America’s Economic Fault Line

This is simply insane. New car sales among American households making $75,000 or less have utterly crashed since 2019, down a whopping 30%. Car prices soared, incomes did not. But it's not just the lowest income households. Car sales among those making between $75,000 and $150,000 are down 7% since 2019. They call it a K-shaped economy, but that's not really it. They call it affordability crisis. But that understates the severity of what we're talking about here, especially since we're seeing more confirmation of job losses on top of everything else. It's a problem that is compounded by the job market that is shifting into these job losses. There wasn't nearly enough income before, but you toss in rising unemployment, the situation becomes even more toxic. Now, the BLS will report on payrolls for December this coming Friday, but already today it released the results of November jolts. Job openings are way down, in fact, the lowest in years. And vastly more important, a new low, another shocking low, the hiring rate, the one that we continue to watch because it's the one that you should be watching. So total net turnover for November was minus 83,000. In other words, there were 83,000 fewer Americans hired than there were either let go or quit. And this was the fourth time in the last six months we've seen negative turnover, more flat beverage confirmation. No wonder Fed Governor Murren said yesterday the Fed better cut by 100 basis points, at least 100 basis points in 2026, or it risks a recession. The recession's already here. The only difference is job losses have now shown up on top of the lost income and purchasing power. It is double misery. You have the one misery in the fact of lost purchasing power and lost income, and now you have the double misery in terms of job losses on top. And that misery is perfectly highlighted by the miserable performance of the auto industry. This is in fact the best illustration of what has really happened to the economy here in the 2020s, touching all parts of it too, from the price illusion to the jobs illusion and really just highlighting how the overall economy shrunk. Yes, it shrunk as you'll see. That's why there wasn't enough income to begin with and why now the U.S. is losing jobs. The consequences of the shrunken economy are really starting to show up, not just in terms of flat beverage either. Here are some of the consequences in car sales. Quote, high prices threaten to send U.S. auto sales into decline this year, 2026, as middle-class consumers shy away from new vehicle purchases with stickers near record levels. Automakers are contending with consumer angst about the cost of living that persisted throughout last year as well as curtailed government support for electric vehicles and new tariffs that are pushing up costs. And Randy Parker, who's the chief executive officer of Hyundai's North America business, said those issues will continue to weigh on the industry this year. The year ahead, quote, is going to be very challenging, Parker said, adding that he expects Hyundai to grow in 2026. Yeah, we'll see. But Parker continues, affordability is going to be the key and that doesn't mean what most people think it means. And now here comes the kicker. New car sales among households with annual incomes of $75,000 or less have plunged 30 percent since 2019, while sales fell 7 percent among families with incomes between $75,000 and $100,000, according to Cox. But deliveries, deliveries meanwhile soared 45 percent among households with annual incomes of $150,000 or more in the same period. So you can see where the K-shaped idea is coming from, though it does not correctly diagnose the economic situation because, let's face it, these are just stunning estimates, though not really that surprising if you've actually been paying attention. These are a perfect example of what really happened to the economy, the best description of what went wrong and what keeps getting wronger. This miserable macroeconomic side is absolutely a huge factor in contributing to the switch, the change, the flip in the credit market cycle, the cracks that we're seeing and the smoke billowing up from all these different places. And that's going to be a huge focus at Eurodollar University Live, February 2026, next month, here in Palm Beach County, Florida, President's Day weekend. Join me, Steve Van Meter, Mike Green, Hugh Hendry, George Gammon, Brent Johnson, as we go over all the relevant details, all the relevant signals and all of the potential opportunities about what you can do. In fact, I've got a presentation for a distressed credit fund that is going to knock your socks off. Plus, we'll have discussions about what I think the biggest risk and the biggest danger that we're facing, a whole bunch that's going to happen this President's Day weekend, Eurodollar University Live, great conversations, intimate setting. If you're a serious investor, you do not want to miss this. There's only a few spots left, so hurry up and book your call to attend this year's Eurodollar University Live. Like I said, there's a link in the description to do that. February 2026, President's Day weekend. It's going to be fun. It's going to be educational. And as I'll keep telling you, it's going to be really, really important. It really is this simple. The lockdowns during the pandemic created a supply bottleneck, not just in terms of making and shipping goods, but also in labor, getting people to be able to work in order to fill demand that was at least rebounding. It wasn't recovering, but it was rebounding. But because supply was restrained while demand was rising, the only way to reconcile that imbalance is through higher prices. It wasn't money printing. It was basic, small-e economics, a supply shock. And it's not the first one we've seen in the U.S. history either. The U.S. has itself experienced three of them, all of them around the end of World War II and afterward. And what happens during supply shocks? Prices jump in the short run, and short run in this case in macro timescales can be over a year. That's why in the 2020s example, the supply shock was 16 months starting in March of 2021 and ending in June of 2022, which was not related to the Fed's rate hikes. So consumer prices