U.S. Industrial Economy Collapsing, Fed Gives Up on ‘Growth’ Myth
June 21, 2016 (EIRNS)—The complete inversion of President Obama’s claimed manufacturing/industrial revival into collapse, along with a corporate debt bubble of historic proportions, is underlying the Federal Reserve’s drop into pessimism and abandonment of the hope of "normalcy"—i.e., interest rate increases.
U.S. factory orders have been dropping, year-on-year, for 18 months in a row as of May. Total industrial production has declined from a year earlier for 12 consecutive months. U.S. combined oil, gas, and coal production has fallen to its lowest level in 35 years—back to the deep "double-dip recession" triggered by Federal Reserve chief Paul Volcker’s 20%-plus interest rates in 1981-2.
During the same period since January 2015, the debt load of U.S. non-financial corporations has risen to $7.8 trillion, growing at more than 10% a year as they borrow for takeovers and "financial engineering" of their own stock prices. Corporate cash on hand, by contrast, is $1.89 trillion. And worse, defaults and delinquencies on corporate bonds and loans are at 9% so far in 2016, the highest—again—in 35 years. This has exploded up from a default rate of just 3% in 2015. In the energy sector, despite an oil price rebound, $46.4 billion in debt had been defaulted on from Jan.-May 2016, equal to all of 2015.
Capital spending by these corporations is falling; Bloomberg reported June 17 that $1 trillion in planned capital spending had been cancelled in the oil/gas industry alone.
The Census Bureau recently reported that total business sales in the U.S. economy were 3% lower in April than in 2015, and back at the level of 2013. The IRS has reported that Federal and total state tax receipts are below last year’s levels.
From the Federal Reserve, whose own Labor Market Conditions Index has been falling since late 2015, came a shock on June 17 when St. Louis Fed President William Bullard released a report on the state of the economy. Bullard, previously a strong advocate for interest rate increases to "return to normal," now judged that only one quarter-point increase is justified over the next two and one-half years, by the end of 2018. U.S. economic growth won’t exceed 2%/year through 2018, and productivity growth won’t exceed 0.5%/year, said the St. Louis Fed’s report.
This itself is still wishful thinking, and the Federal Reserve has lost its credibility as a monetary authority and its viability as a regulator of credit in the U.S. economy.