Guest Post: The US Economy Is Extremely Vulnerable To Recession in 2011

Tyler Durden's picture

From Toni Pallotta Of Macro Story

The US Economy Is Extremely Vulnerable To Recession in 2011

"Everything should be made as simple as possible..." - Albert Einstein

You don't need a degree in macro economics to understand an economy. Just because an economy is complex, the analysis need not be. I've been studying the change in GDP from Q4 2010 to Q1 2011 to get a sense of where the economy is regarding contraction or expansion. I have a sense the economy stands today where it stood in December 2007 the very month the great recession began.

I've shared various technical charts showing striking similarities with the 10 year treasury market and equity markets comparing the price action between May 2011 to present and October 2007 through December. The big component though was the macro picture. You could easily argue it is far closer to recession now than it was in 2007 when Q4 07 GDP was 2.9% only to print (.72)% the very next quarter. With Q1 2011 GDP at 1.9% the margin for error is far less than in 07.  But that is not enough to base an investment decision upon.

2007: Imagine in December 2007 asking the question if Q1 2008 would contract. It would be hard to say yes as a 2.9% print is pretty solid. That is until the consumer rolled over. 

2011: Few if any economists are calling for recession in 2011 but why? One can argue making that call today is far easier than December 2007. Look at the fall off in consumer from Q4 to Q1. Many would argue it did fall but still well above contraction. Additionally the investment component showed a strong resurgence in Q1.


So is the US economy vulnerable to recession as early as Q2 of this year? July's drop in the  University Of Michigan Sentiment would say yes.

In comparing University Of Michigan Sentiment readings with various components of GDP I was amazed at how well it tracks both the Total Consumer component (goods and services) and the Fixed Investment component.

Consumer: The charts would say the consumer is ready to contract, possibly as low as (1.0)%

Fixed Investment: The charts would say the Fixed Investment component also is set for some serious contraction.

The remaining components Net Foreign Trade and Inventory seem to offset one another over time as shown below (they oscillate for the most part between plus or minus 1%).  What has been trending lower though is the Government portion. The question then becomes when the next recession comes just how able is the government to stimulus spend. We know they will try but at what point will the bond market even in the face of Fed printing limit their ability? 

Apparently the US economy never watched the movie Field Of Dreams.  For they have in fact built it but based on consumer sentiment, they have also failed to come.

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MsCreant's picture

No offense intended, but I don't need those charts to buy into the idea that there might be a recession. Try depression. This is missing the forest because you are focused on some leaves. Dude the Forest is on fire!!! The leaves look kinda smoky for a reason. AHHHHH!!!! Run away, run away!!

Bang Dae Ho's picture

I know, I know, I would like to run, but where to?

CrazyCooter's picture

I chose Alaska ... J. Tainter lives in Utah now, so that might be another good option (he is no dummy!) ... just sayin' ...



Ahmeexnal's picture

In Cuba, you need a permit to do most about everything.

Welcome to Marxist America:!F530F842-2057-4315-A47E-157EAB89B8E3

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Unfortunately, besides Japan, Alaska is now about the worst place in the world to be in order to avoid radiation.



Cursive's picture


+1  Why are we even debating a recession?  It's a depression.

Oh regional Indian's picture

Zigackly! My first thought as well. SInce 2008 to boot.

Whut a yoke.

Yesterday was an important anniversary by the way, still good to pay heed!


Pure Evil's picture

It's good to know that the mainstream sentiment is finally catching up reality.

To quote Einstein, the simple truth is such:

If the government, ie. the FED and the Treasury, have to prop up the economy through quantitative easing for 3+ years, then you're smack dead in the throes of a depression.

PY-129-20's picture

3 years of quantitative easing, trillions of Dollars spent, and all you got was a lousy pink slip.

Popo's picture

We're only *not* in a recession because we're spending like drunken sailors on the Government credit card.  

We're basically running electricity through a corpse to make it wriggle,  and warning that the corpse has a high possibility of passing away in the coming months.

It's idiocy.   The economy is dead without stimulus.   ie:  The economy is dead.

Coke and Hookers's picture

Is it possible to subtract all the printed and borrowed-from-abroad money dumped into the economy from the GDP for the last 10 years or so to see how much the negative growth is? ;-)

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

I am sure it is but we will have to do it ourselves!  Now "that" would be an article!


Tuco Benedicto Pacifico Juan Maria Ramirez

espirit's picture

2011: Few if any economists are calling for recession in 2011 but why?

Perhaps it is the transitory nature of the definition.  The baseline measurement (standard) eventually changes.

I'll need more pixie dust and kool-aid to believe "everything" is getting better, and that debt default (reduction, write-off, foregiveness, et al) including repatriation of profits from multinationals at reduced income tax rates - are not the ultimate goals of the Republicrats.