soared. They stepped up to a new level because of the imbalance between demand and supply. However, this is the key part that people miss. Incomes didn't keep up. And the part that the people really miss, the number of jobs didn't actually recover. That's because while prices were high and getting higher, the actual volume of stuff being made and the actual volume of services being provided never really recovered. This is where the car business is such a good illustration. For example, between 2015 and 2019, the auto business came back from the dead in the aftermath of the Great Knot Recession. So U.S. sales of light vehicles, which include trucks, averaged $17.2 million per year, at least according to the Bureau of Economic Analysis's figures. That was slightly better than the $16.9 million yearly sales that were averaged between 1999 and 2006, but right in the same ballpark. By contrast, sharp contrast, in 2023, 2024, and the 11 months of data for 2025 through November, auto sales, according to BEA, averaged just $15.8 million. That's a million less on average than 1999 to 2006, and $1.4 million less than the last half of the pitiful 2010s. To put it plainly, the auto business never really recovered from the pandemic. It might have looked like it did when you look at revenues because price per car exploded higher during the supply shock, and companies made more money while selling fewer cars because the price per car was much higher than the decline in unit sales. But if you're a car company, if you're in the car business, which is now selling fewer vehicles, and selling fewer vehicles year after year, you don't see any way that's going to change in the future. Do you need to hire and employ the same number of workers as you did back in 2019? You manufacture fewer units, you don't need to employ as many employees. The economy, or at least the auto industry, effectively shrunk, even though it doesn't look that way because of the price illusion. Now that extends to all the rest of the areas of the economy, including services, even though the difference is not nearly as extreme. But this is the reason why, for example, there were nearly 7 million fewer payrolls, the establishment survey, payrolls, 7 million fewer payrolls in November 2025 than there should have been had the economy legitimately recovered in as was promised. 7 million fewer, 7 million. So you can see why there's at least a million fewer car sales every year. The economy, the labor market, it shrunk. We have all the data and the numbers to show this. So right from the start, the supply shock, prices go way up, incomes don't rise nearly as much because there aren't as many people working. And those who are working didn't get paid nearly as much as prices had soared. So in that situation, the shrunken economy, of course, households making $75,000 or less haven't been able to buy new cars. That's where the 30% plunge comes from, plus the 7% fewer sales in the middle incomes. They weren't priced out of the car market, they were jobbed out of it. Affordability is not really about prices. That's just where everybody focused because they don't understand the economics. They've never been given the real story here. What happened was prices changed in 21 and 22, as we said, but they're never going to go back down. What should have happened, what economists and politicians expected to happen, or at least promised was going to happen, was that a legitimate recovery engineered by all that stimulus, and the legitimate recovery in the labor market would have eventually brought incomes and the number of jobs up to offset the step higher in prices. New cars that cost an average of $50,000 rather than $30,000 before 2020, had the economy performed the way it was described, that wouldn't have been a big problem because people's incomes would have gone up much more, at least more than enough to make up the difference in car prices, and therefore there would have been more jobs, meaning far more people had bigger incomes, and we wouldn't be complaining about affordability and what people call inflation. Car sales would have steadied, if not actually boomed. Instead, as I said, as I'll keep saying, the whole thing shrunk, and now it's getting worse because there's more businesses realize they don't have the need for more workers because they're making less stuff and providing fewer services. They stopped hiring years ago. That was the forgot-how-to-grow, the no-hiring, no-firing economy, but as forgot-how-to-grow took a further toll on incomes and spending and outlooks, the economy is now shifting again to no-hiring, some-firing, doubling the misery for the vast majority. Not only are they short on incomes that they have had up to now, too many are increasingly worried they might not have any incomes, job losses, and unemployment really starts to pile up. The already shrunken economy actually shrinks even more, double the misery. You wonder why voters are so pissed off. This is what the affordability crisis really is and what it truly means, not the price change of a washing machine over the past four months. It's a far, it's so much bigger than that, and it's not being properly recognized. Everyone runs around talking about the CPI when the real issue is jolts. The BLS's other labor data on job openings and labor turnover, thus jolts, has done a relatively decent job of portraying this shrunken economy and forgot-how-to-grow, at least the LTS part, not so much the JO. Job openings, as we've said, have massively overstated labor demand, which contributed to the misperception of a strong recovery in Of course, the Fed and the mainstream hyped up job openings because, like GDP, it made their policies seem effective and successful. They weren't, and voters know it, and now quite a few politicians are starting to figure this out. But even job openings have tumbled more recently. So even though this is the most misleading labor data you'll ever see, it's misleading in the sense it overstates demand for workers, which means when it slides this badly, you know it's actually worse in the real economy. And according to the just-released November figures from the BLS, job openings unexpectedly tumbled to just 7.14 million, the worst since September of 2024, and the second lowest of