The Bad News is Now Spreading to the Hard Data
The Fed has screwed up, ROYALLY.
The Fed hasn’t cut rates since December 2024. And it continues to ignore the major warning signs that the economy is on the brink of recession, if not already in one.
First and foremost, the soft data has been abysmal for weeks now.
The Survey of Consumers from the University of Michigan showed that consumer confidence has declined four months in a row. That same survey showed that the share of consumers expecting unemployment to rise this year had risen five months straight and was at its highest level since 2009 (after the Great Financial Crisis).
At the same time, a Redfin survey showed 24% of Americans scrapping plans to make a major purchase like a home or a car due to tariffs. The Philadelphia Fed survey showed new orders falling to their lowest point since 2020 (the lockdowns).
Economic surveys aren’t the only things warning of a slowdown.
As I noted in an article earlier this week, multiple companies have issued major warnings about the American consumer. Everyone from Chipotle to Southwest Airlines, to PepsiCo and even Walmart are noting that consumer spending has taken a BIG hit in the last month.
Walmart, in particular, noted that consumers are showing significant signs of stress due to money not lasting through the month. Again, this is WALMART we’re talking about. And their CEO is telling us the consumer is tapped out.
And finally, the bad news is starting to show up in the hard data. Weekly claims came in at 242K this week, on expectations of 220K. That 20K difference doesn’t sound like a huge deal, but as ZeroHedge notes, this brings total job cuts to over 602,000, which is the highest number since the pandemic.
Granted, this is just one week, but based on the soft data and CEO warnings, it seems highly probable that this uptick in weekly claims will prove to the first in a series of bad hard data points in the coming weeks.
Meanwhile, the Fed refuses to cut rates and continues to drain liquidity from the financial system via its Quantitative Tightening (QT) program. As I write this, the Fed has rates at 4.5% while inflation is well below 3%. Oh, and don’t forget, even if the Fed were to start easing now, it takes months before changes in monetary policy translate into actual changes in the economy.
Put simply, the economy is starting to crack but the Fed is ignoring this to play politics. We’ve seen how this plays out before in 1999, 2007, 2018, and again today.
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Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research