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If your area is anything like mine, a large number of stores and small businesses have closed in recent months. Generally, there is a lag or delay before the full negative effect of businesses closing is felt. Mass layoffs, and dropping retail sales are a glaring sign that the possibility of a recession is on the rise. Yes, we must add flagging retail sales to the growing list of signs of economic problems ahead.

The bailout of the auto industry following the 2008 financial crisis was based on the fact we simply had the ability and were producing too many vehicles. It was a thinning of the herd. Sadly, we are again in that situation. The oversupply of new trucks and cars has not brought down prices but instead created auto companies that face falling profits and a difficult future.

This situation of oversupply is not limited to the auto industry. After the sun had set on Sunday, as I drove the two miles from my office to home, I saw two Amazon trucks doing deliveries. This is problematic for local brick-and-mortar businesses, especially retailers. Much of this appears to be from a fundamental shift propelled forward from people being forced to stay home during Covid. This coupled with the internet has altered the retail landscape. 

It does not help that stores forced to put many products behind locked glass to halt shoplifting has made shopping a distasteful experience. Many people decided a semi-covid lifestyle is preferable to going to and working in an office or leaving home. It is difficult to say how much this has hurt productivity but many business owners will tell you, it is a lot. Covid was a discipline killer resulting in many people losing the discipline to work without a supervisor looking over their shoulder.

Also, there is the issue of government office space cutbacks from the work DOGE is doing to reduce wasted spending. Coupled with the work-from-home movement this is also impacting communities. This does not bode well for landlords dependent on keeping space leased in order to pay their mortgages. Yes, we want to cut government spending but it is a double-edged sword in that it will impact economic growth in the short term. Sadly, that short term may last far longer than many people think. 

The Trump administration has published a list of more than 400 federal properties that could be closed or sold, including the FBI headquarters and the main Department of Education. The Department of Government Efficiency (DOGE) has also terminated leases for more than 2.3 million square feet of office space, contributing to an estimated $60 billion in savings.

The ripple effect that empty buildings have on communities tend to come across as a cancer or long term economic rot. Supply and demand for space in an area determines rental rates and when rates drop to low, facilitate and building maintenance often take it on the chin. With this in mind, prepare for Retail Apocalypse Part II. While this could be considered a continuation of a trend that started years ago the number of closures about to occur will take things to a whole new level.

While inflation may be dropping quickly, other concerning trends, including mass layoffs, have developed. QI Research founder Danielle DiMartino Booth has been calling attention to these often underreported recession signals. She highlights rising store closures and job losses saying, “There is no greater drag on inflation than job loss.” Her concerns about a recession have been rising daily as auto loan delinquencies soar. Booth points out the number of major employers laying off workers now includes Chevron, BlackRock, Boeing, Southwest Airlines, Hewlett-Packard, Kohl’s, Meta, and Starbucks. 

If consumer prices take a minor fall due to slake demand, do not expect it to help most businesses. Instead, such weakness tends to squeeze margins. Fundamentally businesses face a difficult road ahead and will not see much or any drop in overall operational costs. The removal of costly regulations coupled with gains in productivity remains their main hope. Only time will tell how large the toll of a slowing economy will be but the potential for a lot of pain does exist. 

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