Even though High Tech Stocks are Cleaning up, the Economy is a Mess

Economists and politicians like to stick to the one big number to indicate how the economy is doing—GDP. However, as the first article below points out an economy can be in big trouble in many areas and still look OK on the top line. That article claims many signs say the economy is already in recession.

The dichotomy between what GDP says right now and what most other metrics at the more work-a-day level say parallels what we see in the stock market, where the S&P 500 has looked great most of the year, but it has only been because of the Magnificent Seven AI/Tech stocks. Take those out and the remaining S&P 493 has looked weak and wobbly for a long time!

An index that leaves out the seven high-flying tech firms — call it the S&P 493 — reveals a far weaker picture, as smaller and lower-tech companies report lackluster sales and declining investment.

Which do you suppose is the more accurate indicator of how the overall economy, particularly the “Main Street” economy is doing—the Magnificent Seven or all the rest?

Smaller companies have posted lackluster financial results recently, said Wells Fargo senior market strategist Scott Wren, who notes that a little more than a third of the companies in the Russell 2000 index either don’t make money or are losing money. Smaller companies are being hit harder by a slowing economy, he said, as they have less of a cushion to absorb import price increases resulting from tariffs, and less flexibility to avoid the new duties by shifting their supply chains.

Not only are the major indices overstating the economy due to the skew from the top seven high-tech stocks, but GDP is a garbage number, anyway. “Real GDP,” which is the number everyone really refers to when talking about GDP growth versus recession, will look overstated if inflation is actually higher than the government statisticians are claiming (as I am certain is the case right now.) To the extent inflation is not properly subtracted, part of what you are measuring in GDP is inflation and not economic growth. We didn’t produce more goods. We produced fewer goods that were more expensive. GDP is priced in dollars.

Don’t just take my word for it, Treasury Secretary Scott Bessent recently acknowledged that sectors of the economy are already in serious downturn territory.

Here are the underlying signs the economy is in recession

I’ve called this the “stealth recession” because we are not seeing it in the top economic number, though GDP did go slightly negative in the first quarter. The underlying signs of trouble are, however, looking just like they do in a recession.

Housing is now looking shaky with Zillow recently showing that 53% of homes on the market are seeing price drops, but statistics show growth in home construction went nowhere at all, albeit along a bumpy trail all year, even as inventory of unsold homes continues to grow.

Commercial real estate has been in decline for six consecutive quarters now. That is in spite of all the chip factories that were talked about in the Bidenomics days and the deals Trump says he has struck to produce chips inside the nation. It is in spite of all the data centers being built. Some of those things may take awhile to start happening to the degree promised, but so far building applications and planning (tracked by the American Institute of Architects) show no signs of any improvement in the future.

Restaurants are, by and in large, reporting weak sales and low margins due to having to shoulder the cost of tariffs and consequent supply shortages that are making life rough in an industry that is always toughly competitive. This does not make fertile ground for employment to grow across a very large Main Street industry. Indications are restaurants have retained employees and are now overstaffed, so layoffs may be coming in early 2026, depending on how much of a boost restaurants get during the holidays. They may just be waiting to make it through this period of high travel and shopping, which result in more dining out, so are keeping the employees they hope they’ll need; then they may face having to let them go after the holidays are over and things slow way back down.

Unemployment isn’t rising much, but job growth has turned negative to a degree that is well into the realm of recession. The lack of significant change in the unemployment rate likely has more to do with DOGE firings of the data collectors followed by the government shutdown than with unemployment actually holding steady. So, there could be a surprise coming. People are now self-reporting the lowest probability of finding a job within three months since the end of the Great Recession in 2014. Announced layoffs (ex-government and non-profit) have spiked this year to much higher than was seen during the Great Recession. Only the huge lockdowns in the CovidCrisis look worse.

Freight is grinding down. I recently reported from Freightwaves that the freight industry looks completely like an industry that has entered recession, and freight tends to be a leading economic indicator.

Ship counts from Asia to the US are down roughly 30% from last year. Railcar loadings are down roughly 6% against last year. The trucking industry also continues to see shrinking capacity. If there are fewer things to move around the country, then the industry will likewise need fewer drivers, loaders, and various workers.

Fed up with bad numbers

The Fed says it is in a quandary about how everything in labor contradicts what they see in GDP, so they are calling it a peculiar “jobless expansion,” and they say that makes it hard to know how to navigate. I think it is far more likely that there simply is no expansion.

Something in the US economy isn’t adding up, and it’s rattling the people charged with wrangling inflation and keeping the labor market intact….

US companies have sharply slowed their hiring this year, hesitant to invest without knowing the full effects of President Donald Trump’s sweeping economic policies. The economy lost jobs in June and August….

Yet workers’ productivity, a key driver of economic output, remains high. And gross domestic product, which captures all the goods and services produced in the economy, has stayed robust.

The fed is baffled because it is beguiled by too much trust in the government data. The solution to their quandary is simple: we have fake GDP due to poor government reporting in both its raw GDP data, barely collected as it has been, and its inflation metrics. The Fed can’t quite accept that as a fact because it has been so long wedded to those government agency reports.

Yet, even the Fed has said the government’s numbers don’t seem to add up, and, since the DOGE cuts, the numbers have only gotten worse due to the government shutdown. Many of the economists in articles I’ve been reporting on have brought up their concerns about the DOGE cuts and shutdown causing a big deterioration in the data.

So, the Fed’s quandary is just proof that the broader data (GDP and the overall unemployment rate) do not add up with what all the other non-government data shows about the economy, and that confirms the broader government data is off, since it is the data effected by all the government cuts.

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