Gas Stations Just Confirmed the Worst-Case Scenario for the Economy

Jeff Snider · Atlas Financial

Strong retail sales are illusory: gasoline and panic buying, with huge benchmark revisions masking real weakness.

Snider says the August and September retail sales beats look spectacular on a monthly basis. In August the gain was broad, but he argues it was driven by autos bought ahead of expected Fed hikes and by stockpiling ahead of expected price rises. September was almost all gasoline. He adds that large benchmark revisions show real spending was falling for a long time, so the monthly headline data is misleading.

“But when people look at the monthly data report for, like, retail sales, consumer spending is holding up. It may look like that, but it's not holding up in reality.”at 2:02

Jeff Snider · Atlas Financial

Economy has been in a slump since 2023, and demand falling off again is already visible.

Snider argues that the economy 'forgot how to grow' in 2023 and that the statistics only caught up three years later, after manufacturing and real spending had already slumped. He says that with savings low and no cushion this time, a renewed fall-off in demand would be recognised much faster. He claims that signs of this fall-off are already showing up.

“It's just that now it's taken three years for people to realize it. It's not gonna take people three years to realize if there is another fall off in demand because we're already seeing signs of it here.”at 17:56

Steve Van Metre · Steven Van Metre Financial

Energy shock, high rates, a collapsing yield curve and weak jobs threaten a credit bubble.

Van Metre lists the shocks the economy faces over the coming months: an energy shock, high interest rates, and a yield curve that is collapsing and could threaten to pop a credit bubble. He pairs these with a weak labor market. He presents the combination as the main risk to the economy.

“We've got high interest rates. We've got a yield curve that's collapsing that could threaten to pop, you know, a credit bubble. And you've got a labor market that is completely weak.”at 18:11

Jeff Snider · Atlas Financial

Consumers are cutting discretionary extras under strain, a forced pullback rather than a sign of confidence.

Snider argues that US consumers are cutting back at the margin. They still buy gasoline, but they skip extras like drinks, snacks and convenience-store items, which is where demand is really being destroyed. He ties this to weak consumer sentiment, which he says is the worst in a long time, and to incomes that are not rising. He calls the pullback forced, and says it is a sign of an unhealthy economy rather than confidence.

“It's because things are not good. Consumers are indeed cutting back. They're being forced to alter the behavior.”at 10:09

Jeff Snider · Atlas Financial

Revolving credit fell about $5B in August, one of the biggest declines and a recession-type signal.

Snider cites the Federal Reserve's August revolving credit data. The seasonally adjusted aggregate balance fell by almost $5 billion. He calls that one of the largest declines you will see and treats it as a recession-type indicator of Americans cutting back on credit card use.

“The seasonally adjusted aggregate balance fell by almost 5,000,000,000, which doesn't sound like a lot, but it's 5,000,000,000 is one of the biggest declines that you'll see, especially since this is a recession type of indicator.”at 13:57

Steve Van Metre · Steven Van Metre Financial

Consumers shifting from spending to saving and debt paydown is the inflection that will hit jobs.

Van Metre argues that as the economy slows, households cut everything they can and then prioritise savings and paying down debt. He says that mindset shift from consumption to saving is dangerous. He sees it as the inflection point: once consumers say they have had enough and inventories are full, the labor market starts to take a hit.

“We're talking about the inflection point. That's the biggest one is when consumers say, look, I've had enough. ... next thing you know, that's where we see the labor market start to take a hit.”at 15:17

Jeff Snider · Atlas Financial

Job market is not resilient and incomes are not rising, so consumers cannot absorb higher gasoline costs.

Snider links the consumer pullback to the labor market. With incomes flat and the job market weak, households cannot absorb higher gasoline prices and so skip small discretionary purchases. He presents the weak jobs picture as the cause of the spending retrenchment.

“since incomes are not rising, the job market is not resilient and robust,”at 0:14

Steve Van Metre · Steven Van Metre Financial

Labor market is weak, with hourly earnings decelerating and firms not hiring because demand is missing.

Van Metre says the boss does not want to hire because demand is not there, and the retail sales data had hidden that. He points to decelerating average hourly earnings, which means workers who still have jobs are not getting raises, so their spending cannot keep up.

“And on top of that, you know, those who do have a job, what do we continue to see with them? Decelerating average hourly earnings. They're not getting the pay raises, their spending's not keeping up.”at 18:11

Steve Van Metre · Steven Van Metre Financial

Energy shock will last: refilling inventories keeps prices high even if Hormuz reopens.

Van Metre argues that even if the Iran war ended and the Strait of Hormuz fully reopened, rebuilding supply would take a long time. He cites energy company CEOs who say their priority is refilling inventories, not cutting prices. He concludes that consumers now expect high energy costs to persist for a long time, which is why behaviour has changed.

“it's going to take quite a long time just to get things built back up. And we've been hearing from CEOs of a lot of the big energy companies saying, look, our priority as things come back online is refilling inventories. We're not interested in lowering prices.”at 6:41

Steve Van Metre · Steven Van Metre Financial

Auto demand is drying up as higher rates make car purchases unattractive after the pull-forward.

Van Metre says the August auto buying spike reflected households expecting energy costs to last, so they downsized gas-guzzling trucks, and EV sales jumped. He then argues that auto demand is now fading because higher interest rates make car financing unattractive, so the earlier pull-forward is stopping. He sees this as a sign that consumers are cutting back on larger purchases.

“not only the auto market, you see all of sudden that drying up as people who's, as you said, would buy a car, but because of higher interest rates, it makes no financial sense.”at 11:31

Jeff Snider · Atlas Financial

Housing is still falling, with pending home sales dropping, because weak jobs deter big commitments.

Snider says the housing market has been scraping along a historic bottom for years because the job market has not been resilient. He had assumed that bottom was in, but the latest pending home sales data showed it could get worse. He notes that people will not take on 30-year mortgages without job security, so weak housing activity is a further sign of consumer retrenchment.

“that we would have found the bottom, they can't possibly get worse. And then Steve, like you said, pending home sales come up and it's like, holy crap, this thing can get worse.”at 13:19

Jeff Snider · Atlas Financial

Inventory built ahead of price rises risks a 2022-style bust, since expected demand is not there.

Snider says manufacturers and wholesalers are stockpiling to get ahead of price increases and expect to sell the goods soon. He compares this to 2021-22, when suppliers over-ordered on the belief that the boom would last. Demand did not keep up, and manufacturing then slumped for a long time. He sees the same risk now, because the inventory is premised on a resilient consumer that he thinks does not exist.

“Because all that inventory is intended to be sold into a resilient economy that doesn't actually exist.”at 15:40

Jeff Snider · Atlas Financial

AI spending is debt-heavy, creates too few jobs, and its component costs are cutting smartphone demand.

Snider says AI is the main positive in the economy, but in macro terms it is not creating enough jobs. A lot of the spending is debt-financed, and that debt is pushing up prices. As an example, he cites a reported 22% year-over-year collapse in global smartphone sales, which he attributes to component prices rising sharply because of AI demand. So he sees AI spending as currently taking demand away from the rest of the economy.

“except AI in the macroeconomic sense isn't creating enough jobs, nowhere near enough jobs.”at 20:38