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A September to Remember

Try to remember the kind of September,

When life was slow and oh so mellow.

Try to remember the kind of September

When grass was green and grain was yellow.

Try to remember the kind of September

When you were a tender and callow fellow….

–Tom Jones

As you read this recounting of September’s economic reports, here’s some reminiscent music by Ed Ames in his own autumn years to help you remember better times as a harsh autumn and deep winter appear likely in our future.

We may not want to remember any of 2020 because it has been one of the strangest years any of us have ever known. September, however, gave us a little reprieve — now fading — a calm beneath clouds of black swans that could alight anywhere at any time. These circled the entire world this year like a smokey wreath that has, so far, delivered month after month of dark surprises.

Sure, the stock market fell most of the month, but it started recovering toward the end of September, though it still ended the month down from where it was at the end of August. Then, by the end of the month, we got our first graying news that summer’s economic recovery was waning.

That came in a frosty jobs report that showed the jobs market was cooling off more than economists had expected to see so early in the recovery process, showing us that recovery was not as near or as complete as many had hoped. However, the jobs news at the start of the month was pleasant. (I’ll cover all of that in a separate article, though, because the summer jobs picture was complicated and deserves to stand on its own.)

Reports of how the economy shifted during September, when those reports arrive in October, may be another story; but most of the tales told in September were about what happened in balmy August and through the summer of our economic reopening. So, they recollect back to the slightly sunnier times of summer’s economic reopening.

The political battle remained fairly calm through most of September, and even the riots in the streets grew perhaps a little less noisy. Through the din that did continue, if you listened hard you could maybe, maybe ever so faintly remember the peacefulness of Septembers long past. The black swans of COVID had not, yet, landed upon the White House. Now they are circling it like vultures and could change the course of the election that already looked like a sack of troubles.

October turned downright weird — even Halloweenish — with the most rancorous presidential debate in history. Then, just a couple of days after the debate, COVID removed the president from the campaign trail, quarantining him first in the hospital and then in the White House. Meanwhile, the VP debate got overshadowed by a fly and a pink eye. As a result of it all, Team Trump slid backward in the polls, while stocks started mysteriously rising again, even though stimulus talks also broke up and faded.

Some analysts say stocks rose, in spite of the failure of stimulus talks, because the growing divide in the polls reduced the risk of a national crisis that many have been fearing. Neither side in the presidential race has seemed ready to cede if the election results are ambiguous.

What if Trump wins on November 3rd but then the mail-in ballots that are expected to run more to the Democratic side slowly swamp that victory as they come in over the days that follow? Will Trump yell “fraud” and refuse to hand over the reins?

What if there are glitches in the mail that give a basis for contending the results if ballots are found that did not get delivered and Biden loses by the tiniest of margins? Will Biden yell “fraud?”

Or what if the election plays out just like the last presidential election where Trump closes in for a surprise come-from-behind victory with the electoral college vote, even though Biden wins the popular vote?

With neither side looking willing to concede and supporter on both sides looking ready to fight, November could take the lid off smoldering riots and explode into a social crisis of warring sides that spooks the market right into the pits of hell.

Or it could just all blow away as nothing.

As you read September’s reports, remember they are mostly about what happened in August when the reopening of the economy was still fairly fresh. With no further adieu, as we move into the final weeks of the election season with the White House lights flickering due to plague, let us first consider the twinkling light of consumer sentiment.

September’s sentimental journey

“The real question in my mind is why consumers are so upbeat and why they remain upbeat. Until I can answer that, I don’t know how persistent the expansion is going to be,” said Drew Matus, chief market strategist at MetLife Investment Management. “People are underestimating how long the impact of what we’ve been through is going to last. In that regard, there’s some downside risk to the outlook.”

CNBC

Let’s explore that question.

In August, consumer sentiment fell back into its abyss:

Consumer spending accounts for about 70% of the U.S. gross domestic product, making it the single most important factor in recovering from one of the worst recessions on record.

AP

Over the summer, consumer confidence slowly eroded after a slight bump in June:

As autumn approached with no sign of an end to the pandemic and further aid tied up in Congress, consumers appeared to be retreating once more.

Analysts and economists are concerned that consumers will fall back and hunker down once again without any additional money from the government….

