America’s Once And Former Energizer Bunny Of Consumption Spending: R.I.P.

And we’re there!

Lockdown Nation has now reached the 100-year flood stage.That is, the 11.2% month-over-month plunge in industrial production during April was the steepest drop since, well, 1919!



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In fact, it bested every other dark night of American economic history during the past century including the—

  • -4.4% decline during September 2008, the worst month of the Great Recession;
  • -6.8% drop during the April 1932 bottom of the Great Depression;
  • -7.4%  decline during FDR’s Great Depression 2.0 relapse of October 1937, when he proposed to tax the capitalist class out of existence;
  • -10.8%  drop during August 1945 when the great US war production machine came to a screeching halt

The above month-over-month chart attests to the depth, speed and unprecedented nature of the Covid Lockdown plunge, but of even greater salience is the absolute level of the index. After all, the latter tells how big a chunk has been blasted out of the $22 trillion US GDP by the Donald’s Doctor’s Plot to extinguish the Covid.

Needless to say, it’s a dump-truck sized hole when you measure it as lost years of production growth. As is evident in the chart below, total industrial production (black line) in April was at the level first crossed in April 1999, while manufacturing output (purple line) skidded all the way back to the May 1998 level.

A loss of 21 and 22 years of production growth, respectively, is bad enough in its own right, but the chart also reveals another even more deleterious aspect of Lockdown Nation.

To wit, by February 2020 the industrial economy had barely dug itself out from its Great Recession plunge notwithstanding more than 10-years of so-called recovery. This meant that the US economy was not even remotely the Greatest Economy Ever that the Donald was boasting about almost until the day he ordered the lockdown.

In fact, after a decade of recovery, total industrial production in February 2020 was just 3.8% higher than it had been at the pre-crisis peak way back in November 2007, while manufacturing output was still 2% lower than it had been nearly 13 years earlier.

When viewed in terms of capacity utilization, the full extent of the Lockdown blow to the industrial economy is even more dramatic. During April, capacity utilization in the manufacturing sector plummeted to just 61%, a place in the sub-basement of history where it had never gone before.

And speaking of the sub-basement, the auto assembly plants are surely there. During the month of April US plants assembled just 70,000 vehicles at a seasonally adjusted annual rate (SAAR) compared to a norm of 10-12 million.

Even during the dark winter of 2008-2009, when both GM and Chrysler were in chapter 11, production bottomed in the 5-7 million SAAR range.

Too be sure, as the Lockdown is steadily eased—even if at the languid pace advocated by Dr. Fauci and the Dem governors—the red line in this chart will rebound substantially. In the interim, however, the knock-on damage to the massive, long-tailed auto supply chain will be enormous.

Most of the smaller firms upstream of the auto assembly plants have been starved of cash flow and profits for years by the big car companies, and therefore have balance sheets badly depleted of cash reserves, borrowing room and staying capacity.

What that inherently means, therefore, is that a Virus Patrol-approved slow restart of the US economy will mean a fast dash of the auto supply base into the bankruptcy courts.

It goes without saying, of course, that when you leap into a new, risky course of action, it is good to know where you stand at the time of embarkation. The Delusional Donald thought he was at the asymptote of American economic history when he was actually perched on a house of cards.

Perhaps that’s why he foolishly signed up for Dr. Fauci’s 15 day social distancing gambit in mid-March, thinking it would be “one and done” and then the US economy would be back off to the races.

But, of course, it wasn’t one and done, and, instead, the Donald’s camarilla of economy-blind doctors triggered not only an unhinged assault on the main street economy by state and local officials, but also an outbreak of sheer Covid-Hysteria among large parts of the general public.

And the public hysteria part is exactly why the plunging economic indicators and the inherited rot in the foundation of the US economy are so alarming, and so inimical to the V-shaped snap-back that Wall Street is apparently still dreaming about.

That is to say, the internals of today’s disastrous industrial production numbers remind us that the limpid 1.8% per annum growth of overall real GDP during the recent 13-year peak-to-peak cycle was almost entirely due to growth in the social congregation precincts of the services economy.

We are referring here to bars, restaurants, hotels, retail, recreation, travel, vacation venues, sporting and entertainment events, gyms, Pilates studios and countless like and similar activities. That is, to the places where major segments of the public will now fear to go for months to come, even if they are no longer subject to fines and arrest by the local gendarmes.

And, of course, when talking about social congregation up close and personal, the health and education sectors stand at the very epicenter.

You do not need to spend a lifetime on farms, factories, warehouses, energy production sites etc, like we have, to recognize that the Covid-Hysteria will prove to be far more damaging to the return of activity in the services sector than the industrial economy, even if the the Donald’s doctors and the Dem governors and mayors eventually get their boot heel off the neck of the main street economy.

Moreover, on the margin the spending wherewithal for output growth in these social congregation sectors came from supplemental sources to wages that are also likely to get monkey-hammered by the Covid Lockdowns and public Hysteria. These include:

  • incremental consumer borrowing;
  • government spending and transfer payment growth; and
  • service sector bootstrapping in which the wages of service sector workers were being recycled back into spending in these same venues.

So that’s why today’s 16.4% month-over-month plunge in retail spending during April is especially salient. While household consumption has been the alleged Energizer Bunny of what mediocre growth we have actually had since Q4 2007, it is going to be a long, slow struggle to regain even the pre-Covid status quo ante on the consumer spending front.

That because the headwinds are formidable, including—

  • Punk wages owing to the effective 25% unemployment rate now in place;
  • Weak or even negative debt extensions owing to soaring delinquencies;
  • No further boost from government transfer payments, which are already at full throttle (via the Everything Bailout);
  • Negative social congregation sector boot-strapping since furloughed bartenders, sales clerks, Yoga instructors, college staff and nurses will spend even less than before.

