Warning Signs For The US Economy

The sluggish, but consistent, recovery in the US economy has officially been going on for nearly eight full years. That is an unusually long time to sustain a normal economic expansion but may not be that unusual when recovering from a near depression and a financial crisis. But there are some worrying signs out there that this expansion may have finally begun to run its course.

Last month's unemployment report was particularly underwhelming with only 98,000 new jobs created, far below the consensus number of 178,000 and not even enough to keep up with population growth. In addition, the prior two months were revised down by a combined 38,000 jobs. However, the unemployment rate did drop to 4.5% and the all-important 25-54 year old employment population ration continued to rise, although the participation rate for the group remained constant. Average hourly income increased by 5 cents and now stands at a year-over-year rate of 2.7%, slightly above the current inflation numbers of around 2%, depending on which CPI you want to use. So, all in all, it was a decent report but the headline jobs number is worrying, especially if that continues to disappoint for the next couple of months.

But, as Kevin Drum points in this nice graph below, new job creation actually peaked in July of 2014 and has been on a slow, but steady, decline ever since.

Despite the Fed's desire to raise interest rates, inflation continues to be incredibly weak. Although it has bumped up slightly to have some indicators finally reach their 2% target, the important core PCE (personal consumption expenditures prices excluding food and energy) remains well below target at just 1.75%. Again, this is hardly the sign of a booming economy, much as the Fed may want it so.

The retail sales numbers for March were also disappointing, dropping by 0.2% for the month. In addition, the numbers for January and February were revised down by 0.4% combined. That means that retail sales have declined for the first three months of this year. What's more worrying is the alarming number of retail outlets that have begun to close. Bloomberg reports that if the pace of retail store closures continues at its present pace, 2017 could be even worse than 2008, when the worst effects of the Great Recession were being felt. That year, over 6,200 retail outlets closed while this year is on pace for over 8,500 closings. These closing, of course, ripple through the employment sector as already nearly 90,000 retail jobs have been lost since October and February and March showed the greatest two-month job loss in the sector since 2009.

The loss of retail jobs is directly related to automation and the increasing use of e-commerce. For many communities already decimated by the loss of manufacturing jobs, the retail sector was a steady source of employment. If those jobs continue to disappear, we will only see the despair in these communities continue to rise. There is certainly no indication that the Trump administration, despite its wonderful campaign promises, has any idea how to deal with this problem or that they are even focused on it.

Lastly, those disappointing retail sales numbers have flowed into the revised GDP numbers for this year. The New York Fed is now anticipating GDP for the first quarter of the year to be 2.6% and 2.1% for the second. This is a total downward revision of 0.7%, a significant reduction. However, the headline numbers are still not bad.

There is nothing in these numbers right now that you can point to and say we are headed for a downturn or even a recession in the near future. But the weakness in new employment and especially retail sales and the attendant store closures should be cause for some concern. If this weakness continues for another two or three months, that would truly be a serious warning sign.