We’re Flirting With Another Recession

Meaning, it might already be here.

By Harry Dent, Economy & Markets Daily:

Back in May, we were about to go to the printer with the June issue of Boom & Bust when I put on the brakes. My team wasn’t happy to hear it since these things take time to put together. But I didn’t have a choice. I had found compelling evidence to suggest that we were not just looking at another recession, but already possibly back in one.

So, we took a close look at how we’d been flirting with recession over the first half of the year, while economists kept spouting that we had reached escape velocity. Now, after a bit of reprieve during the summer, it looks to be happening again.

We recently got the worst nonfarm payroll jobs report in months as only 142,000 jobs were created last month, with August revised almost 40,000 jobs lower. Plus, labor force participation hit a new low at 62.4%. Overall, we’ve averaged 198,000 jobs per month in 2015, compared with 260,000 jobs in 2014.

For this reason and others, I have reason to believe we’re once again falling into a recession.

What makes the jobs report so concerning is that it’s a lagging indicator – meaning, it’s following a particular trend that’s already started. It supports the possibility that recession is already here.

But let’s also review some of the indicators I looked at back in June. The U.S. Macro Surprise Index shows when indicators beat or miss expectations. Green is when we’re dancing on rooftops because everything’s better than expected. You know what red means. And you can see that 2015 has been a total miss. It’s been negative all year, with early 2015 being the worst period since early 2009.

It might be up from earlier this year, but after the last couple months, it’s dangerously close to falling again.

US Economic Surprise Index Lowest in Four Years

Another concern is sales in the retail and wholesale sectors. They’ve been declining all year. Wholesale’s actually been declining since the middle of last year. The troubling bit here is that early 2015 was the worst since late 2008 when we were entering the recession. And sure enough, we usually don’t see trends like these until a recession is on our heels.

These are more coincident indicators, suggesting a recession while it’s going on. Meaning, it might already be here.

Retails and Wholesale Sales Rolling Over

It’s no surprise then that since sales of wholesale goods are dropping, their inventories are building. That means goods are not moving off the wholesale or retail shelves. Consumers aren’t buying as much!

Fewer sales, more inventory… eventually, that means falls in production levels. Just another slowing of the economic engine. This next chart shows that. Specifically, it’s the ratio of inventories to sales. A higher ratio means a build-up in inventories and sluggish sales.

Coming off the lows of early 2011, we’re clearly in territory we haven’t seen since the last recession and approaching levels near the worst in early 2009.

Wholesaler Inventories Are Spiking

So we’ve got the economic surprise index at its lowest levels in four years… sales that are starting to roll over… inventories that are spiking…

And finally, exports that are sharply declining, partly due to global slowing, and partly due to a stronger dollar. Exports (the red line below) have slowed and are down 11% for the year – granted, nowhere near the worst levels in mid- to late-2009 when they were down 28%, but again, clearly in territory we’ve only seen in the past two recessions!

As you see, imports (the blue line) have also slowed due to slightly weaker domestic demand. But that’s no surprise, as I’ve already showed you how pitiful sales here are getting!

Exports and Imports Down as Demand Falls at Home and Abroad

Since the beginning of the year, I’ve been warning 2015 would be slower than 2014. And 2016 will only be worse.

Due to rising income inequality, it is the top 20% of households that have been holding up our economy. They’re the ones that have benefitted most from rising assets prices like stocks, as QE and zero interest rates have served only the richest of the rich. They’ve kept spending and stimulating the economy, while everybody else still struggles to get by!

But these affluent baby boomers are about to fall off their spending cliff…

Right now, the peak are at 54. That’s when they reach their final spending peak, which falls off dramatically from age 55 forward – meaning 2016 and beyond! From there, it’s a rapid decline in spending. And I’ve shown in my 30 years of research, that kind of drop means curtains for the economy.

Don’t expect us to come out of this anytime soon. Get defensive. Focus on the areas of your business that are strongest and drop the others. Subscribe to a shorting service like John’s Forensic Investor and make money while everything’s dropping. But don’t sit passively in risky assets while the fires blaze around you and your net worth falls 30-50%. I assure you – it’s going to be ugly. By Harry Dent, Economy & Markets Daily.

