Something has just happened that has signaled a recession every single time that it has occurred since World War I. 16 times since 1919 there have been at least 8 month-over-month declines in industrial production during the preceding 12 month period, and in each of those 16 instances the U.S. economy has plunged into recession. Now that it has happened again, will the U.S. economy beat the odds and avoid a major economic downturn? I certainly wouldn’t count on it. As I have written about repeatedly, there are a whole host of other numbers that are screaming that a new recession is here, and global financial markets are crumbling. It would take a miracle of epic proportions to pull us out of this tailspin, and yet there are many people out there that are absolutely convinced that it will happen.
John Hussman is not one of them. In his most recent weekly comment, he examined this stunning correlation between month-over-month declines in industrial production and recessions. To me, what Hussman has presented is overwhelmingly conclusive…
Last week, following a long period of poor internals and weakening order surplus, we observed fresh declines in industrial production and retail sales. Industrial production has now also declined on a year-over-year basis. The weakness we presently observe is strongly associated with recession. The chart below (h/t Jeff Wilson) plots the cumulative number of month-over-month declines in Industrial Production during the preceding 12-month period, in data since 1919. Recessions are shaded. The current total of 10 (of a possible 12) month-over-month declines in Industrial Production has never been observed except in the context of a U.S. recession. Historically, as Dick Van Patten would say, eight is enough.
After looking at that chart, is there anyone out there that still doubts that the U.S. economy is in significant trouble?
Many estimates of U.S. GDP growth for the fourth quarter of 2015 are already just a small fraction of one percent. It would not be a surprise at all to see a negative number posted once it is all said and done.
And of course more bad news for the economy just keeps pouring in. So far this week we have learned that the growth rate of federal withholding taxes has turned negative, Johnson & Johnson plans has announced that it is eliminating 3,000 jobs, and BP has announced that it is eliminating 4,000 jobs.
Of course it is not exactly a surprise that BP is cutting jobs. At this point the entire energy industry is absolutely hemorrhaging workers. As I wrote about yesterday, 130,000 good paying energy jobs have been lost in the United States since the beginning of last year.
But now we are seeing major firms outside the energy industry cutting payrolls. Even financial giants such as Morgan Stanley are looking for ways to cut costs…
Morgan Stanley just announced fourth-quarter earnings, and it is providing detail to investors on a cost-saving plan called Project Streamline.
During a conference call, CEO James Gorman uttered a sentence that will most likely make the bank’s staff shudder.
“Too many employees based in high-cost centers are doing work that can sensibly be done in lower-cost centers,” he said.
The whole environment is changing.
When things start to get tough, big corporations start to get rid of people. We saw this back in 2008, and it is starting to happen again right now.
And just like last time around, we are going to see millions of Americans lose their jobs during the hard years that are ahead of us.
But thankfully for the moment there is a brief lull in the action. The financial turmoil that has gripped the planet was calmed on Tuesday when China announced that their economy grew at a rate of 6.8 percent during the fourth quarter of 2015. This was right in line with expectations, and markets around the world responded positively to the news.
There is just one huge problem. Everyone knows that GDP figures coming out of China are essentially meaningless. If you believe that the Chinese economy actually grew at a 6.8 percent rate during the fourth quarter of 2015, then I have a bridge to sell you. Virtually every other number coming out of China over the past several months tells us that the Chinese economy is shrinking, and so that 6.8 percent figure is extremely questionable at best.
Do you want to know the last time the communist Chinese admitted to having a recession?
It was in 1976.
Over the past four decades, economic growth figures have become a source of great national pride for China. To admit that the economy is now imploding would bring great shame on the Chinese government and the nation as a whole, and so that must be avoided at all costs.
Yes, the numbers are fraudulent in the U.S. too. According to John Williams of shadowstats.com, if the U.S. was actually using honest numbers the last recession never would have technically ended.
But in China they take this to ridiculous extremes. The Chinese economy is fueled by exports, and Chinese exports have been down on a year over year basis for six months in a row. And the primary reason why commodity prices have been absolutely collapsing is because of the economic contraction in China.
Of course if China had released a GDP number that was honest, global markets would have crashed hard. So their lies are making everyone else feel a bit better for the moment, and every day of relative stability that we can enjoy from here on out is something to be thankful for.
As you read this article, markets all over Asia, Europe, South America and the Middle East are already in bear market territory. More than 30 percent of the market has been wiped out in Brazil and Hong Kong, more than 40 percent of the market has been wiped out in China and Italy, and about 50 percent of the market has been wiped out in Saudi Arabia.
We are already experiencing a major global financial crisis.
The only question remaining is how bad it will eventually become.
Let us hope for more days like this one that are relatively calm. But I wouldn’t count on things turning around significantly any time soon, because the economic fundamentals are telling us that big trouble is ahead.
The 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. We have just learned that Japan (the third largest economy in the world) has lapsed into recession. So has Canada. So has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year. At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low. Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.