“It remains to be seen whether we will see that recovery continue now that these supplemental payments have stopped,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

But then September brought some hope back into the picture:

Consumer sentiment hits a six-month high in September for best reading since COVID-19 erupted

The index now sits at the highest level since the pandemic erupted in March, mirroring the results of other household surveys.

MarketWatch

The “highest since March” sounds really good, but here is what that really looks like:

When people are talking about consumer sentiment remaining strong, you have to keep the broader picture in perspective to understand what that really means. Still, September was a little upbeat compared to the rest of summer, and I suppose we’ll be glad to take what little we could get.

The concern expressed in the quotes above is that sentiment will sink if and when government stimulus and mandated housing forbearance end and people start to feel the actual pain of their job losses. If Democrats take over all the reins of government, we will have shiploads of stimulus because no debt is too great under the Modern Monetary Theory that is seeping through the party.

If, however, Republicans win or government remains divided, stimulus is clearly less certain. We’ll get something, but not as much. If Biden wins, but Republicans keep the senate we could even get nothing due to the same kind of obstructionist government we saw under John Boehner, who told his party at the start of Obama’s first term during one of the nation’s worse recessions, “Even if you like what Obama proposes, vote against it. We don’t want another term of Obama.” (My paraphrase from memory.) Better, in other words, to let the country flail along than to let Obama get the credit for its recovery and get re-elected.

The only sentiment left in congress is rancor. Republicans will want Biden to start his term handicapped just as Trump began his under the dark clouds of suspicion whipped up by Democrats over Russian connections that never existed. One thing I’ve observed about both parties is that they have both devolved into becoming so polarized they always put party ahead of country now, even in our worst hours.

We’re in the world’s weirdest recession

This is the weirdest recession in history because it is the only recession where unemployment hit historic record highs while personal income also hit historic record highs. The latter point answers the question raised above as to why consumer sentiment remains strong.

Zero Hedge notes that during this time, government transfer payments constituted an unheard of 30% of all personal income! Just like the government’s debt, government transfer payments to citizens ballooned over past decades, but then skyrocketed under the Covidcrisis far more than it did even during the Great Recession:

That Atlas-like lift is why we’re not feeling the pain of this recession nearly as much as we would expect to for something that is really a deep depression. The income boost has been from all those government stimulus programs, while the cost of living was reduced at the same time by government-mandated mortgage and rent forbearance.

The problem is that should this firehose of benefits slow – or close completely – the economic collapse that was mitigated drastically thanks to the covid fiscal stimulus, will come back with a horrific vengeance.

Zero Hedge

Economist David Rosenberg described bleak times immediately ahead even with all of that intervention that has happened:

“A Washington Post/University of Maryland poll shows that only 56% of consumers across the nation intend to shop at the supermarket, which I suppose is a continuous bullish data point for delivery services but that’s about it. Just 33% say they are comfortable entering a retail store. And a mere 22% say they are willing to dine in a sit-in restaurant.

“All these polls say basically the same thing—it will not be ‘business as usual,’ as the bulls will try and convince you, and the best we can hope for is a partial recovery. I mean, at best. What we had on our hands was a vertical down economic decline with job losses an order of magnitude higher than anything we have witnessed since the Great Depression. So, even as the stock market is telling you it has it all figured out, I can assure you that what we face at this very moment is a very uncertain economic future. And unfortunately, most of the longer-term risks are to the downside.

“We are in a depression—not a recession, but a depression. 

September coasted through on the coattails of months of stimulus, which only means we will feel catastrophe at its worst if the stimulus and forbearance measures do not return; but how long can the government keep such mythology-scale measures going?

Fortunately, consumers have been smart enough to save a lot of this government magic for rainy days ahead, and that may soften the slide into depression if the government fails to maintain provisions during the hostile intermission between the election and January, should Biden win and Republicans remain in control of the senate … or should any of the other weird contested political scenarios mentioned above play out.

For the present, all we know is that all of that stimulus is fading and new stimulus is finding a tougher time making it through congress as the two major parties hold American hostage, using or withholding stimulus to jockey for position in the rapidly approaching election. That, of course, could change in a day.

A September to remember

Here is a quick recap of September’s other economic headlines.

The Wall Street Journal reported “Manhattan Offices Are Nearly Empty, Threatening New York City’s Recovery.”

