The ‘R Word’ Is Here and Now
Just came back from a fascinating weekend roundtable for business owners, where we train and break bread with real people facing real challenges due to the real economy. These people aren’t statistics. They aren’t categorized or sliced and diced into compartments that make up an axis on some government chart. The employees they have laid off don’t consider themselves as U3, U6, or U12. They are real people with real families and real bills.
It is not news that many sophisticated business owners consider the ‘recovery’ weak, at best, and most likely in recession. While the equity markets bounce around like a beach ball in the stands of a sporting event, the real fundamentals are causing pause for even the most bullish among us. Now Bloomberg Business reports recession is already here in several states.
The U.S. States Where Recession Is Already a Reality
As economists size up the chances of the first nationwide slump since 2009, pockets of the country are already contracting. Four states — Alaska, North Dakota, West Virginia and Wyoming — are in a recession, and three others are at risk of prolonged declines, according to indexes of state economic performance tracked by Moody’s Analytics.
Bloomberg refers to Louisiana, New Mexico and Oklahoma as also at risk of recession, according to Moody’s. In addition, the strengthened dollar has caused manufacturing states to contract:
A second blow to regional economies is the dollar’s surge – which is weighing on U.S. producers that compete globally. Illinois, Wisconsin, Louisiana and Mississippi –manufacturing states hurt by the currency’s march higher — have all had economic declines in the past few months.
Growth in Texas has slowed with falling oil prices, though the state continues to expand because of a diversified economy including technology jobs in Austin and development in Dallas.
While energy prices are the primary causation, consumer spending is, and what continues to support the economy from entirely falling into recession, for now. Economists refer to falling energy prices as a boon for consumers, but cannot understand why this has not resulted in the expected increase in consumer spending.
Recent reports show a small increase year over year (3.1%), yet the increase is primarily seen in people trading in cars for new, lower priced leasing deals.
Barry Ritholtz(follow him!) suggests there are three reasons we can point to: “falling gas prices, the aging of America’s auto fleet and credit availability”. Remember, BLS counts car leasing in its Consumer Pricing Index. While this looks good on paper, it is further proof people are cutting costs not spending more, and in fact increasing their debt service in an effort to lower monthly costs.
While lower gas prices are great in a vacuum, it has no effect when all other costs are going up. Our weekend group all pointed to increased costs and regulations of small business, most pointedly health care, which takes a bite out of the already shrinking margins of companies, not to mention the increased premiums and deductibles that take a further bite out of the family budget.
A recent report from McKinsey & Company found premiums for the lowest-cost Obamacare plans across all tiers (bronze, silver, gold and platinum) increased 10-13% for 2016. The lowest-priced silver plans, which account for fully 70% of the exchange market, increased by 11%—four percentage points higher than 2015 plans.
But what about all those people with subsidies. Are they not benefitting?
Simply put, no. Forbes reports:
As for the subsidies, they’ll do nothing to cover the average deductibles of $2,927 and $6,010 for individual and family silver plans obtained through the exchanges. According to a March 2015 study from the Kaiser Family Foundation, less than one-fifth of low-income families can afford such high deductibles, while just over half of middle-class families can afford them.
As the media focus on Trumpgasms and Hillary’s scandals, candidates would do well to remember what is really important to the voters; Their pocket book which is thinning quicker than the ice under the American economy.