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U.S. Economic Crisis Ahead

April 7, 2017 (EIRNS)—The U.S. economy is turning down. President Donald Trump needs much more than individual corporate pledges to hire more American workers.

The March Labor Department employment report is chaotic— with huge divergences between the Labor Department overall employment figure (+98,000) and the ADP private employment report (+263,000), and between the establishment and household surveys within the Labor Department report itself. But relying on the unadjusted year-to-year data, job creation over the 12 months through March 2017 is now down to just over 2.0 million, compared to a rate of 2.8 million during first half of 2016. Weekly average wage growth is down to 2.2% for the year to March—before inflation—and the growth from February to March is just 0.17%.

It is clear that construction employment growth stopped in March, and that there was a large drop in retail employment associated with mall and department store bankruptcies. The latter are spreading, and hitting the large commercial mortgage-backed securities (CMBS) market which was already falling, with much higher interest rates on junk bonds and leveraged loans. With auto sales starting to fall, the subprime auto loan delinquency rate is now over 30%—this is a securitized $300 billion segment of auto loans.

Moreover, there has been since Feb. 15 a "sudden" drop in the growth of bank loans from about 5% to about 2% annual rate.

The Atlanta Federal Reserve’s "GDPNow" tracking study is now estimating that U.S. economy grew at just an 0.6% annual rate in the 1st Quarter of 2017, after 1.7% growth for all of 2016. This is stall speed, and dropping.

Wolf Richter’s Wolf Street blog recently reported that there has been no growth in U.S. corporate profits, after taxes, for five years, even before inflation; thus in real terms, they have fallen for five years. They are falling in absolute terms in 2016-17. The other side of this dangerous picture, not noted by Richter, is the spectacular rise in non-financial corporate indebtedness during the same five years, from $8.5 trillion to $13.5 trillion.

This is the context in which financial expert Nomi Prins has recently forecast rapidly growing corporate defaults—beyond those now sweeping the "mall" sector—causing a crisis by the end of this year.