Credit spreads will widen in our view primarily driven by job losses and increases in the cost of goods and services.
There is downward pressure on jobs as we usher in the fall season. Seasonal summer jobs essentially work their way to zero from Labor Day to Columbus Day. Government jobs around the U.S. Census bolstered employment numbers during the summer months and those jobs will abate for the remainder of the year. Companies will continue to hold tight on labor and in many instances reduce staff – especially in the absence of another fiscal stimulus effort and in the face of economic and geopolitical uncertainty.
Fiscal stimulus is coming but it won’t save jobs. We believe another stimulus package is coming. It is difficult to say when. The opportunity for politicians to spend other people’s money is too great to pass up. A stimulus package won’t save jobs however. It will only prolong the inevitable. Weak, under-capitalized companies will eventually go out of business. Mid-market companies will lose share to larger competitors. Many companies will lay off thousands of employees in the interim.
China decoupling will drive supply-side costs higher. Should President Trump win a second term and should the U.S. and China decouple (China is doing so to a degree regardless of the U.S. election outcome) the cost of goods and services will increase for U.S. consumers and businesses. The combination of job losses and supply chain price increases will dampen demand for the remainder of the decade.