Has The Next Recession Already Begun For America's Middle Class?

Tyler Durden's picture

Submitted by Michael Snyder of The Economic Collapse blog,

Has the next major economic downturn already started?  The way that you would answer that question would probably depend on where you live.  If you live in New York City, or the suburbs of Washington D.C., or you work for one of the big tech firms in the San Francisco area, you would probably respond to such a question by saying of course not.  In those areas, the economy is doing great and prices for high end homes are still booming.  But in most of the rest of the nation, evidence continues to mount that the next recession has already begun for the poor and the middle class.  As you will read about below, major retailers had an absolutely dreadful start to 2014 and home sales are declining just as they did back in 2007 before the last financial crisis.  Meanwhile, the U.S. economy continues to lose more good jobs and 20 percent of all U.S. families do not have a single member that is employed at this point.  2014 is turning out to be eerily similar to 2007 in so many ways, but most people are not paying attention.

During the first quarter of 2014, earnings by major U.S. retailers missed estimates by the biggest margin in 13 years The "retail apocalypse" continues to escalate, and the biggest reason for this is the fact that middle class consumers in the U.S. are tapped out.  And this is not just happening to a few retailers - this is something that is happening across the board.  The following is a summary of how major U.S. retailers performed in the first quarter of 2014 that was put together by Jim Quinn...

Wal-Mart Profit Plunges By $220 Million as US Store Traffic Declines by 1.4%

 

Target Profit Plunges by $80 Million, 16% Lower Than 2013, as Store Traffic Declines by 2.3%

 

Sears Loses $358 Million in First Quarter as Comparable Store Sales at Sears Plunge by 7.8% and Sales at Kmart Plunge by 5.1%

 

JC Penney Thrilled With Loss of Only $358 Million For the Quarter

 

Kohl’s Operating Income Plunges by 17% as Comparable Sales Decline by 3.4%

 

Costco Profit Declines by $84 Million as Comp Store Sales Only Increase by 2%

 

Staples Profit Plunges by 44% as Sales Collapse and Closing Hundreds of Stores

 

Gap Income Drops 22% as Same Store Sales Fall

 

American Eagle Profits Tumble 86%, Will Close 150 Stores

 

Aeropostale Losses $77 Million as Sales Collapse by 12%

 

Best Buy Sales Decline by $300 Million as Margins Decline and Comparable Store Sales Decline by 1.3%

 

Macy’s Profit Flat as Comparable Store Sales decline by 1.4%

 

Dollar General Profit Plummets by 40% as Comp Store Sales Decline by 3.8%

 

Urban Outfitters Earnings Collapse by 20% as Sales Stagnate

 

McDonalds Earnings Fall by $66 Million as US Comp Sales Fall by 1.7%

 

Darden Profit Collapses by 30% as Same Restaurant Sales Plunge by 5.6% and Company Selling Red Lobster

 

TJX Misses Earnings Expectations as Sales & Earnings Flat

 

Dick’s Misses Earnings Expectations as Golf Store Sales Plummet

 

Home Depot Misses Earnings Expectations as Customer Traffic Only Rises by 2.2%

 

Lowes Misses Earnings Expectations as Customer Traffic was Flat

That is quite a startling list.

But plummeting retail sales are not the only sign that the U.S. middle class is really struggling right now.  Home sales have also been extremely disappointing for quite a few months.  This is how Wolf Richter described what we have been witnessing...

This is precisely what shouldn’t have happened but was destined to happen: Sales of existing homes have gotten clobbered since last fall. At first, the Fiscal Cliff and the threat of a US government default – remember those zany times? – were blamed, then polar vortices were blamed even while home sales in California, where the weather had been gorgeous all winter, plunged more than elsewhere.

 

Then it spread to new-home sales: in April, they dropped 4.7% from a year ago, after March's year-over-year decline of 4.9%, and February's 2.8%. Not a good sign: the April hit was worse than February's, when it was the weather’s fault. Yet April should be the busiest month of the year (excellent brief video by Lee Adler on this debacle).

 

We have already seen that in some markets, in California for example, sales have collapsed at the lower two-thirds of the price range, with the upper third thriving. People who earn median incomes are increasingly priced out of the market, and many potential first-time buyers have little chance of getting in. In San Diego, for example, sales of homes below $200,000 plunged 46% while the upper end is doing just fine.

As Richter noted, sales of upper end homes are still doing fine in many areas.