Yelp Reveals 60% Of Business Closures Are Now Permanent.” Zero Hedge referred to this as a measure of “deep economic scarring.” Between mid-July, when I think I last reported on this, the number of businesses that moved from “temporarily closed” on Yelp to “permanently closed” increased another 23% by the end of August.

News for restaurants and theaters remained dismal through the end of Summer with a post-Labor-Day drop of diners almost back to June’s pandemic levels. People going to work at the office remained down 74%, putting a big strain on surrounding businesses that cater to those office workers. Airlines got a tiny bump in August, but by mid-September remained down 68% from where they were pre-crisis.

Similarly, “Movie theaters in jeopardy as studios move blockbusters to 2021, audiences stay home.”

None of that looks likely to improve anytime soon because automobile traffic counts for major metropolitan areas remained way down even by the end of September. We’re in the final quarter of the year, and we are still in a situation where no one is going to restaurants, malls, movie theaters or hotels while flu season is just beginning.

The theater industry is “not going to recover fully until consumers are confident that they won’t die if they go to the movies,” said Michael Pachter, an analyst at Wedbush.

CNBC

The “ISM Services Survey Weakened In August Amid “Highly Uncertain Path Ahead.” Technically, services were still expanding, but just not as quickly. So, September’s report for August was that kind of good news that just wasn’t as good as you would have hoped — like getting the basketball on your tenth birthday when you were hoping for a bicycle.

The leading economic index rose 1.2% in August, the Conference Board said Friday. This is a slower pace than the revised 2% rise in July and 3.1% gain in June. “The slowing of the improvement suggests that this summer’s economic rebound may be losing steam heading into the final stretch of 2020,”

MarketWatch

The “US Trade Deficit Soared To Highest Since 2008.” So much for winning the trade wars. Thanks to COVID, trade has rarely looked worse, and is certainly far worse than it was at the start of the Trump era or where it was after it had started recovering from the trade wars in late 2019.

After rising in the first couple of months or reopening, US goods orders fell off slightly in August:

Not enough to matter, perhaps, but you can see it matches exactly with where the trend line from mid-2018 on would put it today.

(And that was the news in a fairly calm month. The two warmest tailwinds of September were jobs and housing. Because the nation’s employment situation was more complicated over the summer and being the most important factor, I’ll cover it in the next day or two in a separate article. Jobs were an area of some warmth during the summer that experienced an unexpected chill just as fall hit near the end of September. Likewise with housing, which remained a bright spot clear through September. There is enough involved in each of those topics to merit articles of their own.)

December is coming

Parts of the Northwest and Midwest are now experiencing a resurgence in COVID-19 hospitalizations, as was feared for the fall. Even if the start of flu season doesn’t spread COVID worse, all those runny noses and coughing mouths from normal colds are certainly not going to make “consumers” want to consume any thing or any service around other people when they have no idea what is causing all the coughing and sneezing.

Restaurants that saw some reprieve due to outside dining during the warm summer weather aren’t going to find many people wanting to eat outdoors in the wind and rain either. Housing sales normally decline this time of year, too. So, even if we do get more stimulus, the slight reprieve that came in September may not be able to find traction on the autumn frost.

And then there is that third phase I talked about months ago — the chill winter of this crisis we’ve built around COVID. After the brief second phase, which I promised would be a rapid but incomplete recovery during the initial summer months of reopening, comes the third phase of this crisis I’ve written about where the damage that remains after reopening has run its course starts to knock over other dominoes that haven’t fallen yet.

Going into 2021, it seems most likely that growth will turn back into negative territory. This will come as a rise in permnant unemployment causes a decline in consumer spending. Additionally, many governments will see a severe decline in revenue this year which may force them to reduce fiscal spending next year. California is already struggling to figure out how it will recoup losses and balance its budget.

It seems the COVID-crash was truly a catalyst for a long-lasting economic slowdown. The short-term impacts (lockdowns, small business furloughs, etc) are now largely in the past while the long-term impacts (decline in fiscal spending, white-collar layoffs, pressure on banks) are coming into play.

Seeking Alpha

So, as we now move into the spiteful winds of a chilly election season, sooth yourself with the final words of the song shared above:

Deep in December it’s nice to remember,

although you know the snow will follow.

Deep in December it’s nice to remember

without a hurt the heart is hollow.

Deep in December it’s nice to remember

the fire of September that made us mellow.

–Tom Jones

… and remember the green fields of sunnier times.

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