David Rosenberg Part 1: "Why The Depression Is Ongoing"

Tyler Durden's picture

From David Rosenberg.

There are classic signs indeed that the recession in the U.S. ended last summer — output, sales, etc. But the depression is ongoing and the reason we say that is because real personal income, excluding handouts from the government, has barely budged. In fact, real organic personal income is nearly $500 billion lower now than it was at the peak 16 months ago and this has never occurred before coming out of any technical recession. It is a depression, as the chart below attests — that is the trendline for real household incomes, until the government comes in to top them off with handouts, subsidies and extended jobless benefits. The share of U.S. personal income being derived from Uncle Sam’s generosity has risen above 18% for the first time ever.

Real consumer spending is up $200 billion over the past 16 months and everyone believes we have a sustainable recovery even though organic income is down almost $500 billion. Think about that for a second because once the stimulus wears off, and with a 10% deficit-to-GDP ratio and concerns surfacing everywhere about sovereign credit risks, there is little out there to support future growth in consumption.

Some are clinging to the notion that employment growth will accelerate. From our lens, once you remove all the assumptions the Bureau of Labor Statistics uses in its monthly data, there is little growth in the nonfarm payroll data. And, the Household survey is much too volatile and too small a sample size to rely on, even if all of a sudden it has become a focal point for the bulls (who conveniently were ignoring it as the recession began).

The ADP private payroll survey is showing marginal employment growth with none in the small business sector at all. And jobless claims, as we saw yesterday, have basically stopped falling; however, at still around the 440k level, they are not consistent at all with sustainable job creation. After plunging from 600k in June 2009, to 440k, as of January 2010, claims have basically stopped declining. That is a problem.

To reiterate: outside of the lagged impact of all the government stimulus and the arithmetic impact of inventory accumulation, the economy is not growing. The National Federation of Independent Business small business survey is showing that economic growth is stagnant at best. Even if you take the government data at face value, the past four quarters have averaged a mere 1.38% in terms of real final sales, which goes down as one of the very weakest post-recession trajectories in recorded history. We know it’s a tough pill to swallow, but we are sure that mostly everyone will get over it.
If you don’t believe that consumer frugality is a secular theme, then go to the New York Post story titled Young Gals Find Thrift is a Gift: Recession Has Put an End to Their Wild-Spending Ways — a Citi survey shows that 72% of females plan to boost their savings. Only 43% intend to take a vacation in the next six months. The article quotes 32-year old Tenira Forman, a former shopaholic, as saying “Within the last two years, I’ve been living a new life. I had an epiphany not to spend and to save more … I have the urge to shop, but I’m fighting it. I’ve given up electronics, shoes, clothes and home goods.”

If there is a bright spot, it is in the industrial sector:

  • The just-released U.S. industrial production data was strong, rising 0.8% MoM in April beating analysts’ expectations of a 0.6% increase. On a year-over-year basis, production is running at 5.2%, the strongest pace since mid-1997. Manufacturing is a bright spot with production jumping 1% MoM, matching the gain in March and is also up 6% YoY.
  • Steel production is up 74% year-on-year.
  • Lumber production has risen 29%.
  • Automotive by 67%.
  • Truck tonnage has risen 7.5% and container traffic out of Long Beach has surged 19%.
  • Railway carloadings are up 14% over the past year. Some of this is related to global growth, some it to the lagged impact of U.S. dollar depreciation, and some of it related to the improved productivity position of U.S. manufacturers, which indeed seem to be enjoying somewhat of a renaissance (something we wrote about three years and should be on archive back at the old shop).
  • The latest foreign trade data showed that U.S. exports of goods and services have exploded 20% YoY, as of March.


So you see, the news is not all bad. The 20% of the economy related to exports and capital spending — the latter will benefit from the fact that capacity actually fell a record amount over the past two years and some of that surely has to be rebuilt and most pronounced in areas like transportation equipment, chemicals, plastics, industrial machinery — are certainly bright spots.

Let’s face it, left to our own devices, the U.S. personal savings rate would be going up, not down. But the government has done everything it can to perpetuate a consumer spending cycle even though such expenditures command a record of over 70% of GDP. Mortgage applications for new home purchases and miles driven across the U.S.A. are both negative year-on-year, and although consumer confidence has certainly rebounded from the lows, they are still consistent with recessionary environments (and this follows a record amount of bailout and handout stimulus from the federal government).

