Is the US Economy about to Crash?

There is a lot of fear around the economy right now. What makes it harder, is the news media is so biased, that it is hard to get accurate information. Well, I am going to show you a few key metrics that will explain what is happening in the economy so that you can make the right decisions with your money.

Sources:

Gas prices – US Energy Information Administration

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epmr_pte_nus_dpg&f=m

House Price – rent ratio – FRED

Is the housing price-rent ratio a leading indicator?

S&P 500 – yahoo finance

S&P 500 performance by president

https://www.macrotrends.net/2482/sp500-performance-by-president

Unemployment rate – FRED – https://fred.stlouisfed.org/series/UNRATE

Wages – Full time weekly real earnings – FRED – https://fred.stlouisfed.org/series/LES1252881600Q

VIDEO SUMMARY

I want to start with gas prices. Gas prices are important to understand, because they impact every other aspect of the economy. Every knows that gas prices are higher than they have ever been. Here is data from the US Energy Information Administration of US Retail Gas Prices. This chart covers Obama, Trump, and Biden’s presidency. You can see a very distinct pattern emerge. Whenever you see abrupt changes in prices like this, it suggests you are looking at a man-made phenomenon. This is not a naturally occurring pattern. That means that gas does not have to be this expensive. The government is making it this expensive by choice.

Next, I want to look at the S&P 500. It is helpful to look at the stock market during each presidency. During Obama’s 8-year term, the market was up 148%. During Trump’s 4-year term, the market was up 68%. During Biden’s term, for the last two years, the market is down -5%. When we look at these together, Trump and Obama had pretty similar results. But the sharp contrast is the poor stock market performance during the Biden presidency. This is a reflection that the economy is much worse.

Next, I want to highlight a metric not a lot of people look at. It is the Housing Price Rent Ratio. This data is published by the Federal Reserve. This takes the US Housing Price Index divided by the Index for Rent of a Primary Residence and it is adjusted for inflation. This chart goes back to the 1970s. You can see by this chart that this metric has risen to high levels three distinct times since the 1970s. Each of the shaded grey areas represent a recession. This chart peaked right before we had a double recession in the early 1980s. It peaked again right before the housing market crash in 2008. And it is peaking again. What this metric is showing us, is it compares the cost of buying a house to renting. When the cost of buying a house gets too high, people decide to rent instead. Supply and demand causes home prices to drop, and that hurts the economy.

So, when we look back in history, what was happening in the 70s is the US was battling high inflation. Rising interest rates caused houses to become more expensive. In 2008, the housing bubble was different. Houses became more expensive because prices were rising. What we have today is a combination of both. We are suffering from both inflation and high housing prices. Historically, this indicates a coming market crash.

Next, we need to look at unemployment. This has been the one metric that the Biden administration keeps using to show we are not in a recession. Here is the chart from the Federal Reserve and you can see that Unemployment is historically low. You can see the big spike during the pandemic when everyone was out of work, but that has returned to the level prior to the pandemic. For some context, here is the unemployment levels during Obama, Trump, and Biden. So the good thing, is that if you want a job right now, you should be able to find one. So that means we cannot be in a recession, right?

Well, you should never look at unemployment without looking at wages, because it does not matter if you can get a job, if the only job you can get pays low wages. This is weekly earnings adjusted for inflation, reported by the Federal Reserve. You can see the spike during the pandemic. What happened during the pandemic, is a lot of people did not want to come back to work. People were scared to go out and catch the virus. A lot of people just retired. There were a lot of job openings all at once, and companies were paying big salaries to recruit people. But that time is now over. What we see now is wages are dropping rapidly. If you were thinking of switching jobs, that window of opportunity is gone. This is showing you that supply and demand has changed. Companies no longer need people, and this is an indication that unemployment is about to go up.

So, these are a few key metrics to help you understand what is going on in the economy:

Gas prices – Bad
S&P 500 – Bad
House to Rent Ratio – Bad
Unemployment and Wages – Bad

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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.

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