Throughout 2015, the U.S. dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before. But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem. As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining. Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.
Many Americans may be wondering when “the next economic crisis” will arrive, but nobody in Brazil is asking that question. Thanks to the rising U.S. dollar, Brazil has already plunged into a very deep recession…
As Brazilian president Dilma Rousseff combats a slumping economy and corruption accusations, the country’s inflation surged above 10 percent while unemployment jumped to 7.9 percent, according to the latest official data. The dour state of affairs has Barclays forecasting a 4 percent economic contraction this year, followed by 3.3 percent shrinkage next year, the investment bank said in a research note last week.
The political and economic turmoil has recently driven the real, Brazil’s currency, to multiyear lows, a factor helping to stoke price pressures.
And as I mentioned above, Brazil is far from alone. This is something that is happening all over the planet, and the process appears to be accelerating. One of the places where this often first shows up is in the trade numbers. The following comes from an article that was just posted by Zero Hedge…
“This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines – having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”
Many “experts” seem mystified by all of this, but the explanation is very simple.
For years, global economic growth was fueled by cheap U.S. dollars. But since the end of QE, the U.S. dollar has been surging, and according to Bloomberg it just hit a 12 year high…
The dollar traded near a seven-month high against the euro before the release of minutes of the Federal Reserve’s October meeting, when policy makers signaled the potential for an interest-rate increase this year.
A trade-weighted gauge of the greenback is at the highest in 12 years as Fed Chair Janet Yellen and other policy makers have made numerous pronouncements in the past month that it may be appropriate to boost rates from near zero at its Dec. 15-16 gathering. The probability the central bank will act next month has risen to 66 percent from 50 percent odds at the end of October.
But even though the wonks at the Federal Reserve supposedly know the damage that a strong dollar is already doing to the global economy, they seem poised to make things even worse by raising interest rates in December…
Most Federal Reserve policymakers agreed last month that the economy “could well” be strong enough in December to withstand the Fed’s first Interest rate hike in nearly a decade, according to minutes of its meeting Oct. 27-28.
The officials said global troubles had eased and a delay could increase market uncertainty and undermine confidence in the economy.
The meeting summary provides the clearest evidence yet that a majority of Fed policymakers are leaning toward raising the central bank’s benchmark rate next month, assuming the economy continues to progress.
Considering the tremendous amount of damage that has already been done to the global economy, this is one of the stupidest things that they could possibly do.
But it looks like they are going to do it anyway.
It has been said that those that refuse to learn from history are doomed to repeat it.
And right now so many of the exact same patterns that we saw just before the great financial crisis of 2008 are playing out once again right in front of our eyes.
A lot of people out there seem to assume that once we got past the September/October time frame that we were officially out of “the danger zone”.
But that is not true at all.
The truth is that we have already entered a new global economic downturn that is rapidly accelerating, and the financial shaking that we witnessed in August was just a foreshock of what is coming next.
Let us hope that common sense prevails and the Fed chooses not to raise interest rates at their next meeting.
Because if they do, it will just make the global crisis that is now emerging much, much worse.
If the U.S. economy really is in “great shape”, then why do all of the numbers keep telling us that we are in a recession? The manufacturing numbers say that we are in a recession, the trade numbers say that we are in a recession, and as you will see below the retail numbers say that we are in a recession. But just like in 2008, the Federal Reserve and our top politicians will continue to deny that a major economic downturn is happening for as long as they possibly can. In this article, I want to look at more signs that a dramatic shift is happening in our economy right now.
First of all, let’s consider what is happening to hedge funds. For many years, hedge funds had been doing extremely well, but now they are closing up shop at a pace that we haven’t seen since the last financial crisis. The following is an excerpt from a Business Insider article entitled “Hedge funds keep on imploding” that was posted on Wednesday…
BlackRock is winding down its Global Ascent Fund, a global macro hedge fund that once contained $4.6 billion in assets, according to Bloomberg’s Sabrina Willmer.
“We believe that redeeming the Global Ascent Fund was the right thing to do for our clients, given the headwinds that macro funds have faced,” a BlackRock spokeswoman told Business Insider.
The winding down of the Ascent fund is the second high-profile hedge fund closing in 24 hours. The Wall Street Journal reported Tuesday that Achievement Asset Management, a Chicago-based hedge fund, was closing.
And those are just two examples. Quite a few other prominent hedge funds have shut down recently, and many are wondering if this is just the beginning of a major “bloodbath” on Wall Street.
Another troubling sign is the implosion of so many energy companies. Just like in 2008, a major crash in the price of oil is hitting the energy sector really hard. Just check out these stock price declines…
-Cabot Oil & Gas down 37.27 percent over the past 12 months
-Southwestern Energy down 68.11 percent over the past 12 months
-Chesapeake Energy down 73.98 percent over the past 12 months
A number of smaller energy companies have already gone out of business, and several of the big players are teetering on the brink. If the price of oil does not rebound significantly very soon, it is just a matter of time before the dominoes begin to fall.