Keep in mind that even with the ‘cash for appliances’ program, almost 80% of chain stores missed their sales targets last month; and the new normal in the aftermath of the ‘cash for clunkers’ program seems to be around 11 million units at an annual rate on auto sales at a time when replacement demand should be closer to 12 million. Moreover, once the foreclosure moratoria is over, and the government no longer tries to play around with market forces and allow for price discovery, home values are back on a downward track, now evident in all the data series. There is no denying, after looking at the latest Census data, that there is an excess of five million vacant housing units across the U.S. acting as a continued dead-weight drag on house prices. While this is not good for homeowners, especially the 25% of the mortgage population already ‘upside down’, think of the affordability potential this will offer the one-third of the population who rent and who were crowded out during the price frenzy of the last cycle.

We realize that there is a healthy debate emerging over the outlook for residential real estate in the U.S. as some former noted bears have suddenly become bullish. We shall let the data do the talking — more home sellers cut their listing prices in April despite what should have been a flurry of sales activity ahead of the federal tax credit expiration. Prices on 22% of the homes on the market, as of May 1, have been cut at least once (this compares to 20% a month ago). See page A6 of the IBD for more.


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Mako's picture

You haven't seen a depression yet, the entertainment is just starting.  Wake me up in 40 years and I will take a peak as to how far along all you guys are in the liquidation process.

Won't be a 18-25 year process like last time.  Figure a generation or two this time.


The chart is a few years old, you are just starting the roll over portion.

RSDallas's picture


One would think that the debt default rate could begin to increase when it becomes obvious (which I think we are close to) that the fed and feds around the world have botched this one.  The debt doesn't have to go to zero before we see some blue skies, does it?  

From what I've read the 1921 depression was as bad or worse than the 29 crash and it cleared itself incredibly fast because the government took the stance of "no one is to big to fail" and excessive debt and malinvestments were wiped out at an astonishing pace which allowed the economy to actually begin it's healing process within a years time. 

Maybe it's wishful thinking, but I can't wait 40 years.  Maybe Gov. Christie will run and win the next presidential election.

dnarby's picture

Quite to the contrary, due to lightning speed communications and global interconnectedness, this will happen with comparitively lightning speed.

I give it 18 months on the outside.

uno's picture

Print Baby Print, or is it Print Print Print.  When that slows then the meltdown begins.

react1200's picture

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CPL's picture

Better yet, sign a petition! That way 1000's of people are duly ignored all at once.  Saves time in the matter.  Not like phoning them has helped in any unique way in the past regarding due process, legal or not.


Seriously don't bother wasting your time unless approaching how you can use hand puppets to explain basic economic principles.  So far letters, interviews, phillybuster sessions, hand outs, spreadsheets, power point decks and bribery have done nothing.

So what do you honestly think a phone call is going to achieve?  Let me tell you.



Sudden Debt's picture

If you ignore the thing (you know what I mean) it will just go away by itself.

I bet it returned because SOMEBODY said it out loud again!

Never call it by it's name! If everybody doesn't say it anymore, it will go away!


Wyndtunnel's picture

DEPRESSION.  There I said it. And I feel less depressed for it.

chistletoe's picture

From a distance, its quite simple:

Capitalism depends on an expectation of growth in order to work.

You don't borrow money unless you expect that

you will have more money coming in in the future to pay it off than you do now

(unless you are planning to file bankruptcy ... but that's a special case.)

You don't loan money unless you expect your client to have more money coming in

in the future than he does now to pay it off.


However, today,

we have this anti-immigration racist madness going on,

and we have peak oil, and peak water, and peak food.

So rational people everywhere expect no more growth.

So they have stopped lending and stopped borrowing.

No amount of printing paper by the govenrments is going to change that,

in fact, it just makes matters worse.


We have a change coming.  Big change.

The rich are the last to catch on.  They have it coming ...

no cnbc cretin's picture

Good points.

I would add, growth is not substainable - as many seem to think it is.

Sudden Debt's picture




looks like I'll have to cut down on the vegetables... the misses really thought it would have been good for me... she'll be so dissappointed...

O hell, I'll survive :)

swamp's picture

The race card is has become the joker.

You are a complete idiot if you think our Constitution is a cartoon and that as a soverign nation we Americans are not permitted to have say about who comes here and how many. 

You are part of the problem, a useful idiot. Useful to the New World Order and the brain dead racists who call everyone else racists. Joker.

The real racism is the genocide against white people who are being squeezed out of their own country and who have been told for 30 years to have only 2 kids or 1.5 kids hence a dwindling population and the Mexicans have 14+ each.

Augustus's picture

Be careful with the various Peak predictions.  You will become know for posting nonsense.