As to retail sales per se, the chart below leaves little doubt as to the present state of economic terra incognito. The month-over-month plunge in April was actually 4.3X deeper than the 3.8% drop in November 2008—the worst month during the Great Recession and until then the largest drop in nominal retail sales recorded during the past 70 years.

Again, the month-over-month data reflect the speed and depth of the retail sales drop, but do not capture fully the absolute hole resulting from the nationwide quarantine orders, and the knock-on effects that are still hurtling down the pipeline.

Obviously, the shopping malls were in a world of hurt even before the Covid-Quarantine of shoppers, and that’s especially salient because the malls and the department and specialty chains which are domiciled in them amount to debt central in today’s leverage ravaged economy.

The REIT sector, which is heavily concentrated in shopping malls, alone carries $525 billion of debt, while the major retail chains are lugging another $100 billion or so.

That’s why the stunning 45% plunge in department store sales between February and April surely constitutes the coup d’  grace for the mountains of debt that have been piled on the retail/mail sector since it began its long decline at the turn of the century. Already they are lining up at the courthouse door like never before.

Indeed, the fact that department store sales of $6.1 billion in April 2020 represented a 58% drop from the $14.5 billion level posted way back in April 1992 tells you all you need to know. The economic impact of Lockdown Nation is not merely some kind of economic spring break dip that will quickly rebound in the months ahead.

Actually, Dr. Fauci’s insane national quarantine will prove to be much like the coronavirus itself. That is, it will strike hard at the weak and morbidly debt-riddled sectors of the US economy, causing losses and fatalities that have not even begun to be reported or tallied.

At one point in late March, the Donald seemed to have a glimmer of the mayhem his doctors had unleashed. Said the stable genius who mainly operates a Twitter machine from the Oval Office,

 “Our country wasn’t built to be shut down”

He got that right. And the April sales numbers for the nation’s restaurants and bars could not be more dispositive.

Back in February, the nation’s eating and drinking places had rung-up $65.3 billion of sales. Barely 40 days into the Doctors Plot and they recorded just $32.4 billion in April.

Folks, if you want to talk about the folly of a presumed on/off switch, you have it right here in this instantaneous 50% collapse in the restaurant and bar sector. And we put heavy duty emphasis on the the word FOLLY.

The restaurant and bar sector should have never been shut-down in the first place because 90% of its patrons are 65 or under, and the median age of customers is well under 50. Yet by the CDC’s own expansive death count, Covid-19 is not a serious mortal threat to this huge segment (171 million) of the population. To wit:

  • The bar-hopping 25-34 year-old cohort had a WITH Covid mortality rate of 1 per 100,000 as of May 2;
  • The core demographic of restaurant goers aged 35-54 had a WITH Covid mortality rate of just 5 per 100,000; and
  • Even the 55-64 cohort of more restaurant than bar goers had a mortality rate of just 18.5 per 100,000.

Here’s the thing. If you dismiss the spurious epidemiological theory that you can quarantine huge segments of the population weeks after the virus was already in wide circulation, which was absolutely the case with the late March lockdowns, then the only point of closing the bars and restaurants to the devastating impact shown below is simply a Nanny State presumption that the 171 million Americans in the above demographic cohorts are too stupid to get out of their own way.

We beg to differ. During the same February 1 to May 2 span as per the above results, the mortality rate for reasons other than Covid among the bar-hoppers demographic (25-34 years) was 31 per 100,000.

That is, the normal risk of death is 31 times greater than for Covid, and it is something that young people have successfully coped with from time immemorial. And with no help whatsoever from Dr Fauci and the Virus Patrol.

Likewise, there were 57,433 non-Covid deaths among the 83 million restaurant goers in the 35-54 age bracket during that three month period, which translates to a 69 per 100,000 mortality rate, or 14X the WITH Covid figure.

Again, we are talking Nanny State intervention—especially since upwards of 75% of the 5 per 100,000 WITH Covid deaths in this category were among people who already had life-threatening heart, lung and other morbidities. That is, people who should have stayed away for the protection of their own health.

Even when you look at the  42 million strong 55-64 age demographic during that period, you had just under 8,000 WITH Covid deaths and 90,000 deaths from other causes, but mostly congenital medical conditions.

Indeed, this central chart from today’s disastrous retail sales report actually cuts to the chase.The Donald has allowed his doctors to install a runaway Nanny State, and the economic consequences are nothing less than a crime scene.

That’s especially because there are literally millions of small businesses and self-employed contractors in this sector, who are literally going to be wiped out when the $650 billion of so-called PPP money runs out in the days ahead.

Meanwhile, the question recurs as to what happens when our not rich Uncle Sam finally runs out of money or even will-power to continue burying the nation in unspeakable debts.

We would suggest that the Poster Person for the Hand-to-Mouth Economy that now stands squarely in harm’s way is one Teri Carter Beahm, who was described as a private-events bartender by the recent WSJ feature on America’s imperiled debtors.

As such, she is obviously out of work, but apparently has a fallback profession according to the WSJ:

These days, Ms. Beahm spends much of her time on the phone with creditors. She was able to keep up with her roughly $1,600 a month in minimum payments on 10 credit cards, a car lease and three personal loans until the pandemic put a stop to the weddings and private parties she worked.

We will not ask what in the world an itinerant bartender is doing with ten credit cards, three loans and a car payment because we already know from years of bubblevision instruction.

To wit, Teri was the “strong” Energizer Bunny of consumption spending, who allegedly kept the US economy hopping and the stock market rising to ever higher levels.


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