We are also seeing tremendous turmoil in the retail industry. The following comes from Investment Research Dynamics…
The retail sales report for October was much worse than expected. Not only that, but the Government’s original estimates for retail sales in August and September were revised lower. A colleague of mine said he was chatting with his brother, who is a tax advisor, this past weekend who said he doesn’t understand how the Government can say the economy is growing (Hillary Clinton recently gave the economy an “A”) because his clients are lowering their estimated tax payments. Businesses lower their estimated tax payments when their business activity slows down.
The holiday season is always the best time of the year for retailers, but in 2015 there is a lot of talk of gloom and doom. Most large retailers will not start announcing mass store closings until January or February, but without a doubt many analysts are anticipating that once we get past the Christmas shopping season we will see stores shut down at a pace that we haven’t seen since at least 2009. Here is more from the article that I just quoted above…
Retail sales this holiday season are setting up to be a disaster. Already most retailers are advertising “pre-Black Friday” sales events. Remember when holiday shopping didn’t begin, period, until the day after Thanksgiving? Now retailers are going to cannibalize each other with massive discounting before Thanksgiving. Anybody notice over the weekend that BMW is now offering $6500 price rebates? The collapsing economy is affecting everyone, across all income demographics.
Last week we saw the stocks of Macy’s, Nordstrom and Advance Auto Parts do cliff-dives after they announced their earnings. I mentioned to a colleague that the Nordstrom’s report should be the most troubling for analysts. Nordstrom in their investor conference call said that they began seeing an “unexplainable slowdown in sales in August in transactions across all formats, across all catagories and across all geographies that has yet to recover.”
I think that a chart would be helpful to give you an idea of how bad things have already gotten. Jim Quinn shared this in an article that he just posted, and it shows the change in retail sales once you remove the numbers for the auto industry. As you can see, the numbers have never been this dreadful outside of a recession…
But stocks went up 247 points on Wednesday so everything must be great, right?
The stock market has never been a good barometer for the overall economy, and this is especially true these days.
In 2008, stocks didn’t crash until well after the U.S. economy as a whole started crashing, and the same thing is apparently happening this time around as well.
One of the things that is keeping stocks afloat for the moment is stock buybacks. In recent years, big corporations have spent hundreds of billions of dollars buying back their own stocks. The following comes from Wolf Richter…
IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It’s staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.
Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They’re all doing it.
Later in that same article, Richter explains that almost 60 percent of all publicly traded non-financial corporations have engaged in stock buybacks over the past five years…
Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.
Big corporations like to do this for a couple of reasons. Number one, it pushes the price of the stock higher, and current investors appreciate that. Number two, corporate executives are usually in favor of conducting stock buybacks because it increases the value of their stock options and their own stock holdings.
But now corporate profits are falling and it is becoming tougher for big corporations to borrow money. So look for stock buybacks to start to decline significantly.
Even though it is taking a bit longer than many would have anticipated, the truth is that we are right on track for a massive financial collapse.
All of the indicators that I watch are flashing red, and even though things are moving slowly, they are definitely moving in the same direction that we saw in 2008.
But just like in 2008, there will be people that mock the warnings up until the day when it becomes completely and utterly apparent that the mockers were dead wrong.
If you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived. Never before in history has global trade collapsed this dramatically outside of a major worldwide recession. And this makes perfect sense – when global economic activity is increasing there is more demand for goods and services around the world, and when global economic activity is decreasing there is less demand for goods and services around the world. So far this year, global trade is down about 8.4 percent, and over the past 30 days the Baltic Dry Index has been absolutely plummeting. A month ago it was sitting at a reading of 809, but now it has fallen all the way to 628. However, it is when you look at the trade numbers for specific countries that the numbers become particularly startling.
Just within the last few days, new trade numbers have come out of China. China accounts for approximately one-fifth of all global factory exports, and for many years Chinese export growth has helped fuel the overall global economy.
But now Chinese exports are falling. In October, Chinese exports were down 6.9 percent compared to a year ago. That follows a decline of 3.7 percent in September.
The numbers for Chinese imports are even worse. Chinese imports in October were down 18.8 percent compared to a year ago after falling 20.4 percent in September. China’s growing middle class was supposed to help lead a global economic recovery, but that simply is not happening.
The following chart from Zero Hedge shows just how dramatic these latest numbers are compared to what we are accustomed to witnessing. As you can see, the only time Chinese trade numbers have been this bad for this long was during the major global recession of 2008 and 2009…
Other numbers confirm the magnitude of the economic slowdown in China. I have mentioned the ongoing plunge of the China Containerized Freight Index previously, but now it has just hit a brand new record low…
The weakness in China’s economy and its exports to the rest of the world are showing up in the weekly China Containerized Freight Index (CCFI): On Friday, it dropped to the worst level ever.
