, i.e. more than twice as low, while at face value it is 1.22 times higher – this is the destructive power of inflation, and how radically the situation is changing.

From 2021, profits have stagnated in real terms, albeit on a high base. There is no success story at the macro level now, all the results were achieved in 2020-2021 and that’s all, they are blown away.

The net business margin is at the level of 11.9% vs 11.7% on average from 2010 to 2019, and the maximum was in 3Q20 (13.7%), when the acceleration of revenue was faster than the growth rate of costs, but since 2021, rising costs and interest expenses are eating up the margin.

The average effective tax rate rose to 18.8% – the highest since 2015, and the minimum was 12.3% in 2018-2019 amid Trump’s tax reforms, but this is much lower than the 25-26% in 2006-2007 and the average 26.6% in 1995-2000 , not to mention 34% in the 70s.

Even with the current tax rate, companies save up to 300 billion in profits per year – everything is used to buyback and support the bubble in the market.”

Let’s also remember the index of business activity in the industrial sector of the Dallas Reserve Bank’s area of responsibility, which amounted to -19.4 in March.

Theoretically, one can find many more indicators demonstrating the development of a structural crisis, but we have already described the general picture in detail. So we wish our readers a good rest on the weekend and not to overwork themselves during the work week, especially since vacation is just around the corner.