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Labor Data Suggests Economic Slowdown Despite Headline Numbers.
IMF Lowers Global Growth Rate Projections
Here is what we will be getting into today:
Is the Labor Market Red Hot?.
IMF Warns Of Hard Landing.
The Credit Crunch Is Here.
The Significance of Sound Money is Increasing.
Let's Dive In!
Labor Market Data Points to Economic Slowdown
The latest labor market data shows a substantial slowdown in the economy, with private payrolls at their lowest since December 2020. The household survey, which had previously suggested a weakening trend in payrolls, saw an unexpected increase of 1.8 million full-time jobs in just two months. However, this outlier is not corroborated by any other labor data, including the hours worked, which has decreased for the fourth time out of the last five months.
Companies are cutting back on hours and laying off workers, with continued claims rising steadily since last fall. The Department of Labor has revised its seasonal adjustments for jobless claims, which have been flat this year despite company announcements of layoffs. The government agency now admits that the labor market is slowing materially. Challenger job cuts spiked up to the highest level in years, with March seeing an increase of 89,703. While the household survey remains an outlier, all other data points to a serious labor market slowdown, which is consistent with the broader narrative of an economy moving in the expected direction.
The latest jobless claims data suggests that the labor market is on the cusp of a major shift, with companies likely to start making hard decisions about layoffs. Shrinking global trade numbers are also indicating a contraction in demand, leading to employers not needing as many employees. Central banks in India and Australia have paused rate hikes due to concerns about the global economy and banking difficulties in the US and Switzerland. The Fed, however, is expected to continue with rate hikes despite market expectations of three rate cuts this year. The jobless claims number is seen as the key indicator to watch going forward.
IMF Warns of Potential Global Economic Hard Landing
The International Monetary Fund (IMF) has warned of a potential hard landing for the global economy if persistently high inflation keeps interest rates elevated and amplifies financial risks. The IMF's latest World Economic Outlook, published on Tuesday, left its overall economic forecasts largely unchanged from January but highlighted that lower global energy and food prices masked a darker reality. The IMF's new forecasts showed a 25% chance that the annual global growth rate could fall below 2% in 2023, a risk twice as large as normal. The global economy has only grown that slowly in five calendar years since 1970.
The IMF called on central banks to keep working to bring inflation down and for governments to help by removing some of the fiscal support offered in recent years to deal with Covid-19 and the energy crisis. The IMF warned that risks to the outlook are heavily skewed to the downside, with the chances of a hard landing having risen sharply. Gourinchas warned that price pressures could continue to prove more persistent, which would result in a harder landing scenario. However, a credit crunch, which some economists are predicting in the wake of last month's US banking turmoil, could act as a disinflationary force.
The US economic forecast has been raised versus the January forecast, and the fund is now expecting growth of 1.6% in 2023 and 1.1% in 2024. The eurozone is expected to grow more slowly at 0.8% this year as member states deal with last year's energy price increases before recovering to a 1.4% rate in 2024. China's forecast growth rate of 5.2% in 2023 from the IMF is in line with the Beijing government's target, although the fund expects it to slow to 4.5% in 2024.
Gourincha’s told the Financial Times that the fund was projecting supercharged growth in China with other countries reverting to a more normal rate. The IMF also assumes that global productivity will deteriorate while economies will suffer from coronavirus pandemic scarring and fragmentation amid geopolitical tensions. Janet Yellen, the US Treasury secretary, was more upbeat about the outlook, seeking to ease fears of a hard landing. She said she had not seen evidence at this stage suggesting a contraction in credit after the banking sector turmoil and noted the US economy was still performing exceptionally well, with continued solid job creation, inflation gradually moving down, and robust consumer spending.
The Credit Crunch Hits the Crash Phase: Small Business Loans Collapse
The credit crunch has entered the crash phase, with a record $105 billion in commercial bank loans and leases being sold, discharged, or transferred from bank balance sheets in the last two weeks of April. Small bank real estate loans have been hit the hardest, indicating that the commercial real estate collapse is starting to impact bank solvency.
The next key question is whether this credit plunge is due to falling demand or supply. While hiring plans have fallen to their lowest level since May 2020, strong consumer spending has kept Main Street alive and supported strong labor demand. However, small US businesses are finding it increasingly difficult to obtain loans, with a net 9% of owners who borrowed frequently saying financing was harder to get compared to three months earlier, the most since December 2012.
Adding insult to injury, some 26% of owners who borrow said they paid a higher interest rate in March compared to three months earlier, the biggest interest gap since 2006. Despite this, credit ranks well below inflation and quality of labor as the single biggest problem for small businesses. The politically-charged National Bureau Of Economic Research may not admit it yet, but for all intents and purposes, the credit crunch is here, and so is the recession.
The Emergence of Sound Money
The US economy faces potential upheaval due to the Federal Reserve's role in backstopping and potentially printing up to $18 trillion to bail out select banks. This has led to a surge in gold sales and a run on regional banks. Geopolitical implications include the rise of de-dollarization and the BRICS nations, as well as the weaponization of the US dollar.
A new global economic system based on commodities and transparency is emerging, with countries like China and Russia stockpiling gold and other commodities to break free from Western hegemony. The suppression of gold and silver prices by Western governments has made it difficult for these countries to accumulate these commodities at fair market prices, but many experts believe that this suppression will eventually fail. Blockchain technology could be used to ensure transparency and trust in this new system. Sound money is becoming more important, with investments in precious metals as a hedge against inflation and currency devaluation on the rise.
For more in depth analysis of these topics, check out these articles:
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