The index, operated by the Shanghai Shipping Exchange, tracks how much it costs, based on contractual and spot-market rates, to ship containers from China to 14 major destinations around the world. Unlike a lot of official data from China, the index is an unvarnished reflection of a relentless reality.
It has been cascading lower since February and has since dropped 31%. At 742 currently, it’s down 26% from its inception in 1998 when it was set at 1,000.
Here are some more deeply disturbing global trade numbers that come from my previous article entitled “18 Numbers That Scream That A Crippling Global Recession Has Arrived“…
–Demand for Chinese steel is down 8.9 percent compared to a year ago.
–China’s rail freight volume is down 10.1 percent compared to last year.
–In October, South Korean exports were down 15.8 percent from a year ago.
–According to the Dutch government index, a year ago global trade in primary commodities was sitting at a reading of 150 but now it has fallen all the way down to 114. What this means is that less commodities are being traded around the world, and that is a very clear sign that global economic activity is really slowing down.
Additionally, German export orders were down about 18 percent in September, and U.S. exports are down about 10 percent for the year so far.
Clearly something very big is happening, and it is affecting the entire planet. The CEO of the largest shipping company in the world believes that the explanation for what is taking place is fairly simple…
In fact, according to Maersk CEO, Nils Smedegaard Andersen, the reason why companies that are reliant on global trade, such as his, are flailing is simple: global growth is substantially worse than the official numbers and forecasts. To wit: “The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.”
Quoted by Bloomberg, Andersen says that “we believe that global growth is slowing down,” he said in a phone interview. “Trade is currently significantly weaker than it normally would be under the growth forecasts we see.“
Global financial markets can run, but they can’t hide from these horrifying trade numbers forever.
One of the big things that is contributing to this new global economic slowdown is the unwinding of the U.S. dollar carry trade. A recent piece from Phoenix Capital Research explained the U.S. dollar carry trade pretty well…
When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.
And if you can borrow in US Dollars at 0.25%… and put that money into anything yielding more… you could make a killing.
A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%… locking in a $9.75 million return.
This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.
Simply put, the US Government was practically giving money away and the world took notice, borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $9 TRILLION (larger than the economy of France and Brazil combined).
But now the U.S. dollar carry trade is starting to unwind because the U.S. dollar has been doing very well lately. As the U.S. dollar has surged against other global currencies in 2015, this has put a tremendous amount of stress on emerging markets around the world. All of a sudden oil, other commodities and stock markets in nations such as Brazil began to crash. Meanwhile, those that had taken out loans denominated in U.S. dollars were finding that it was taking far more of their own local currencies to service and repay those loans. This financial crunch in emerging markets is going to take years to fully play out, and it is going to take a tremendous toll on global markets.
Of course we have seen this happen before. A surging dollar helped cause the Latin American debt crisis of the 1980s, the Asian financial crisis of the 1990s and the major global recession of 2008 and 2009.
If you thought that the financial shaking that happened in late August was bad, the truth is that it was nothing compared to what is now heading our way.
So buckle your seat belts boys and girls, because we are definitely in for a bumpy ride.
If the U.S. economy really is improving, then why are big U.S. retailers permanently shutting down thousands of stores? The “retail apocalypse” that I have written about so frequently appears to be accelerating. As you will see below, major U.S. retailers have announced that they are closing more than 6,000 locations, but economic conditions in this country are still fairly stable. So if this is happening already, what are things going to look like once the next recession strikes? For a long time, I have been pointing to 2015 as a major “turning point” for the U.S. economy, and I still feel that way. And since I started The Economic Collapse Blog at the end of 2009, I have never seen as many indications that we are headed into another major economic downturn as I do right now. If retailers are closing this many stores already, what are our malls and shopping centers going to look like a few years from now?
The list below comes from information compiled by About.com, but I have only included major retailers that have announced plans to close at least 10 stores. Most of these closures will take place this year, but in some instances the closures are scheduled to be phased in over a number of years. As you can see, the number of stores that are being permanently shut down is absolutely staggering…
180 Abercrombie & Fitch (by 2015)
75 Aeropostale (through January 2015)
150 American Eagle Outfitters (through 2017)
223 Barnes & Noble (through 2023)
265 Body Central / Body Shop
66 Bottom Dollar Food
25 Build-A-Bear (through 2015)
32 C. Wonder
120 Chico’s (through 2017)
200 Children’s Place (through 2017)
17 Christopher & Banks
70 Coach (fiscal 2015)
70 Coco’s /Carrows
300 Deb Shops
340 Dollar Tree/Family Dollar
39 Einstein Bros. Bagels
50 Express (through 2015)
31 Frederick’s of Hollywood
50 Fresh & Easy Grocey Stores
65 Future Shop (Best Buy Canada)
54 Golf Galaxy (by 2016)
50 Guess (through 2015)
127 Jones New York Outlet
10 Just Baked
28 Kate Spade Saturday & Jack Spade
400 Office Depot/Office Max (by 2016)
63 Pep Boys (“in the coming years”)
100 Pier One (by 2017)
20 Pick ’n Save (by 2017)
1,784 Radio Shack
13 Ruby Tuesday
10 SpartanNash Grocery Stores
55 Staples (2015)
133 Target, Canada (bankruptcy)
31 Tiger Direct
200 Walgreens (by 2017)
10 West Marine
338 Wet Seal
80 Wolverine World Wide (2015 – Stride Rite & Keds)
So why is this happening?