You should be watchful that you are not overcome with the AlGore delusions that led to the suicide deaths of that whole family in Argentina.  It was not much different from the people at Jonestown.  Quite a dreadful outcome when they were overcome by their odd religious beliefs.

no cnbc cretin's picture

Yes, we're in the beginning of a very long Depression. The only reason this phony economy is afloat, is because of the printing press - which at some point will stop.

Sudden Debt's picture

I heard they just delivered a whole crate of WD40 at the FED's headquarters... I don't know... I think the presses seem to be maintained pretty well...

CPL's picture


It's a big red button now.

Apostate's picture

Growth, GDP, all these metrics are just Cold War dick-measuring tricks. The government needs to show "growth" to indicate that it can stay in power and retain control over the banking system.

Real economies don't give a shit about "growth" as long as they are still meeting the demands of customers. You care about solvency, profit and loss, nothing else.

Whizbang's picture

As long as the government is mucking about, there will be no recovery. Systemic correction is needed to clear the books.

AccreditedEYE's picture

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." -Treasury Secretary Andrew Mellon

poydras's picture

On an inflation adjusted basis, economically earned income is back to late 2005 levels.  The per capita basis is worse of course.

rich_maverick's picture

This is why I'm finished my accumulation of physical PMs and am now am moving towards guns and ammo.  Personally, I'm saddened that by the situation as I'm honestly more of a pacifist.  But, having physical PMs and not having armed guns is kinda pointless.  Those with the guns will have control over those without.  Seen it time after time in my military days.  It sad watching America fall into a 3rd world nation.



tony bonn's picture

well mr rosenberg, industrial activity may well be v-shaped but it is only 19% of gdp and as you note gdi isn't looking too good...

industrial output will only sustain as long as exports grow at the torrid pace you cite....if that slows, industrial activity will curtail sharply....but the good news is that it is only 19% of gdp....

sgt_doom's picture

Thanks Tony, for stating the obvious (obvious to everyone else except rosenberg, of course!).

Seriously, as anyone with two neurons to rub together who follows this site is aware, there is no economy (nor any media, for that matter).

But then, you just explained that, didn't you???


Roy Bush's picture

Waste of time.  Stop looking to the government to change anything that helps the average person.  It won't happen.  The only thing that will help the average person is the stock market going to zero and a complete collapse of fiat money.  And yes, it will happen on its own.

swamp's picture

There's one besides me left. Maybe a few more :)

The protracted assault on personal responsibility has left a nation crippled.

sethstorm's picture

Make it impossible to get around creating work in the US - and not temp work a la Europe.  Not the proverbial ditch dig/fill, but something that actually has some productivity to it.  

There are too many for whom are using jobs(existence and placement) as a political weapon - and not for any good means. 

three chord sloth's picture

I don't think this is a depression. I think this is de-industrialization.

We have been using bubble economics to hide the decline over the past 3 decades, but now all of the bubbles have popped, and we're finally seeing what they've been hiding all these years. The mergers-and-acquisitions bubble of the eighties, the high-tech and dot-com bubbles of the nineties, and the exploding debt bubble of the aughts are all played out now, and we're settling into the new normal.

We shipped out millions of high-paying, wealth-creating blue collar jobs, and this has left us hollow. We have a warped, incomplete economy, an economy that has no real use for 30% - 40% of the population. The prediction that it will take 5 years to soak up the current unemployed is a joke -- there will be more unemployed then than there is right now, as the off-shoring of back-office labor accelerates.

It's funny -- pretty much everybody can see the flaws in North Korea, the Hermit Kingdom. A completely closed economy with completely sealed borders is obviously flawed. But so few can see that its exact mirror image, completely free trade with wide-open borders, is just as flawed. If one position is too extreme, how can its polar opposite be less so?

So anyway... don't call this a depression. It is systematic, purposeful de-industrialization.

sethstorm's picture

Thus my reply above. 

In finding work:

The "qualifications" word gets overused a bit much.  Given the extended unemployment, too many entities are able to sweep said unemployed away if it's not voting season. 


overmedicatedundersexed's picture

with you there.."It is systematic, purposeful de-industrialization."

great insight into the mirror image of N Korea..

the do gooders (aka as long as we benefit crowd) elites killed the golden goose..

thank you think tanks and endowment funds'

taken over by leftist (ford foundation comes to mind),

for the death of the middle class and the perpetual poverty placed on the poor..

they may rejoice in victory as America has been

chained to marx.

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spritch's picture

Christletoe I have to agree with you. Capitalism depend on infinite growth. Works good in minecraft but not so good in our world of limited resources. Very good post.

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