Guest Post: Global Recession Tugs At US Economy

Tyler Durden's picture

Via Lance Roberts of Street Talk Live,

This recent release of the manufacturing and industrial production data added further support to our previous commentary regarding the search for the much touted economic recovery.  Unfortunately, it has yet to manifest itself.  The latest data showed that manufacturing in January fell back but after strong gains in December and November.  However, it is important to remember that the gains at the end of 2012 were driven by the effects of Hurricane Sandy and the "Fiscal Cliff."  That ramp up in November and December is likely to leave a void in demand in the coming months - so January's weakness is likely a return to a more normalized trend.  Also, most of the production gains in the previous two months came from motor vehicles as replacements were needed post the hurricane flooding.  For the month of January industrial production decreased 3.2% after a gain of 2.9% in December and rise of 5.9% in November. 

Industrial production is one of the four major components of economic strength, or weakness, so the direction and trend of the industrial production data is key to our macroeconomic and investment outlook.  The chart below shows the annual rate of change in industrial production going back to 1920.  For the most part, when the annual rate of change in industrial production has been below zero - the economy has been in a recession.  Currently, the annual rate of change is 2.1%, which is down sharply from the 7.5% rate of change seen at the peak of the economic growth cycle in 2010, clearly shows an economy that is not currently in recession.  However, that could be just a function of time given the fairly steep decline that is currently in progress.


The concerns over economic growth are important, both domestically and internationally, as it directly affects corporate profit margins and valuations.  The belief, currently, is that the economy in the U.S. can decouple from the rest of the globe and act as an island of economic prosperity.  With 40% of corporate profits tied to international exposure it is unlikely that the U.S. can remain decoupled from the rest of the global community for long. 

The chart below shows U.S. industrial production as compared to the Eurozone.  It is clear that the drag from the Eurozone is weighing on domestic output.


Dwaine Van Vurren from picked up on this fact in his recent article

"With the disappointing initial GDP releases for Q42012 from Europe out, the 'world' as defined by 41 OECD countries across the globe, has plunged into recession. We define 'recession' through two alternative definitions for our comparison, either the presence of a single negative quarter-on-quarter growth or the more traditional two consecutive negative quarterly growths. Whichever way you look at it, the number of countries in expansion plunged dramatically between 3Q2013 and 4Q2012 as shown below:


It is clear the U.S is faring far better than most, but one has to question how long she can remain above water with the drag of her economic peers weighing upon her economy. "

There are three important points to be made here:

1) The economic data that is used by the NBER in determining economic recessions is subject to heavy backward revisions.  This is why the NBER never announces a recession in advance of its occurrence.  Due to the massive amounts of artificial intervention currently in the system - it is highly likely that the majority of models will fail to predict the onset of the next recession.

2)  The drag on the Eurozone recession will continue to impede economic growth in the U.S., and;

3) The current reads on economic data as stated above, have been skewed due to the influences of the "fiscal cliff", Hurricane Sandy and an exceptionally warm winter.  It is likely that the reversion to more normalized data trends in months ahead will show a more marked pullback in the domestic economic growth story.

What is clear, however, is that the economic data is not markedly improving.  While monthly data points will remain volatile it is the trend of the data that is most telling about macroeconomic future.  Currently, that outlook remains one of a "struggle through" environment at best.

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world_debt_slave's picture

Dog wagging the tail or is it the other way?

TruthInSunshine's picture

Nothing that the illustrious brain trusts known as central fractional fiat reserve banks can't solve by creating even more colored paper, digitized binary currency and engaging in truly sublime equity/bond/credit instrument/every-other-asset-under-the-sun nominal price targeting, while ramping inflation up (as they revise the methods by which inflation is tabulated to royally screw over the average citizen even more thusly:, all while allowing financial institutions/banks to mark their "financial assets" to even more "whatever they feel like" levels [Proposal Gives Banks More Freedom to Value Assets].

They'll continue to "fix" the real economy in the same manner they've been "fixing" it since 2008, but even MOAR so.

Central Fractional Fiat Bankster Trickery and Modern Money Mechanics/MMT FOR THE WIN, BITCHES.

Spend your savings, borrow fiat [US consumer borrowing rises to record $2.75T] if you're able to (and quickly spend it, mainly on useless shit), open businesses (or keep the doors open if you have and are able to absorb the losses) via the use of Fiat Money Harvest-enabling securitized loans, and rejoice in our new era of confidence, real economic growth, massive hiring [Fired America; JOLTS], high real wages and copious fringe benefits [American Real Wages Have Declined Beginning in 1970], and what is our permanently high prosperity plateau, as a consequence of  the incredible success of Modern Money Mechanics/MMT.

OutLookingIn's picture

"with the drag of her economic peers"


Who is the true drag?

Printing huge amounts of worthless currency, to pay for imports that surpass the amount of exports.

Even the consumer is borrowing to purchase these imports paid for with 'back door' debt.

