Morning Briefing | Americans Are in a 'Silent Recession'

UBS to lay off half of Credit Suisse staff. Starting next month, UBS (UBS) will reduce Credit Suisse's workforce by more than 50% as part of its emergency takeover of the bank. The cuts are expected to primarily impact bankers, traders, and support staff in Credit Suisse's investment bank, particularly in London, New York, and certain parts of Asia. Employees have been informed to anticipate three rounds of cuts throughout this year, with the first round expected by the end of July. Two additional rounds are tentatively scheduled for September and October.

Dealmaking desert. JPMorgan Chase (JPM) is reducing its investment-banking workforce in North America by approximately 40 employees, as part of broader international cuts in response to a slowdown in dealmaking. The decision follows a previous round of layoffs that eliminated around 20 investment-banking positions in Asia. The uncertainty of the global economic landscape has hindered any growth industrywide, with Goldman Sachs (GS) and Citigroup (C) also reporting recent layoffs.   

Economic resilience or stubbornness? Recent data has revealed surprising strength in various sectors of the U.S. economy, indicating resilience and pushing back the possibility of a recession. Reports from Tuesday showed that new-home purchases reached the fastest annual rate in over a year, durable-goods orders exceeded expectations, and consumer confidence hit its highest level since the beginning of 2022. Additionally, housing prices in the U.S. climbed for the third consecutive month, though they're still down from a year ago.

Biden dispels recession fears. During a recent fundraiser, President Joe Biden said he believed the U.S. will be able to steer clear of the potential recession economists and banks have been predicting. He mentioned that economists have been forecasting a recession for the next month, but he disagrees with this outlook. Biden pointed to the strength of the labor market and his efforts to address inflation as reasons for his optimism.

A silent recession has taken hold in the U.S. economy – evading headlines and defying "official" central bank narratives.

Behind the glossy reports of economic growth and stability lies a stark reality: A growing number of individuals and small businesses are experiencing the detrimental effects of a recession.

As I said yesterday in our weekly "mailbag" issue...

Personally, I believe we already saw a minor recession in early 2022... and we're currently at the beginning of another one – the same two-punch combo we saw between 1980 and 1982.

While government statistics may present a picture of prosperity and growth, the personal experiences of ordinary citizens and the private sector tell a different story.

You see, the private sector is suffering from declining consumption, dwindling private investment, and shrinking real wages – which together form the "silent recession" currently undermining the economic well-being of individuals.

This disconnect between official data and the actual experiences of "Main Street" has sparked a growing debate about the true state of our economy

By technical metrics, a recession only occurs following two consecutive quarters of negative gross-domestic-product ("GDP") growth – which we saw in early 2022. Yet, the federal government has still not officially recognized that minor recession.

But what nobody is pointing out is that the government contributes an ever-increasing amount to our nation's GDP. Since the end of World War II, the U.S. government's share of expenditures as a percentage of GDP has steadily increased.

Take a look...

As the government's contribution to the economy increases, it becomes harder for technical metrics to meet the threshold of an "official" recession... because the government doesn't stop spending money.

The growth of state-centric policies and spending initiatives further widens the gap between government claims and the real experiences of individuals.

But more importantly, as the government's influence on economic growth becomes more concentrated, the interests of and concerns for the private sector (sans a select few large corporations) become increasingly diminished.

So, regardless of what any government metric says, the question I pose to you is this: Do you feel like we're in a recession right now?

I'll end with a personal anecdote (which might hint at my own answer to the above question).

A few weeks ago, I was shopping at my local grocery store. I usually go to Publix, which doesn't typically have the pricey or niche items you'd find at Fresh Market or Whole Foods. I found myself wandering down the cereal aisle and was absolutely appalled at what I saw... a family size box of Cheerios cost more than $7.

Now I am not much of a cereal eater myself, but I couldn't help but think... Are you kidding me?

Later that week, I went to Walmart and found the same box of cereal for $4.93 – a more reasonable price, though still a little inflated if you ask me.

Even so, if other folks are also going to two to three different grocery stores a week in search of lower costs... it's clear that Americans are bearing the brunt of a silent recession.

As always, please submit all thoughts, questions, and commentary to new@stansberryresearch.com.

Until tomorrow, 

Kevin Sanford, MBA
June 28, 2023