Millennials, America’s largest generation, is different from boomers and faces a tough economic climate. Read… How Millennials Impact the US Economy

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  16 comments for “We’re Flirting With Another Recession

  1. VegasBob says:

    This feels very much like October 2007, with a few differences.

    The stock market has rebounded to within 5-6% of its 2015 highs, though 2015-Q3 S&P 500 earnings are expected to be as much as 10% below 2014-Q3 earnings. This is pure lunacy.

    The Obama Administration, nearly all economists, and all their media sycophants keep touting the nonsensical idea that we are in a ‘recovery’ and everything is great.

    We can deny or ignore unpleasant realities to our dying day, but neither denial nor willful ignorance changes reality.

    Short-term interest rates have been held near zero for almost 7 years (ZIRP).

    The Federal Reserve has printed up nearly $4 trillion of counterfeit electronic dollars under its euphemistically-named “quantitative easing” (QE) programs.

    ZIRP and QE have successfully blown the second biggest stock market bubble in history (late 1999 – early 2000 was a tad worse), the biggest bond bubble in world history, and an echo housing bubble that has exceeded the lunacy of the 2004-2007 housing bubble in some areas. None of the foregoing is of any particular benefit to the formerly middle class. Rather, the formerly middle class has been economically crucified.

    The Federal Reserve proved in September that they cannot raise interest rates. If they do, all three bubbles will probably explode and the whole Potemkin economy is likely to come crashing down.

    The labor participation rate is circling the drain, hovering near 40 year lows.

    New job creation has been declining for several months, while most of the jobs allegedly created during the ‘recovery’ have been low-skill low-wage jobs. And I suspect most of those jobs are 29-hour per week jobs, designed to save the employer the expense of complying with Obamacare.

    The number of people on SNAP (aka food stamps) has increased from about 28 million in 2008 (last full year of Bush) to about 46 million now. This is more than a 50% increase over 7 years.

    The national debt has risen from about $10 trillion toward the end of the Bush administration to about $18.1 trillion now, an 80% increase.

    In short, not one problem that nearly brought down the world economy in 2008-2009 has been fixed. The problems have just been papered over with zero interest rates, money printing, expansion of government social programs and corporate accounting fraud.

    It ought to be obvious to thinking people that we’ve blown trillions of dollars trying to gin up an economic recovery the past 7 years, but all we’ve managed to do is stave off collapse. The economy is still like a brain-dead patient in intensive care, being kept alive through extraordinary measures which have so far failed to restore the patient to health.

    Those who think they see a light at the end of the tunnel are going to be shocked when they realize that the bright light is the same disaster-laden freight train that almost derailed the world economy in 2008-2009 – except that this time it’s probably traveling at about 160 mph, instead of only 80 mph.

    And do you know what the saddest irony will be? Every one of the fools in charge will parrot the same idiotic line they were parroting in 2008-2009.

    “Nobody could have seen it coming.”

    • Spud says:

      VegasBob – did you frequent the housing panic blog a long time ago? Nice post BTW.

      • VegasBob says:

        The VegasBob who posted on the Housing Bubble Blog is me. Thanks for your kind words.

    • MissedItByATick says:

      I don’t usually comment, but felt compelled to say “Kudos” to VegasBob for his thoughtful and eloquently written post. Excellent job.

    • Andrew says:

      Beautiful post Bob, dead on.

      Middle class has been castrated by the Federal Reserve who pretends that saved it. They’ve been (asset) inflated into irrelevance.

  2. What says:

    So with all the data we have of how bad things are, why are the markets still going up? Are we focused on the negative and ignoring all the positive?

    • Wolf Richter says:

      What positives? Like falling corporate revenues and falling earnings? S&P 500 revenues have been falling all year – and are expected to fall for the rest of the year. Falling revenues aren’t exactly, in a classic sense, a positive for stocks.

      And stocks haven’t actually been very hot this year.