the cycle. That was 11% fewer than November of 2024, and the job openings rate, which you should always convert these numbers to rates, the job openings rate set a new cycle low. In other words, even from the absolutely best possible view of employment demand, it is bad and getting worse. Meanwhile, vastly more important and more accurate, the number of hires in November dropped to just 5.1 million. That was slightly below August and very close to the cycle low that was set back in June of 2024. However, using a hiring rate, as I just said, you should always convert to a rate. So using a hiring rate, which adjusts for population growth, November 2025 sets another new low. How low? This is the same hiring rate as we saw in December of 2008. So the only major difference between November 2025 and December 2008, as far as the labor market is concerned, is simply the number of layoffs. They aren't huge now versus the millions taking place back during the massive crisis. But other than that, hiring in November of 2025 was just as dismal as the second half of 2008. So when you put it all together, put all the jolts that are together, especially the LTS parts of it, you get net turnover. And using some of the BLS math and accounting, what that shows is a net negative 83,000 in November. As I told you in the introduction, what that suggests is there were 83,000 fewer Americans hired to do a job than had been let go or quit during that month. And that was the fourth monthly net negative turnover in the last six months going back to June. So yet more evidence for job losses and flat beverage to just add that much more misery to the already miserably shunken economy. And if it's this bad already, the misery is this bad already in new car sales, as you can imagine, it's just as bad in other related things like services, like car insurance. Americans can't afford a car, they can't afford car insurance either. Because if they're not in a position to afford new cars, they're not going to be in a position to be able to keep up with increasingly expensive insurance rates. Quote, squeezed by higher costs, U.S. drivers are increasingly cutting back on car insurance. And that's throwing a wrench in the business of reselling wrecked cars. Total automotive insurance claims are down eight and a half percent this year through July, at least according to latest data from Triple C Intelligent Solutions, which tracks the collision repair market. That's despite the number of miles driven by U.S. vehicles continuing to climb over the same period, according to the U.S. Federal Highway Administration data. If you can envision literally four percent of policy, four percent of policies, no longer having coverage of any kind, and then some other portion migrating down the value chain, so to speak, from collision coverage to liability only or what have you, I don't think it's far-fetched to extrapolate from that to the kinds of unit trends that we're seeing in our business, according to Copart's chief executive officer, Jeff Law, said in the company's earnings call back in November. It really is a double dose of misery, if not triple and quadruple. And to shrink the shrunken economy even more through job losses, that's why the politicians are starting to get it, finally starting to get it. The Trump administration's guy at the Fed, for example, Mr. Murren, is arguing for 100 basis points in rate cuts from the Fed in 2026. So appearing on Fox Business yesterday, Murren said, I think the policy is clearly restrictive, talking about the Fed's interest rate policy, in holding the economy back and with underlying inflation. I think that well over 100 basis points of cuts are going to be justified this year, well over 100 basis points of cuts. The unemployment rate has poked up potentially above where people thought it was going to go, and so we've had data that should push people into a dovish direction. Now, of course, Murren is going to blame the Fed's interest rate policy. So translating what he said, he's claiming that something, something is having a negative impact on the labor market and the overall economy, and that something, according to Murren, according to economists, according to the mainstream, is the Fed's restrictive interest rates. Now, we know that's not how the labor market or interest rates, for that matter, actually work. So what's important is that even Murren is realizing the labor market is in bad shape because something is depressing it even further. And we know what that something is. I just went over it. The shrunken economy of forgot how to grow, which is now threatening to shrink the economy even more, starting with the labor market in available jobs. And it's not even threatening. We just went over this. This thing is actually happening. Flat beverages here. It's not some future risk. Employment levels are falling, not crashing, but falling nonetheless. And so unemployment is materially rising. Almost everywhere you look in the real economy, it does not look like the stock market. So there is no mystery why, for example, the car business is suffering. It never recovered. The same is true just to a less obvious and extreme degree of the overall economy. This is also why, pay attention politicians, voters are angry and lashing out. They don't care what purported side of the political aisle you're on or which one of them is in any office. What voters care about is what workers care about, which is not affordabilities that might be commonly misunderstood, rather the small economics of an already shrunk economy shrinking even more. Thus their place in the shrinking shrunken economy falling even farther behind. The numbers are all there. The story is all there. The small economics is all there. In fact, basic economics is really pretty simple and easy to understand once you remove the economists. We're getting more confirmation of that in places like gold and oil. In fact, gold and oil are actually explaining what's happening, what's going crazy in silver and copper. That's all in the video link below. As always, thank you very much for joining me. Join me next month, February 2026, Eurodial University Live, link in the description for that. Huge thanks to Eurodial University members and subscribers. And until next time, take care.