But how long will that be able to continue if things continue to get even worse for the poor and the middle class?  Traditionally, the U.S. economy has greatly depended upon consumer spending by the middle class.  If that continues to dry up, how long can we avoid falling into a recession?  For even more numbers that seem to indicate economic trouble for the middle class, please see my previous article entitled "27 Huge Red Flags For The U.S. Economy".

Other analysts are expressing similar concerns.  For example, check out what John Williams of shadowstats.com had to say during one recent interview...

We’re turning down anew. The first quarter should revise into negative territory… and I believe the second quarter will report negative as well.

That will all happen by July 30 when you have the annual revisions to the GDP. In reality the economy is much weaker than that. Economic growth is overstated with the GDP because they understate inflation, which is used in deflating the number…

 

What we’re seeing now is just… we’ve been barely stagnant and bottomed out… but we’re turning down again.

 

The reason for this is that the consumer is strapped… doesn’t have the liquidity to fuel the growth in consumption.

 

Income… the median household income, net of inflation, is as low as it was in 1967. The average guy is not staying ahead of inflation…

This has been a problem now for decades… You were able to buy consumption from the future by borrowing more money, expanding your debt. Greenspan saw the problem was income, so he encouraged debt expansion.

 

That all blew apart in 2007/2008… the income problems have continued, but now you don’t have the ability to borrow money the way you used to. Without that and the income problems remaining, there’s no way that consumption can grow faster than inflation if income isn’t.

 

As a result – personal consumption is more than two thirds of the economy – there’s no way you can have positive sustainable growth in the U.S. economy without the consumer being healthy.

The key to the health of the middle class is having plenty of good jobs.

But the U.S. economy continues to lose more good paying jobs.

For example, Hewlett-Packard has just announced that it plans to eliminate 16,000 more jobs in addition to the 34,000 job cuts that have already been announced.

Today, there are 27 million more working age Americans that do not have a job than there were in 2000, and the quality of our jobs continues to decline.

This is absolutely destroying the middle class.  Unless the employment situation in this country starts to turn around, there does not seem to be much hope that the middle class will recover any time soon.

Meanwhile, there are emerging signs of trouble for the wealthy as well.

For instance, just like we witnessed back in 2007, things are starting to look a bit shaky at the "too big to fail" banks.  The following is an excerpt from a recent CNBC report...

Citigroup has joined the ranks of those with trading troubles, as a high-ranking official told the Deutsche Bank 2014 Global Financial Services Investor Conference Tuesday that adjusted trading revenue probably will decline 20 percent to 25 percent in the second quarter on an annualized basis.

 

"People are uncertain," Chief Financial Officer John Gerspach said of investor behavior, according to an account from the Wall Street Journal. "There just isn't a lot of movement."

 

In recent weeks, officials at JPMorgan Chase and Barclays also both reported likely drops in trading revenue. JPMorgan said it expected a decline of 20 percent of the quarter, while Barclays anticipates a 41 percent drop, prompting it to announce mass layoffs that will pare 19,000 jobs by the end of 2016.

Remember, very few people expected a recession the last time around either.  In fact, Federal Reserve Chairman Ben Bernanke repeatedly promised us that we would not have a recession and then we went on to experience the worst economic downturn since the Great Depression.

It will be the same this time as well.  Just like in 2007, we will continue to get an endless supply of "hopetimism" from our politicians and the mainstream media, and they will continue to fill our heads with visions of rainbows, unicorns and economic prosperity for as far as the eyes can see.

But then the next recession will strike and most Americans will be completely blindsided by it.

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DoChenRollingBearing's picture

I did not hear about any recession on CNBS yet...

AlaricBalth's picture

I didn't either because the recent Greater Depression which officially began in Dec. 2007 never ended for the middle class.

Shocker's picture

The middle class is getting pretty much wiped out in this recovery

Job Situation: http://www.dailyjobcuts.com

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Kaiser Sousa's picture

for fucks sake man...

lets call it by its proper name...

THIS COUNTRY IS IN A FUCKING DEPRESSION...

cazadores for everyone....

MontgomeryScott's picture

'Micheal Snyder' is working on the false presumtion that the 'last' 'recession' actually ended.

I forget when the PTB declared the end of this. Was it March 2009? APRIL, perhaps?

LOOK! The DJIA is UP! GOOD NEWS!

Yeah, and GOOKLE is an 'INDUSTRIAL'.