Bring it on.

espirit's picture

Cash without trash, bitchez.

Apply Force's picture

"What has been trending lower though is the Government portion. The question then becomes when the next recession comes just how able is the government to stimulus spend. We know they will try but at what point will the bond market even in the face of Fed printing limit their ability?..." 

The government will spend through the people - more checks will go out.  Stagflation for more and more... and timing is everything, especially trying to escape a dying but for-now-tradable currency.

RobotTrader's picture

Virtually every Wall Street "expert" is predicting a depression and more pain for the consumer.

The XRT is saying otherwise.  In fact, the XRT is forecasting a consumer spending boom of unparalleled proportions in 2012 - 2013.

Recessions do not last forever.

In fact, this recession is not nearly as bad as the 1990 - 1991 recession in California.  I knew lots of aerospace engineers and bankers who were driving cabs, or working construction for $15/hr. back then.  Real estate transactions completely collapsed.  I remember the house across the street from me, brand new custom home, was sitting for sale for 2 1/2 years.

Well, the economy came back with a vengeance.

And after the "bond scare" of 1994 when interest rates went up to the moon and everyone was predicting an economic collapse, the stock market commenced the greatest rally of all time.  That was exactly 4 years after 1990.

If you don't believe me, see for yourself:

The $SPX rallied from 450 to 1200.

And we are now 3 years out since the 2008 meltdown, and everyone is predicting gloom.

Things are never as bad as the media hypes it up to me.

For example, "Carmaggeddon" was a no-show here in Los Angeles.  There is virtually no one out on the freeways this weekend.

markar's picture

At least when you post idiocy, keep it short.

mt paul's picture

no one

could afford gas

to drive any where...

moonstears's picture

@ mt made me laugh...simple truths are humorous!

espirit's picture

"In fact, the XRT is forecasting a consumer spending boom of unparalleled proportions in 2012 - 2013."

Roblot- What you fail to understand is that we do not make it here in the US anymore, unless you count "Double Quarter Pounders w/ Cheese."

QQQBall's picture

And did the market come back b/c the gov't bought bad paper at 100 cents on the dollar? Did they pay people's mortgages? The RTC was was swift and brutal and that is why the market came back; because prices reached a clearing level and provided good risk-adjusted yields. The bigger the bubble, the bigger the pop.  

Nostradumbass's picture


"Carmaggeddon" was a no-show here in Los Angeles.  There is virtually no one out on the freeways this weekend."


Gee, do you suppose the non-stop media blitz- including billboards, radio and teevee before this weekend and during the work could have had anything to do with people in cars not going out on freeways? Hmmm?

The Coast-To-Coast program on 640 KKKFI was preempted two hours on Friday to keep the endless "news" about carmageddon going until zero hour... I nearly went into convulsions not having my pre-bedtime fix of UFO's, Aliens, 2012 Catastrophe and other such info. to guide me into peaceful psychedellic slumber...

Tater Salad's picture

Robot, I agree with some of your assessment however, I think the point is that we may enter a "new" [re-de]pression.  Technically, government led or not, we've been out of depression as GDP has been positivesince the middle of '09.  I think the realization is now that we truly have a crisis in confidence (as we should with this administration), a severly wounded consumer and a secular shift in consumption behavior.  All of this not to mention the greatest deleveraging cycle the globe has ever experienced and that has in fact just begun. 

Truly, we've not been to this party before.  I might go out on a limb and say this time it's different. I don't see any reasonable way out of this other than austerity and by the time we get to that, it may just be too late.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

What is inflation adjusted GDP!?  What is "real" GDP!?  It is negative! 


Tuco Benedicto Pacifico Juan Maria Ramirez

steve from virginia's picture


The booms won't come back.

The cars will go b/c the fuel to run them will be too expensive and car makers won't sell enough to keep the factory doors open. Decline feeds on itself just like expansion feeds asset value increases.

A non- flow economy will not have price spreads to arbitrage. No booms or busts, more like JP Morgan's "fluctuations".

No cars, no finance: I'm looking forward to it, maybe see some bankers on trial.


One can only hope, right?

smithcreek's picture

"Things are never as bad as the media hypes it up to me."


I'm at a loss to recall the media hyping negative things over the past couple years.  So, by things do you mean the "we stopped the freefall" of early '09, "green shoots" of late '09, or the "stimulus is working and creating millions of jobs" and "we're in a recovery" of early '10, the "things are really starting to pick up" of late '10, the "might have hit a tiny soft patch, but don't worry" of early '11 or the "we got by the soft patch" of mid-'11?  If anything there has been an absolute lack of anything but rosey bullshit for 3 years.