A house of cards built upon shifting sands will come down one day soon.

francis_sawyer's picture

By some standards &/or definitions ~ 'a rub & a TUG' can be a very relaxing experience...

ihedgemyhedges's picture

I agree, and quite frankly, so does my wife of nearly 19 years.  That's why when I ask her "Hey, how about a little tug (wink wink)?"  She says, "Sure, just be sure you do it in the shower...."

Wile-E-Coyote's picture

We don't need chart to tell us things are getting worse it is obvious, another three stores have closed in our town in the last couple of weeks.

cbxer55's picture

Saw another video rental store with big going out of business sale written across it's windows. One of the last brick and mortar video stores in this town. OOPS!

Cdad's picture

Sweet!  Four years later, we continue to "struggle through."  How many trillions has Bernanke spent so that we could continue to "struggle through?"  And why has Bernanke placed a bunch of counterfeit dollars in 19 giant zombie banks as his proposed solution to the "struggle through environment?" least the Russell 2000 Index is not struggling through like the rest of us, and is AT ALL TIME HIGHS!  Yeah!  It must be the case that smaller capital companies are hiring, right? that cannot be the reason Ben Bernanke keeps printing money to address our "struggle through."  Hmmmmmm?  Whatever could Ben's actions be all about?

847328_3527's picture

Cdad, millions are still struggling b/c ben released those Trillions to Bankers, not to the free markets.

Laser Shark's picture

Taking out federal deficits, the change is pretty amazing. Since 1980 the number of years with negative GDP growth jumps from 7 to 15, and the average GDP growth rate drops from 2.7% to an incredible MINUS 0.3%.

Europe's not to blame. America's not to blame. China's not to blame. Japan's not to blame. Human nature is to blame. People want governments and central banks to intervene and delay pain.

Instead of allowing recessions to purge the system over time and kill off the deadwood, things are propped up until they are utterly unsustainable and prone to systemic failure and catastrophic, unstoppable collapse. The US is just lucky it has the tremendous power to prop itself up longer than most.

ajax's picture


The US sold trillions of dollars worth of CRAP mortgage securities all over the world just recently - anyone remember?

Laser Shark's picture

Yep, the Fed and government encouraged excessive risk taking, so the banks came up with a way to protect themselves.  Also, the Euro was fundamentally flawed from the beginning.  The EMU nations didn't keep their fiscal deficits within the 3% of GDP limit of the Maastricht criteria. Japan has been propping up zombie banks for twenty years now, and China built ghost cities to lie about their GDP.

news printer's picture
Russian strategic bombers ‘spotted’ near Guam amid US defense cuts threats !!!

Shell Game's picture

LOL, better throw some 100s of $Billions more on the military conflagration....


cossack55's picture

I assume you noticed the propellors on the Bears.

Schmuck Raker's picture

Interestingly, that story is sourced from The Washington Free Beacon, which has been publishing for all of 10 days. Editor-in-Chief is Bill Kristol's son-in-law.

Just sayin'...

apberusdisvet's picture

But Obama promised us all those goodies in the SOTU, and it won't cost us a single dime!  So things have to be swimmingly OK, Right?


Bueller?  Bueller?

q99x2's picture

No one believes that data. It is time to end the FED and put them on trial (for treason) in State courts.

Yen Cross's picture

    I can't wait to laugh my ass off next week, when the yen shorts go parabolic. The $ is already pressing the 200day (dxy). Every "Asian Central Banana Bank" has been buying $'s.

    The CNBS cock suckers, and that whiney bitch Mandy (deeper) cheerleader, make me sick!  This whole tirade is like a giant fucking "washing machine" getting ready to start the "SPIN CYCLE".


Mr Lennon Hendrix's picture

I haven't found a report on the G-20 Fincnace Meeting anywhere.  Not on MSM, nor on other sites.

Not on ZH, not on Drudge, not on infowars, not even on RT.  The closest anyone got to covering it was mentioning that Russia was hit my metiors.

This is a big deal, the finance meeting, and it just wrapped up.

Some highlights from the Communique -

We will continue to implement our previous commitments, including on the financial reform agenda to build a more resilient financial system and on ambitious structural reforms to lift growth.  We are committed to ensuring sustainable public finances....

We support action to improve the flow of credit to the economy, where necessary. Monetary policy should be directed toward domestic price stability and continuing to support economic recovery according to the respective mandates....

We look forward to the results of the ongoing work on spillovers in the Framework Working Group....

We reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments and in this regard, work more closely with one another so we can grow together....


reiterate that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes, will resist all forms of protectionism and keep our markets open....

[We] also find that there is scope for some sources of long-term financing, including local currency bond markets, domestic capital markets, and institutional investors to play a larger role for investment. At the same time, country-specific factors affect access to long-term financing and there is therefore much that countries can do to attract long-term financing....


Recognizing the essential role that the long-term financing plays in supporting our goal of strong, sustainable and balanced growth, we agreed to establish a new Study Group on Financing for Investment, which will work closely with the World Bank, OECD, IMF, FSB, UN, UNCTAD and other relevant IOs to further consider issues raised in the diagnostic report and determine a work plan for the G-20, considering the role of the private sector and official sources of long-term financing....