Without a doubt, Internet retailing is taking a huge toll on brick and mortar stores, and this is a trend that is not going to end any time soon.
But as Thad Beversdorf has pointed out, we have also seen a stunning decline in true discretionary consumer spending over the past six months…
What we find is that over the past 6 months we had a tremendous drop in true discretionary consumer spending. Within the overall downtrend we do see a bit of a rally in February but quite ominously that rally failed and the bottom absolutely fell out. Again the importance is it confirms the fundamental theory that consumer spending is showing the initial signs of a severe pull back. A worrying signal to be certain as we would expect this pull back to begin impacting other areas of consumer spending. The reason is that American consumers typically do not voluntarily pull back like that on spending but do so because they have run out of credit. And if credit is running thin it will surely be felt in all spending.
The truth is that middle class U.S. consumers are tapped out. Most families are just scraping by financially from month to month. For most Americans, there simply is not a whole lot of extra money left over to go shopping with these days.
In fact, at this point approximately one out of every four Americans spend at least half of their incomes just on rent…
More than one in four Americans are spending at least half of their family income on rent – leaving little money left to purchase groceries, buy clothing or put gas in the car, new figures have revealed.
A staggering 11.25 million households consume 50 percent or more of their income on housing and utilities, according to an analysis of Census data by nonprofit firm, Enterprise Community Partners.
And 1.8 million of these households spend at least 70 percent of their paychecks on rent.
The surging cost of rental housing has affected a rising number of families since the Great Recession hit in 2007. Officials define housing costs in excess of 30 percent of income as burdensome.
For decades, the U.S. economy was powered by a free spending middle class that had plenty of discretionary income to throw around. But now that the middle class is being systematically destroyed, that paradigm is changing. Americans families simply do not have the same resources that they once did, and that spells big trouble for retailers.
As you read this article, the United States still has more retail space per person than any other nation on the planet. But as stores close by the thousands, “space available” signs are going to be popping up everywhere. This is especially going to be true in poor and lower middle class neighborhoods. Especially after what we just witnessed in Baltimore, many retailers are not going to hesitate to shut down underperforming locations in impoverished areas.
And remember, the next major economic crisis has not even arrived yet. Once it does, the business environment in this country is going to change dramatically, and a few years from now America is going to look far different than it does right now.
If U.S. economic growth falls any lower, we are officially going to be in recession territory. On Wednesday, we learned that U.S. GDP grew at a 0.2 percent annual rate in the first quarter of 2015. That was much lower than all of the “experts” were projecting. And of course there are all sorts of questions whether the GDP numbers the government feeds us are legitimate anyway. According to John Williams of shadowstats.com, if honest numbers were used they would show that U.S. GDP growth has been continuously negative since 2005. But even if we consider the number that the government has given us to be the “real” number, it still shows that the U.S. economy has stalled out. It is almost as if we have hit a “turning point”, and there are many out there (including myself) that believe that the next major economic downturn is dead ahead. As you will see in this article, a whole bunch of things are happening right now that we would expect to see if a recession was beginning. The following are 16 signs that the economy has stalled out and the next economic downturn is here…
#1 We just learned that U.S. GDP grew at an anemic 0.2 percent annual rate during the first quarter of 2015…
The gross domestic product grew between January and March at an annualized rate of 0.2 percent, the U.S. Commerce Department said, adding to the picture of an economy braking sharply after accelerating for much of last year. The pace fell well shy of the 1 percent mark anticipated by analysts and marked the weakest quarter in a year.
#2 If you strip a very unusual inventory buildup out of the GDP number, U.S. GDP would have actually fallen at a -2.5 percent annual rate during the first quarter…
The only good news: the massive inventory build, the largest since 2010, boosted GDP by nearly 3.0%. Without this epic stockpiling of non-farm inventory which will have to be liquidated at some point (and at a very low price) Q1 GDP would have been -2.5%.
#3 Our trade deficit with the rest of the planet is absolutely killing our economic growth. According to the Reality Chek Blog, U.S. economic growth would have been a total of 8 percent higher since the end of the last recession if we actually had balanced trade with other nations…
As of the new first quarter figures, the worsening of the trade deficit has reduced the cumulative real growth of the U.S. economy by 7.99 percent since the current recovery began in the second quarter of 2009.
