Is the global consumer starting to capitulate?

On a year over year basis seeing very weak end of the year: pic.twitter.com/EqCD3MvsvI

— Bob Elliott (@BobEUnlimited) February 6, 2023

Not Just EU

Also seeing similar weakness in the UK for the second half of 22 and a worsening momentum in the late year. pic.twitter.com/1CctIETSqW

— Bob Elliott (@BobEUnlimited) February 6, 2023

What About Australia?

The consumer has been critical to making this expansion continue. The signs are that the drags from rising costs and negative real wage growth is starting to weigh on demand. There are limits to the amount of spending that can continue when savings is being drawn down.

— Bob Elliott (@BobEUnlimited) February 6, 2023

"There are limits to the amount of spending that can continue when savings is being drawn down."

A few months ago I penciled out the excess savings for the US consumer and it looked like summer 23 was when the consumer would start to run into issues. If these pce figures are accurate it looks like consumers may be moving faster than originally guessed. https://t.co/mTh5d2Mdlz

— Bob Elliott (@BobEUnlimited) February 6, 2023

"If these PCE figures are accurate, it looks like consumers may be moving faster than originally guessed."

Question and Answer of the Day

"If the consumer capitulates, what will drive growth?"

Nothing

Personal Spending Hits a Solid Brick Wall in December Despite Rise in Incomehttps://t.co/h3wvEpnOdd

— Mike "Mish" Shedlock (@MishGEA) February 6, 2023

Welcome to the Global Recession!

Welcome to the Global Recession!

December Was Another Retail Sales Disaster, Even Worse With Negative Revisionshttps://t.co/34NC2ptpHD

— Mike "Mish" Shedlock (@MishGEA) February 6, 2023

Bob Elliott and I have been in a running debate for a couple of months over jobs and a recession. 

I follow him because he always makes a strong case for his point of view: No Recession. 

Elliott is very data dependent, and cautious. This is the first I have seen him waver.

My "welcome" comment was not intended to be mocking, it's simply how I feel. 

To be fair, I was early again, but not as early as some. I did not bite on the two consecutive quarters of negative GDP to start the year, but I did pencil in a recession starting in May. 

In October, retail sales forced me to admit my error. But in December, industrial production and retail sales put me back in the recession camp. 

Let's go over the data.

Signs Say Industrial Production Has Peaked and so a Recession is Imminent

Recession lead times in months based on Fed data.

On January 18, 2023, I commented Signs Say Industrial Production Has Peaked and so a Recession is Imminent

Industrial production decreased 0.7 percent in December and 1.7 percent at an annual rate in the fourth quarter. 

Industrial Production Synopsis

• Industrial production peaked in October
• Manufacturing peaked in April with a double top in September
• Consumer durable goods peaked in April
• Manufacturing durable goods peaked in September
• Motor vehicles and parts peaked in October

Recession lead times vs industrial production tend to be very small, typically 1-2 month. 2001 and 2020 were notable exceptions.

Existing Home Sales Decline for the Eleventh Straight Month

Existing home sales from the National Association of Realtors via St. Louis Fed

It was nearly a clean sweep for existing home sales in 2022, down every month except January.

For details, please see Existing Home Sales Decline for the Eleventh Straight Month

December Was Another Retail Sales Disaster

Retail sales from commerce department, chart by Mish

Month-Over-Month Advances and Declines

• Food Service: -0.9 percent
• Food Stores: +0.0 percent
• Gas Stations: -4.6 Percent
• General Merchandise: -0.8 Percent
• Excluding Motor Vehicles and Gas: -0.7 Percent
• Excluding Motor Vehicles: -1.1 Percent
• Nonstore (Think Amazon): -1.1 Percent
• Motor Vehicles: -1.2 Percent
• Department Stores: -6.6 Percent

For further discussion, please see December Was Another Retail Sales Disaster, Even Worse With Negative Revisions

The BEA agreed with the advance numbers.

Personal Spending Hits a Solid Brick Wall in December Despite Rise in Income

Real Personal Consumption Expenditures from BEA, chart by Mish

On January 27, I noted Personal Spending Hits a Solid Brick Wall in December Despite Rise in Income

Brick Wall

• Consumers literally hit the brick wall then went into reverse in November and December.
• Real PCE fell 0.2 Percent in November and 0.3 percent in December.
• Real PCE Goods were negative 0.9 percent in both months.
• Real PCE Services rose 0.2 percent in November and was flat in December.

Data Consistent With Recession

Please see Alice Debates the Mad Hatter and the Red Queen on Timing the Recession

If for some reason you believe fourth-quarter GDP was robust, please see 4th Quarter 2022 GDP Is Much Weaker Than Headline Numbers, Recession Is Not Off.

Data is consistent with a recession starting in November or December.

When is the last time housing was down for a full year, industrial production down two months, real spending down two months and the economy was not in recession?

Factor in a decline in consumer spending in the EU, UK, and Australia and where are US exports headed? 

And with consumer spending falling off the cliff, how long will jobs stay strong? Strong enough to prevent a recession that history suggests has already started?

In Wonderland, jobs will save the day, assuming you believe the December Jobs data, but I don't.

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