(Hits left hand very hard on forehead while ducking down, trying desparately to understand why 100 million are unemployed and Detroit and Cleveland are in ruins, and food prices are rising by 22% a year, and a 'good job' is now working at a convenience store/gas station for $9.58 an hour, and Walmart greeters are all sitting in electrified wheelchairs trying to make their obesity and helpnessness an obvious issue for those who can STILL work and are somewhat healthy, thanks to 'tax breaks' that the 'working class' is forced to pay by the IRS, and WONDERING what planet this 'Micheal Snyder' just came from, in his first visit to Earth)

CHIPOTLE Cazadores for everyone!

(Let's try hitting it a little harder, now. NO, that wasn't hard enough, your forehead isn't bleeding yet)

Never One Roach's picture

 

 

You mean there's a Recession?

WTF !

Why didn't someone tell me?!

I MISS KUDLOW's picture

It looks to me there was really never a middle class, it just appeared that way because we all were able to buy cheap shit from foreign countries at slave labor, oh boy now we have permanent job loss along with the baby boomers all needing their s.s checks along with the group that thinks they should get free shit all of the time.....

CheapBastard's picture

 

 

GM engineer said he forgot change to switch in recalled cars: NYT

 

http://finance.yahoo.com/news/gm-engineer-said-forgot-change-switch-reca...

Buy Merikan!

GetZeeGold's picture

 

 

 

I did not hear about any recession on CNBS yet...

 

Those guys were all over gold at $265. It was so bad I had to turn it off.

markmotive's picture

The 'Middle Class' was a flash in the pan during the span of human existence. A social project that failed. An anomaly by Mother Nature's standards.

Enjoy whatever is left of it...

http://www.planbeconomics.com/2013/03/the-middle-class-has-been-hollowed...

Vampyroteuthis infernalis's picture

The depression ended for the top 10% of wafer earners and continued for the lower 90%. Since the top 10% own the MSM media outlets, officially it ended. Never mind everyone else.....

sylviasays's picture

Who will save the middle class from the death knell of predatory big government Socialists? 

sylviasays's picture

Who will save the middle class from the death knell of predatory big government Socialists? 

overmedicatedundersexed's picture

back in the late 50's -60's, everything we bought from cars to shoes was made in the USA- that changed and so did the hope of the middle class - the elite reptiles exported all those jobs, and many still blame the voters for going along, for me, the vote was useless, seems I got outvoted every election. Few in politics stood up and said this is suicide, well here we are:

remember silicon valley needs more workers imported from asia while HP fires 16,000?

"it just appeared that way because we all were able to buy cheap shit from foreign countries at slave labor, oh boy now we have permanent job loss "

corporatewhore's picture

I take calls from stupid suburbanites all day long who whine about our USA made prices and labor and think a snappy retort is "I'll just get it at Walmart".  They don't put two and two together that things made in China or other cheap labor pools cost less but at an ultimate price to them--they'll eventually lose their jobs.  But in the meantime they can continue to be the true assholes that they are.

sylviasays's picture

I take calls from stupid suburbanites all day long who whine about our USA made prices and labor and think a snappy retort is "I'll just get it at Walmart".

So big city dwellers only buy products made in USA? NOT! 

Like we all really have a choice? Go to any store in this country and try to buy everything you need that was actually manufactured here.  

Unless you're Amish and manufacture everthing you need, it will be impossible to buy only American made products. 

sun tzu's picture

The middle class existed in from the 1940's to the 1980's until NAFTA, GATT, WTO took over in the 1990's and US manufacturing was shut down.

FreedomGuy's picture

What gets me is that in my state and city is that the builders do not seem to believe there is a recession. I see ungodly amounts of condos and home developments going i and not always in the core desireable areas. I am wondering if there will be enough people as well as decent incomes to buy all these units.

Frankly, it looks to me like a repeat of pre-2008, which will make things worse.

On the flip side, I think the Obama administration through sheer incompetence and dogged leftist doctrine is slowly garroting the economy. They will neither recognize it nor admit it.

Debt-Is-Not-Money's picture

"They will neither recognize it nor admit it."

FDR said that "in politics, nothing happens by accident".

It should be clear then that this administration wants to garrote the economy.

intric8's picture

They wont admit anything because politicians aren't even in control of economic policy. The fed res representing a small pool of ultra powerful bankers is.