Long-John-Silver's picture

Great Depression II Bitchez!

snowball777's picture


What's behind that wallpaper?

knowless's picture

more wallpaper, but after that there's these weird scribblings with doodles of mushroom clouds...

Caviar Emptor's picture

I think the patten is set for at least a decade: stimulus measures followed by modest growth lasting about 3 quarters, followed inevitably by a grinding slump that threatens to go "GDP-negative", only to be rescued with more stimulus. 

And that will pass for "Growth", at least on paper, so that the Fed, politicians and TPTB can pat themselves on the back and go clink glasses filled with Crystal. 

But the endless daisy-chained monetary stimulus obscures the underlying decay: declining trade, declining consumer, continued exporting of jobs and industry, government layoffs, reduced government spending on research, declining individual net worth and cash flow. 

Most of the stimulus is going "supply-side", meaning to benefit corporations, not individuals. It will permit corporations to borrow more through bond issuance and to dilute their stock. The financial sector will be kept afloat, but as it becomes more clear that the American investor is not coming back, look for a gradual head count reduction on Wall Street and all major banking, asset management and hedge funds. Shrinking retirement funds such as social security won't help.


The pattern is clear: The Downsizing of the US economy continues for as far as the eye can see 

Ricky Bobby's picture

Were turning japanese, turning japanese. I really think so.

AldousHuxley's picture

no we are turning into 1930s Germany. Except we are the jews and jews are the nazis.

Economic Darwinism's picture

I couldn't get past the horrible misuse of a popular quote often attributed to Einstein. The full quote should be:

"Everything should be made as simple as possible, but not simpler."

It is generally used when there has been a gross oversimplification rendering an idea/model meaningless.

Leaving out the "but not simpler" completely changes the intended meaning.

mess nonster's picture

Who the FUCK put Roundup all over my green shoots?????

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

That was Monsanto!  They have developed some grass that is resistant to roundup (no kidding).  If some roundup happens to blow in your yard which has non-resistant grass too bad for you.  Monsanto is a good corparate fascist citizen.



Dre4dwolf's picture

so consumers aren't spending/they are cutting back on debt/ they are not buying luxury items/ they are scared to shit.


70% of economic growth is based on consumption by consumers.

No consumers = No economy


What happens when people collectively decide not to buy things? the economy implodes.


DeltaDawn's picture

After we collectively stop buying, we will be left servicing each other.

MsCreant's picture

Apparently what happens is the government forces you to spend by taxing you and then giving your money away to asshats who will spend it on bonuses for themselves and sending jobs and business overseas. They have the nerve to call it capitalism. Economy declines some more, govt. creates debt for your children, gives it to more asshats, wash, rinse, repeat. 

I owe, I owe,

it's off to work I go!!

Tho I have no debt,

but I must work still yet,

I owe, the Ho. 


Going Japaneese, going Japaneese...Some stimulus please...;-D


If only we had socialism, there might be some hope...(Capitalism is too much to dream for when you live in a fascist state).

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Did you forget that this is a "jobless" recovery!?



Bobbyrib's picture

Anyone who paid attention over the past ten years knew that the economy was going to be shit for years to come.

Clay Hill's picture

Thank you for the chart porn, Mr. Pallotta, much obliged.

We're not looking at Recession, or even Depression.

I'm seeing collapse buddy, and so should you, if you're looking at the same Macro I am.


Refusal to develop domestic oil production, and turn the revenue generated towards researching sustainable alternatives... Check.

Refusing to wean ourselves away from Militarily adventurism sold to the masses as protecting freedumb, that in actuality is solely for the purpose of providing access to cheap oil in rigged markets for the benefit of Corporations like GS, and JPM... Check.

Refusing to go after the criminals in the financial realm who have plundered and bled this country dry because they own the politicritters... Check.

Sitting on our thumbs for 70 or 80 years refusing to accept the fact that "yes it is my guy that's the problem" every November when it's time to pull the handle... Check

I could launch into the subject of entitlements, or the Fed, but this is getting my pressure up, so I'll quit now.

We're facing mathematically ensured financial failure coupled with politically unchangeable expectations of relief from the Gov't. by half of the populace.

Expect Collapse Bitchez.





lawrence1's picture

Very well put.  This is obviously a depression and

the Fed cartel will ensure a collapse as they steal the last billions in the name of austerity, robbing the remaining pensions, etc.

DeltaDawn's picture

I like that term freedumb, that is an exact description of the American people at this juncture.

Imminent Collapse's picture

Printing money out of thin air and buying government debt and worthless assets with it...check

Promising more benefits than we can afford...check

Reducing taxes and increasing spending...check

Refusing to live within our means...check

Pissing off a large portion of the world...check

Yeah, I think that we are on the brink of collapse.  The most surprising thing is that it will surprise so many people when it happens.  Sheeple!