#4 According to numbers that were just released by the Bureau of Labor Statistics, in one out of every five American families nobody has a job. So how in the world can the “unemployment rate” be sitting at “5.5 percent” when everyone is unemployed in 20 percent of all families in the United States? It doesn’t make any sense.
#5 The rate of homeownership in the United States has just hit a brand new 25 year low. How can anyone claim that the middle class is “healthy” when the percentage of Americans that own a home is the lowest that it has been in more than two decades?
#6 Back in 2013, 31 percent of all Americans said that they did not anticipate buying a home “for the foreseeable future”. Just two years later, that number has risen to 41 percent.
#7 The student loan bubble is clearly bursting. According to Bloomberg, only 37 percent of all student loan borrowers are actually up to date on their payments and reducing their balances…
With borrowers increasingly struggling to repay their student loans, Moody’s Investors Service is warning it may take investors longer than promised to get their money back. The credit grader said this month it may lower rankings on $3 billion of top-rated debt as investors face the threat of slowing principal payments or even receiving no interest.
The concern underscores the fallout from a record $1.2 trillion in U.S. student loans that’s spreading to everything from the housing market and consumer spending to taxpayers. As a sluggish economic recovery forces borrowers to miss payments or tap relief programs, only 37 percent are current and reducing their balances, according to a Federal Reserve Bank of New York presentation this month.
#8 Procter & Gamble has announced that it will be cutting up to 6,000 more jobs from their payroll. Why would they be doing this if the economy is “getting better”?
#9 McDonald’s plans to permanently shut down 700 “poorly performing” restaurants over the course of 2015. Why would they be doing this if the economy is “getting better”?
#10 It is being projected that half of all fracking companies in the United States will be either “dead or sold” by the end of 2015.
#11 Retail sales in the U.S. have not dropped this rapidly since the last recession.
#12 Wholesale sales in the U.S. have not dropped this rapidly since the last recession.
#13 Factory orders in the U.S. have not dropped this rapidly since the last recession.
#14 Credit requests are being declined at a rate that we haven’t seen since the last recession.
#15 U.S. export growth has gone negative for the first time since the last recession.
#16 As the U.S. economy begins to head into another downturn, most Americans are completely unprepared for it. In fact, one recent survey discovered that 62 percent of all Americans are currently living paycheck to paycheck.
Don’t let this next recession take you by surprise.
Back in 2008 and 2009, millions of Americans suddenly lost their jobs or businesses because of the sharp economic downturn. Because most of them were living paycheck to paycheck, all of a sudden a whole lot of Americans could not make their mortgage payments and foreclosures surged to unprecedented heights. Millions of families that thought they were operating on a solid foundation saw their middle class lifestyles evaporate in just a matter of a few months.
That is why it is so vital to prepare yourself financially, mentally, emotionally, physically and spiritually for the great storm that is coming ahead of time. Over the past couple of years, I have been working on a new book entitled “Get Prepared Now” which talks about how to make these preparations. On Wednesday, it was finally released to the public. I hope that you will check it out.
The past few years have been a period of relative stability for the U.S. economy. A lot of people have been lulled into a false sense of security during that time. These people have become convinced that our problems have been fixed. But they haven’t been fixed at all. In fact, our problems are far, far worse than they were just prior to the last financial crisis.
When the next great financial crisis strikes, we are going to see a spike in the suicide rate just like we did during the last one. Millions will be blindsided by what is coming and will give in to depression and despair. But that doesn’t have to happen to you. It is empowering to know what is coming and to understand why it is coming. It is empowering to get prepared in advance for turbulent times. It is empowering to have a plan for the years ahead.
Even though I write about all of the horrible things that are coming to this country every day, I live my life with no fear, and that is what I want for all of you as well.
Do you want to know who will be giving in to fear and panic when things start to go really crazy?
It will be the people that had no idea what was coming and made no preparations whatsoever.
Yes, the times ahead are going to be extremely challenging, but they can also be the best times of your life.
It is all going to come down to how you respond to a world that is going completely insane.
The choice is up to you.
When an economic crisis is coming, there are usually certain indicators that appear in advance. For example, commodity prices usually start to plunge before a recession begins. And as you can see from the Bloomberg Commodity Index which you can find right here, this has already been happening. In addition, I have previously written about how the U.S. dollar went on a great run just before the financial collapse of 2008. This is something that has also been happening over the past few months. Some people would have you believe that nobody can anticipate the next great economic downturn and that to try to do so is just an exercise in “guesswork”. But that is not the case at all. We can look back over history and see patterns that keep repeating. And a lot of the exact same patterns that happened just before previous stock market crashes are happening again right now.
