Economic Realities Unveiled: Navigating Separate Ways on the Narratives of a Soft Landing
Inflation, Bank earnings and Early Real Estate data
As we dive into the economic data of 2024, things haven't improved, perhaps prompting thoughts of Journey's "Separate Ways." The second week brings eye-opening revelations, painting a gloomier picture of an economy that seems to be going off course. The mainstream narrative, projecting a soft landing in 2024, is notably at odds with the stark realities of the economic landscape.
Inflation, an economic distress to all, casts an even darker shadow. The 2023 inflation report reveals a Consumer Price Index (CPI) at 3.4%, and a core index excluding food and energy at 3.9%, underscoring the vanishing purchasing power of the dollar. The cumulative decline since January 2021, a staggering -18%, forewarns of a grim future. Bleak estimates for 2024, projecting a 3% inflation rate, suggest a chilling 20% loss in purchasing power for Americans by year-end one of the fastest declines in purchasing power in any four year period in US History, plunging society into an even deeper abyss as the quality of life continues to deteriorate.
The economic tremors extend beyond inflation, penetrating the very fabric of livelihoods. Wages, ostensibly the bulwark against economic hardship, face an uphill battle. Not only must Americans offset the 20% decline since 2021, but they must also surpass this threshold in wages for any semblance of progress. The recent credit card report, a grim testament to the struggle, unveils a ballooning total credit card debt, breaching the $1.02 trillion mark up $300 billion since January 2021.
The nature of this debt is compounded by delinquencies soaring past the levels that are reminiscent of the 2008 Great Financial Crisis.
An upset populace, reflected in a Bankrate poll, resoundingly echoes a sentiment of recession, with a staggering 59% believing in the economic downturn. Journey's haunting lyrics echo in the minds of many – "Sleepless nights, losing ground" on the treacherous precipice of financial stability.
The affliction extends to the financial titans, as investors, anticipating a return to growth in earnings, find the reports and results going their separate ways. Banks, traditionally barometers of economic health, now find themselves grappling with unprecedented challenges. The recent disclosures from JP Morgan, Bank of America, Citi, and Wells Fargo unravel a disconcerting narrative of decline. JP Morgan's revelation of a shocking -15% drop in net income translates to a $3 billion profit decline year over year. Citi, the third-largest global bank, plunged into the abyss with a staggering $1.8 billion loss for the quarter, signaling 20,000 job cuts looming in 2024. Bank of America, once a bull of stability, echoes the prevailing despondency, reporting a jaw-dropping -56% crash in profits from $7.1 billion to $3.1 billion.
Even though we are only two weeks into the year, the Real Estate market is also diverging from the narrative of a soft landing. Early data suggests that new listings are up 9% year over year, with the four-week rolling average at its highest in over three years, while demand to buy homes crashes to a three-year low, marking a troubling -9% year over year decline. The narrative of a housing shortage is debunked by Economics 101 – when supply rises, even at depressed levels, if demand falls further, prices are compelled to drop in the future.
Some may question why more people are selling their houses in 2024 with interest rates around 7%, compared to 2021 when interest rates were lower at around 3.5%. The recent inflation and debt data reveal that Americans are growing desperate for cash, resorting to selling assets to meet their financial obligations. Housing delinquency, which is not at 2008 record highs like credit cards and autos, gets hit last when all options to try and raise cash fail. However, as time on the market extends, those sellers are on borrowed time.
The once-aligned paths of corporate profits and investor expectations have diverged into separate ways. Stock prices, seemingly immune to the grim economic reality, persist in their detached ascent, creating a surreal disconnect. As we traverse the bleak economic landscape, Journey's lyrics intensify – the divide between economic reality and Wall Street soft landing widens, casting a shadow over the collective journey into an uncertain future.