    • Makaikai says:

      Corporate buy-backs and financial engineering my friend. Thank your local activist investor or CPA. Nothing is being pumped back into corporate America to fuel innovation or growth.

      • walter map says:

        If you look closely you’ll notice the U.S. economy is being liquidated. You don’t invest in an operation you plan to eventually terminate. You just maximize extraction until it no longer generates profit, and then you shut it down.

        As you say, the economy never really recovered from the 2007 recession. Asset prices were merely supported with debt, for which liability has been externalized to those who don’t actually own the assets. In the same way, you could easily argue that the 2000 recession never really ended either, because the U.S. economy only ‘recovered’ by throwing trillions in federal debt at it with the Bush tax cuts for the rich, which have never ended. And with legalized mortgage loansharking: the mafia is SO jealous.

        If you look a little more closely, you’ll notice that the U.S. is a debt peon, because absent the means, due to the hollowing out of the U.S. economy, that debt has become unserviceable. The bottom will fall out eventually, and when it does, it’s not just going to be ugly. It’s going to be Weird ugly.

        Happy Halloween.

  3. Mark C. says:

    The “Recession” came and went long ago-we are in an ever deepening DEPRESSION and meltdown-they are holding things together-but just barely

  4. Mark says:

    The s&p can be deceptive, the 500 is probably weighed down by the energy sector and other corporate biases, but most other corporations are doing better than what is suggested by the markets right now

    • Wolf Richter says:

      The healthcare sector is the only sector that is really killing it (so to speak). And for all the wrong reasons, such as the monopolistic behavior and set-up of the sector.

  5. Dan Romig says:

    “But these affluent baby are about to fall of their spending cliff …”, pretty much sums up my situation, but I’m not sure how affluent I am.

    Hell, the recession is here, and after reading this post, I take the blame. You see, I am 53 years old, and I spend very little to live quite well. I own a nice, but modest house that’s been paid off for years. I drive vehicles that work quite well and are paid for, and I’ve never had a car or motorbike that I didn’t pay cash for straight-out at purchase. I go to the farmers’ market and prepare meals at home rather than drop cash at restaurants.

    OK, enough about me, but I do see that my simple lifestyle is not going to be easy to replicate by the generation that’s in high school and University today, and I agree with VegasBob’s analysis.

    If next year’s Presidential election comes down to Bush vs. Clinton, please vote for ‘None of the Above’. The two party status quo is controlled by the 0.01%, and they have no problem decimating the once proud middle class.

  6. lg says:

    The recession started in December of 2014.

  7. walter map says:

    Of course, for millions of people, the recession never ended. And for millions of those, it’s always a Depression.

    There’s something seriously wrong with a system that keeps so many millions of people in poverty, even if they work and always work long hours. But that’s federal policy. The purpose of the U.S. economy is to enrich the wealthy. Supporting the general population is in no way a policy goal. So it doesn’t. Most people in the U.S. are allowed to support themselves only on one condition: that they make the rich richer. Otherwise they’re disposable, commodities with no value.

    Why, when the situation is so clear and alarming, does it remain so
    stubbornly intractable to change? It is because those who have power in the world want it to be this way.

  8. Julian the Apostate says:

    VegasBob did a wonderful job with his comment. And Wolf is right that there simply are no positives. The moochers are out again in the truckstops and on many street corners across the country. This in spite of the increase in those who have swelled the welfare rolls. The current prevailing attitude is that you are a chump if you’re not lining up for the freebies. They all expect this manna from heaven to continue ad infinitum even though state governments are unable to meet their unfunded liabilities and are cutting programs. Upper middle range cars are stickered at twice what I paid for my first new 3 bedroom house with a full basement and single car garage. Indeed Wolf, what positives? Although I very much enjoy reading Mr. Dent’s comments I wonder if this retraction in baby boomer spending might not get postponed a few years as those of us who might have retired feel like we’re riding that proverbial tiger and keep working as long as we can, until we die in harness or are forced out by health issues. I’ve never been a doomsday prophet and am not now. I was never a Boy Scout either but that whole be prepared thing makes more and more sense as time goes on?

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