For example, let’s talk about the price of oil. There are only two times in history when the price of oil has fallen by more than 50 dollars in a six month time period. One was just before the financial crisis in 2008, and the other has just happened…
As a result of crashing oil prices, we are witnessing oil rigs shut down in the United States at a blistering pace. In fact, almost half of all oil rigs in the U.S. have already shut down. The following commentary and chart come from Wolf Richter…
In the latest week, drillers idled another 41 oil rigs, according to Baker Hughes. Only 825 rigs were still active, down 48.7% from October. In the 23 weeks since, drillers have idled 784 oil rigs, the steepest, deepest cliff-dive in the history of the data:
We are looking at a full-blown fracking bust, and this bust is already having a dramatic impact on the economies of states that are heavily dependent on the energy industry.
For example, just check out the disturbing number that just came out of Texas…
The crash in oil prices is hammering the Texas economy.
The latest manufacturing outlook index from the Dallas Fed plunged again in March, to -17.4 from -11.2 in February, indicating deteriorating business conditions in the state.
But this pain is going to be felt far beyond Texas. In recent years, Wall Street banks have made a massive amount of money packaging up energy industry loans, bonds, etc. and selling them off to investors.
If that sounds similar to the kind of behavior that preceded the subprime mortgage meltdown, that is because it is.
Now those loans, bonds, etc. are going bad as the fracking bust intensifies, and whoever is left holding all of this worthless paper at the end of the day is going to lose an extraordinary amount of money. Here is more from Wolf Richter…
It suited Wall Street just fine: according to Dealogic, banks extracted $31 billion in fees from the US oil and gas industry and its investors over the past five years by handling IPOs, spin-offs, “leveraged-loan” transactions, the sale of bonds and junk bonds, and M&A.
That’s $6 billion in fees per year! Over the last four years, these banks made over $4 billion in fees on just “leveraged loans.” These loans to over-indebted, junk-rated companies soared from about $40 billion in 2009 to $210 billion in 2014 before it came to a screeching halt.
For Wall Street it doesn’t matter what happens to these junk bonds and leveraged loans after they’ve been moved on to mutual funds where they can decompose sight-unseen. And it doesn’t matter to Wall Street what happens to leverage loans after they’ve been repackaged into highly rated Collateralized Loan Obligations that are then sold to others.
At the same time, we are also witnessing a slowdown in global trade. This usually happens when economic conditions are about to turn sour, and that is why it is so alarming that the total volume of global trade in January was down 1.4 percent from December. According to Tyler Durden of Zero Hedge, that was the largest drop since 2011…
Presenting the latest data from the CPB Netherlands Bureau for Economic Policy Analysis, according to which in January world trade by volume dropped by a whopping 1.4% from December: the biggest drop since 2011!
We are seeing some troubling signs in the U.S. as well.
I shared the following chart in a previous article, but it bears repeating. It comes from Charles Hugh Smith, and it shows that new orders for consumer goods are falling at a rate not seen since the last recession…
Well, what about the stock market? It was up more than 200 points on Monday. Isn’t that good news?
Yes, but the euphoria on Wall Street will not last for long.
When corporate earnings per share either start flattening out or start to decline, that is a huge red flag. We saw this just prior to the stock market crash of 2008, and it is happening again right now. The following commentary and chart come from Phoenix Capital Research…
Take a look at the below chart showing current stock levels and changes in forward Earnings Per Share (EPS). Note, in particular how divergences between EPS and stocks tend to play out (hint look at 2007-2008).
We all know what came next.
And guess what?
According to CNBC, a lot of the “smart money” is pulling their money out of the stock market right now while the getting is good…
Recent market volatility has sent stock market investors rushing for the exits and into cash.
Outflows from equity-based funds in 2015 have reached their highest level since 2009, thanks to a seesaw market that has come under pressure from weak economic data, a stronger dollar and the the prospect of monetary tightening.
Funds that invest in stocks have seen $44 billion in outflows, or redemptions, year to date, according to Bank of America Merrill Lynch. Equity funds have seen outflows in five of the last six weeks, including $6.1 billion in just the last week.
It doesn’t matter if you are a millionaire “on paper” today.
What matters is if the money is going to be there when you really need it.
At the moment, a whole lot of people have been lulled into a false sense of complacency by the soaring stock market and by the bubble of false economic stability that we have been enjoying.
But under the surface, there is a whole lot of turmoil going on.
Those that are looking for the signs are going to see the next crisis approaching well in advance.
Those that are not are going to get absolutely blindsided by what is coming.
Don’t let that happen to you.
If you believe that ignorance is bliss, you might not want to read this article. I am going to dispel the notion that there has been any sort of “economic recovery”, and I am going to show that we are much worse off than we were just prior to the last economic crisis. If you go back to 2007, people were feeling really good about things. Houses were being flipped like crazy, the stock market was booming and unemployment was relatively low. But then the financial crisis of 2008 struck, and for a while it felt like the world was coming to an end. Of course it didn’t come to an end – it was just the first wave of our problems. The waves that come next are going to be the ones that really wipe us out. Unfortunately, because we have experienced a few years of relative stability, many Americans have become convinced that Barack Obama, Janet Yellen and the rest of the folks in Washington D.C. have fixed whatever problems caused the last crisis. Even though all of the numbers are screaming otherwise, there are millions upon millions of people out there that truly believe that everything is going to be okay somehow. We never seem to learn from the past, and when this next economic downturn strikes it is going to do an astonishing amount of damage because we are already in a significantly weakened state from the last one.
