By Bob Confer
By its simplest definition a recession is a decline in economic activity. It has traditionally been declared when the value of goods and services produced in a country declines for two consecutive quarters.
We met that criteria when news came last week that the second quarter’s gross domestic product (GDP) saw a 0.9% decline, following a 1.6% drop that occurred during the first three months of the year.
Despite that, the Biden Administration and the Federal Reserve have been saying that we’re not in a recession nor are we heading into one, citing statistics like strong hiring (11.3 million job openings) and unemployment at a near-record low (3.6%).
That has led to much debate on talk shows and around water coolers. Are we in a recession?
To get your answer, look no further than canaries in the coal mine – the people who make and move things.
Factory workers and truck drivers are at the ground floor of the economy. They see and feel variations in overall economic activity well before economists in government and academia because their business activity, running machines or hitting the roads, is solely defined by the buying behavior of the original equipment manufacturers, distributors, and consumers they serve. When demand is down, you know it… the production schedule is leaner and bookings for tractor trailers are fewer. It’s not until months after the fact that economists, consumers, government, and the stock market take notice.
I know that quite well from past experience.
In February of 2008, I told my team at Confer Plastics that something was really wrong with the economy and we had to prepare to throttle back by late-summer. Our banker scoffed at the notion and said it had to be something we were doing wrong because the stock market was humming, housing was hot, and the bank’s business was booming.
We all know what happened next. The market tanked in the fall of 2008, the housing bubble burst, and unemployment skyrocketed over the next year-and-a-half. History showed that the Great Recession really began months earlier, in December 2007, about the time that I started getting the feels.
Fast forward to 2022. We’ve been seeing plenty of economy-wide negatives that are escaping the radar of economists.
As a proprietary and custom molder (we make our own line of leisure items while also producing parts and products that other companies market) Confer Plastics serves a wide range of income levels and industries. Our clients had a great January and first half of February, then things changed dramatically – they saw their demand fall through March, hitting a brick wall by April, where it has stayed since. Their business activity went from great to either “good” or “okay” or “poor” in a matter of just a few months. We’ve heard that our clients who are manufacturers made cuts at their production facilities and pared down their projections while distributors and retailers we sell to have too much stock, from multiple suppliers, in inventory. That all means consumers, pinched by inflation, are cutting back and influencing the rest of the food chain.
That goes hand in hand with another observation, a simple one that tells a big story. As a custom molder, we get a fair number of inquiries from businesses and inventors looking for someone to make their products. It could be any industry, any idea. From late-2015 through January of this year, we had received between 4 and 10 legitimate inquiries every month. Since February 1st, we’ve received just six. Not six per month. Six total. That means entrepreneurs have cut back on creation or expansion, in unison and in a hurry.
It’s everywhere. Those who sell us raw plastic material (which can appear in innumerable packages and products in your day-to-day life) have told us that demand is down considerably and negative sentiment is the recurring theme from manufacturers across the country.
If you don’t believe producers that we’re in a recession, check in with the people who move freight.
Signaling less demand for moving goods, trucking spot rates fell 22% during the first six months of this year (note: this price drop may seem counterintuitive given how high diesel costs got over that period, but the higher fuel costs are accounted for separately with fuel surcharges).
The most salient comments about what’s happening were provided in April when the Bank of America’s trucking expert said shippers’ outlook on rates, capacity and inventory levels matched attitudes not seen since May and June of 2020, when lockdowns sent freight volumes into a historic decline. In the months since, second quarter results provided by publically-traded shipping companies have shown a continued decline in demand.
The people who are saying we aren’t in a recession – President Joe Biden, Secretary of the Treasury Janet Yellen, and Federal Reserve Chair Jerome Powell — were wrong about inflation. Remember when it was supposed to be minor and “transitory”?
The people who were right about it are right now in regard to a recession.
Listen to the men and women who make and move things.
And plan accordingly.