This system of things as we know it has likely been written off by these guys already. So much policy emanating from the fed SEEMS unsustainable to us because sustainabilty is being strictly fashioned to preserve interests of the ultra rich and powerful, not the masses. Thus, we are witnessing the biggest cash out in history through the destruction of the middle class in some of the richest nations in the world.

These guys wont care if if the system comes crashing down and half the world kills each other. They will hide out in the interim and start all over in the aftermath. Their century long exotic monetary experiment will soon fail miserably. An entire reboot is completely acceptable and even welcome at this point.

corporatewhore's picture

where are they offering $9.58 an hour at a gas station? if they have any openings i'd like to apply.

sun tzu's picture

States with minimum wage or $9 or more. Then they tax it all away

Jerk_Store's picture

It can't be. There's no soup lines.

FreedomGuy's picture

It's food stamps nowadays. Don't need no stinking lines.

corporatewhore's picture

and with food stamps you can buy all that crap like fritos, candy, ice cream and soda so you don't have to suffer the indignity of eating real and healthy food.

FreedomGuy's picture

Or donated Salvation Army chicken soup.

KenShabby's picture

It's against the law to feed the homeless now.

sun tzu's picture

The state wants a monolpoly

markpower49's picture

I hope we can hunt them.

Americans deserve to be poor for supporting a corrupt and evil government. Affirmative action alone makes the US pure evil.

cooky puss's picture

oh gawd! I want to see this. Link anyone?

 

No Quarter's picture

You know the difference between a recession and a depression?

A recession is when your neighbor loses his job

A depression is when YOU lose your job.

Bunga Bunga's picture

Middle class, this is so 1900s.

August's picture

True... and so far from the lush forests of her native Kashyyyk.

ShrNfr's picture

Her kids do not have to eat the slop that she wants to inflict on the rest of us: http://www.sidwell.edu/calendars/month.aspx?StartDate=6%2F1%2F2014&Modul...

 

NidStyles's picture

Fuck the middle class they kept voting for this system for 30 years. Let them eat the shitstain they created. The same goes for those old-timers that pushed this garbage system onto the younger generations, fuck you you geriatric wastes of space. 

Dr Benway's picture

But at what age do you draw the line of guilt? And what about young people who don't speak up or try to fight this evil self-destructive system? Truth is we are all guilty to varying degrees, that's how this system works, making an accomplice of everyone.

Oldwood's picture

Most of us realize that to end the corruption at this late date would take us all down with as we are dependent on the financial streams the runoff this corrupt government produces. Regardless, we will still go down, but more and more people I speak to would rather get it over with now, even if it precipitates a confrontation with government. It should have failed long ago and many who prescribe to a more conservative or frugal economic principle could have survived it, but instead it has been pretend and extend bleeding us dry. We are seeing a continuing failure of small and midsize businesses because of this poor economy. Big business, that has access to capital through lending, stocks and crony contracts are instead buying up their competition. A relative is a manager in a large grocery chain that was recently bought out by another larger but less profitable competitor. They plan on shutting down most of the stores effectively eliminating their competition. Access to capital but no profits. The must sell most of the aquired real estate to pay down the debt from the aquisition. Hell of a thing. Borrow the money to buy your competition and then sell them off piecemeal to pay down the loan. Not exactly winning for the consumer, nor winning as an economic indicator. But this is what we see now. You can't profit from competition so you simply buy market share using borrowed money, creating less competition and ever greater, too big to fail, monopolies.

Dr Benway's picture

Thanks that's some really good examples of perverse outcomes of crony capitalism and financial repression

I MISS KUDLOW's picture

i've already decided i'm capping myself at 70 unless i'm in just super great health.....

Bloody Muppet's picture

When you're 69 you might decide otherwise.

FreedomGuy's picture

I wanna take one arrogant leftist with me.

NidStyles's picture

I do not draw any lines. You get what you deserve. If you sat on your ass eating cheetos while the world burned around you, you deserve to be a the last fat ass for the funeral pyre. 

 

Everyone should be out lifting wieghts and getting into shape to get ready for what is coming. If you aren't, you're screwing yourself and those that depend on you. There are no excuses for being a lazy SOB and expecting others to protect you.

in4mayshun's picture

Cause huge biceps is gonna help when there's no food at the grocery stores and our government is unleashing biological weapons to take out masses of people.

You obviously have this all figured out.

BlindMonkey's picture

Moron. Being healthy, strong and fast is not going to be an impediment to survival. Being a Cheetos eating fat ass will though.