For each of the charts that I am about to share with you, I want you to focus on the last shaded gray bar on each chart which represents the last recession. As you will see, our economic problems are significantly worse than they were just before the financial crisis of 2008. That means that we are far less equipped to handle a major economic crisis than we were the last time.
#1 The National Debt
Just prior to the last recession, the U.S. national debt was a bit above 9 trillion dollars. Since that time, it has nearly doubled. So does that make us better off or worse off? The answer, of course, is obvious. And even though Barack Obama promises that “deficits are under control”, more than a trillion dollars was added to the national debt in fiscal year 2014. What we are doing to future generations by burdening them with so much debt is beyond criminal. And so what does Barack Obama want to do now? He wants to ramp up government spending and increase the debt even faster. This is something that I covered in my previous article entitled “Barack Obama Says That What America Really Needs Is Lots More Debt“.
#2 Total Debt
Over the past 40 years, the total amount of debt in the United States has skyrocketed to astronomical heights. We have become a “buy now, pay later” society with devastating consequences. Back in 1975, our total debt level was sitting at about 2.5 trillion dollars. Just prior to the last recession, it was sitting at about 50 trillion dollars, and today we are rapidly closing in on 60 trillion dollars.
#3 The Velocity Of Money
When an economy is healthy, money tends to change hands and circulate through the system quite rapidly. So it makes sense that the velocity of money fell dramatically during the last recession. But why has it kept going down since then?
#4 The Homeownership Rate
Were you aware that the rate of homeownership in the United States has fallen to a 20 year low? Traditionally, owning a home has been a sign that you belong to the middle class. And the last recession was really rough on the middle class, so it makes sense that the rate of homeownership declined during that time frame. But why has it continued to steadily decline ever since?
#5 The Employment Rate
Barack Obama loves to tell us how the unemployment rate is “going down”. But as I will explain later in this article, this decline is primarily based on accounting tricks. Posted below is a chart of the civilian employment-population ratio. Just prior to the last recession, approximately 63 percent of the working age population of the United States was employed. During the recession, this ratio fell to below 59 percent and it stayed there for several years. Just recently it has peeked back above 59 percent, but we are still very, very far from where we used to be, and now the next economic downturn is rapidly approaching.
#6 The Labor Force Participation Rate
So how can Obama get away with saying that the unemployment rate has gone down dramatically? Well, each month the government takes thousands upon thousands of long-term unemployed workers and decides that they have been unemployed for so long that they no longer qualify as “part of the labor force”. As a result, the “labor force participation rate” has fallen substantially since the end of the last recession…
#7 The Inactivity Rate For Men In Their Prime Working Years
If things are “getting better”, then why are so many men in their prime working years doing nothing at all? Just prior to the last recession, the inactivity rate for men in their prime working years was about 9 percent. Today it is just about 12 percent.
#8 Real Median Household Income
Not only is a smaller percentage of Americans employed today than compared to just prior to the last recession, the quality of our jobs has gone down as well. This is one of the factors which has resulted in a stunning decline of real median household income.
I have shared these next numbers before, but they bear repeating. In America today, most Americans do not make enough to support a middle class lifestyle on a single salary. The following figures come directly from the Social Security Administration…
-39 percent of American workers make less than $20,000 a year.
-52 percent of American workers make less than $30,000 a year.
-63 percent of American workers make less than $40,000 a year.
-72 percent of American workers make less than $50,000 a year.
We all know people that are working part-time jobs because that is all that they can find in this economy. As the quality of our jobs continues to deteriorate, the numbers above are going to become even more dismal.
Even as our incomes have stagnated, the cost of living just continues to rise steadily. For example, the cost of food and beverages has gone up nearly 50 percent just since the year 2000.
#10 Government Dependence
As the middle class shrinks and the number of Americans that cannot independently take care of themselves soars, dependence on the government is reaching unprecedented heights. For instance, the federal government is now spending about twice as much on food stamps as it was just prior to the last recession. How in the world can anyone dare to call this an “economic recovery”?
So you tell me – are things “getting better” or are they getting worse?
To me, it is crystal clear that we are in much worse condition than we were just prior to the last economic crisis.
And now things are setting up in textbook fashion for the next great economic crisis. Unfortunately, most Americans are totally clueless about what is going on and the vast majority are completely and totally unprepared for what is coming.
Or could it be possible that I am wrong? Whether you agree or disagree with me, please feel free to add to the discussion by posting a comment below…