We welcome the establishment of the FSB as a legal entity with greater financial autonomy and enhanced capacity to coordinate the development and implementation of financial regulatory policies, while maintaining strong links with the BIS....

We ask the FSB to deliver by the time of the St Petersburg Summit an assessment of progress towards ending the problem of "too-big-to-fail". ...


We reiterate our willingness to strengthen the oversight and regulation of the shadow banking sector....




G20 Finance Ministers and Central Bank Governors' Meeting was held in Moscow:

Yen Cross's picture

 L/H for the most part G-20 has concluded. Unless they decide to unleash a few "tape bombs" early next week.

C/B talk has no 1/2 life, unless you are an ALGO, scalping horse meat.  { G20 Moscow meeting – final Communique | ForexLive}

 Keep up the fantastic insights and thanks for all your contributions...

Schmuck Raker's picture

I don't see any big deal:

We will continue...
We support action...
We look forward to...
We reiterate our commitments...
We reiterate that...
[We] also find that there is scope...
We welcome...
We ask...
We reiterate...

There's the executive summmary. Nothing new, same liars, same lies.

CheapBastard's picture

"...we agreed to establish a new Study Group..."


Any time you hear them appointing a 'committee' ....that essentially means no action ... lots of 7 course dinners, fine wine and dancing girls behind doors...but no substantive action in my experience.

gould's fisker's picture

I wonder how the markets will rationalize all indicators going down--Europe in recession, China making it up until populace starts to riot, and US teetering on the edge--i'm sure they'll make up something--weather or whatever else--but that tipping point for the market will come perhaps when bulls are the only one still standing on the edge and then self preservation kicks in . . .

rsnoble's picture

What US economy?  The stock market bombarded by digital zeros doesn't count in my book but im not greenspanturd.

DangerClams's picture

The fact that money was pumped into banks by the actions of the Fed, that much of it found its way into stocks and other investments, but little actual investment in products, capital assets, factories, people, etc., seems to reflect the idea that showing stock price increases will be seen as an indicator that the economy is healthy.  And might help certain presidents get re-elected, regardless of unemployment numbers, especially when the unemployed will probably vote for said president if he extends their benefits to a full phucking year of checks.

It seems contradictory that a loose money policy, cheap money, means that corporations are highly liquid but still aren't investing in programs or products.  Why would they not do that?  Do they know something the idiots in charge of Fed policy do not?  Is it possible that monetary and fiscal policies enacted by the Fed and the USG cannot, ultimately, force a corporation to spend a single stinking dime?

You can't complain that corporations aren't hiring when, aside from throwing cheap money around, you've done everything in your power to make it such that the economy is much less likely to grow, meaning the return on even cheap money becomes negative - so no investments are made.  Yet Barry, et al, sit stunned in their offices, unable to comprehend why the economy isn't soaring.

We need a removal.  Not a Love Removal Machine, but a Politician Removal Machine.  In other words, informed voters.  Until we get those, we're going to get more of the same bullshit, at increasingly higher and higher levels of said shit.

W74's picture

They're trying SO HARD to keep this sinking ship afloat it's laughable.  We can only sustain the divergence between us and Europe for so long before reality finally catches up and puts us back in sync. 

Look out for ANY news out of Europe, China or the rest of Asia to put the brakes on this puppy.

thismarketisrigged's picture

what global recession is this you speak of?


all markets across the globe are either at all time highs, or near. everything must be great, that is of course if u listen to that mother fucking bitch stephanie link on cnbc, or jim cramer, or all those other fucking assholes who believe things are actually improving.


i hope they all collapse and suffer so badly, and goldman sachs, jpm, c, all banks get dealt a big blow.

Notarocketscientist's picture

Why the US is not down the same rat hole as Europe?

The US is printing a trillion this year

The EU is only THREATENING to print

The US has delayed the rat hole outcome

Kingkongballs827's picture

Bury your Guns, Gold, AR-15s, Ammo, Food and More with this 4.5' Foot Nitrogen Sealed PVC Burial Tube Gun Vault.

nobusiness's picture

Shocking!!!  You run up 16 Trillion Dollars of debt in 30 years and you fair better than most???  I guess if we do another 16 Trillion we can rule the world again.

trendybull459's picture

my solution for americans and other countries economies where still agricultural land is awailable for purchase:buy piece of land,keep growing own food and do barter regardless government orders and regulations,the Banks took you off land,put you into expensive cities where they showed you the treasures of the life and you as rats fighting for principals they had install brainlessly killing yourself and others,spending most money on GMFood and loosing memory,sperm count and fertility rates,getting old quicker from you could or sometimes die hard for their principals from food pesticided or air/water polution deseases.but you could continue to leave shy,but prospective life of farmer and let them to do bicycles for your unafalted roads!

we got new Forum in russia and in russian,but you can talk english(as most russians speaking it),to leave comments in translite or russian,what is good is that Russia absolutly free country if it apply to critics of their enemies,it takes some few minutes to be free from Big Brother watching being registred in