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Signs That The Economy Is Weakening
Submitted by Lance Roberts of STA Wealth Management,
"Sign, sign, everywhere a sign
Blockin' out the scenery, breakin' my mind
Do this, don't do that, can't you read the sign?" - Five Man Electrical Band
For months now I have been discussing that despite the "hopes" that this time is different, there is little chance that the U.S. can remain an island of economic prosperity in the sea of global deflation. To wit:
"While none of this analysis suggests that a domestic recession is imminent, it does suggest that the hopes that the U.S. can "decouple" from the rest of the world's deflationary drags are likely misplaced. As shown in the chart below, the U.S. economy has historically been unable to achieve accelerating rates of economic growth when both the EuroArea and Japanese economies have been weak."
"The implications to investors are important. The current growth in domestic profits is one of the last remaining footholds of market "bulls." With valuations now expensive, interest rates near zero and yield spreads flattening, the risks to the markets have risen substantially. While this doesn't seem to be the case as markets push up against all-time highs; it is worth remembering that we saw much the same in early 2000 and 2007. This time is likely no different, only the timing and catalyst will be."
The following series of charts all suggest that current hopes of surging economic growth in the U.S., over the next several quarters, will likely be met with disappointment. I have added brief comments, but primarily you should judge for yourself.
LEI Coincident To Lagging Ratio
The coincident-to-lagging ratio is like a "book-to-bill" ratio for the economy. It is hard to suggest that the economy is "firing" on all cylinders when this ratio is languishing at levels normally indicative of a recessionary economy.
ISM Composite
While the ISM composite survey is near the top end of its range, there are clear signs that the ratio will likely subside in the months ahead. I have mapped the normal cycles of the index in the past. It is important to remember that the ISM survey is a "sentiment" survey that tends to lag actual inputs like new orders and backlogs.
Durable Goods
Speaking of orders, durable goods (ex-aircraft) are showing considerable signs of weakness domestically. The demand for goods has weakened significantly over the last couple of months in particular despite the hopes that falling oil and gasoline prices would buoy spending. (I wrote several articles dispelling this myth see here, here and here.)
Imports vs. Exports
The surging dollar and weak consumer demand are also being reflected in import and export activity.
Shipping
The rising weakness in demand for goods and products can be clearly seen in the decline in the shipping index.
Copper
Copper, a component used in virtually every facet of manufacturing, production, and consumption, also suggests that economic demand is weakening.
National Activity vs. Economy
We can see this more clearly by looking at the major components of the Chicago Fed National Activity Index (CFNAI) as compared to the relative economic indicators.
Inflation
The 5- and 10-year breakeven inflation rates continue to suggest that underlying economic strength is much weaker than headline statistics suggests.
These charts all clearly suggest that the real economy is likely weaker than currently believed. In addition, current data would likely already be printing lower growth rates had it not been for revisions a couple of years ago that added more questionably measured components such as "intellectual property."
However, while I am not suggesting that a recession is imminent, i am suggesting that the risk to investors has risen markedly over the last few months. The rising financial instability in the Eurozone, particularly following the Greek elections, combined with the global deflationary tide puts currently extended financial markets in jeopardy.
There is little question that the markets will eventually suffer a rather nasty mean reversion. However, bull markets don't end simply due to old age, it requires a catalyst. The problem remains that throughout history the "catalyst" that finally triggers a market reversion and coinciding economic recession are rarely identified in advance.
This is why I point to the signs. The signs are everywhere that the market is currently a "bug in search of a windshield." It will eventually find one, and as the old saying goes, the last thing that goes through the mind of the bug is its ***.
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This is too much 'real world' stuff. All it will take is a wink or a raised eyebrow from Yellen -- or possibly even a do-nothing Republican Congress actually doing something to stimulate growth. Neither are meaningful -- but algorithms don't care.
Tylers: Add to the charts the ECRI Weekly Leading Index is in the dumps:
https://www.businesscycle.com/ecri-news-events/news-details/economic-cyc...
We want a Goldilocks Swirl-O-Gram!
I love Swirlograms.
Another false flag attack would serve the debt masters quite well.
but.....but.....but EVERYTHING IS AWESOME!
When will the music finally come to an end? The charade will continue until it does.
We're getting there, the real economy is sliding down and you can't run it on fairy dust and unicorn poop....
you can definitly see it now. The real signs are all over
As if we needed any "signs.." The Fed knows. Politicians know. . Even the gleeful shit for brain talking heads know. Everybody knows!
Everybody Knows...great Leonard Cohen song https://www.youtube.com/watch?v=XTc3hIEPTyo
When we say "inflation", do we really mean inflation?
Inflation? All I see written about is world wide deflation, but I see inflation on the goods and services I need every day. Is food, rent, healthcare, utlities, education, taxes, etc deflating? Costs are all inflating! The only cost deflating is gas. Meanwhile assets like wages and savings are deflating while housing is stagnant at best. The only asset inflating is stocks and we all know why. These "inflation" numbers are complete garbage.
It's not just the price of eggs. I think he's saying:
1) Low demand for goods and services,2) both exports and imports going down,
3) rates to ship freight by sea are going down (because of fewer cargo lots to ship),
4) copper and other industrial commodities demand weakening and prices going down as a consequence, 5) housing starts peaked in late 2012/early 2013 and have been going down ever since, 6) production is flat, but the "break-even" inflation rate (or the amount of inflation needed to profit from that production), is going down That's deflation. Check out this four-part essay on deflation: http://www.globaldeflationnews.com/inflation-vs-deflation-part-1which-on...
We have not had any organic (non debt fueled) growth for the last 30+ years.
Basically my entire adult life and most of my life has been a dream.
I have this fear I am going to wake up and my real life is a Monty Python Shit Collector,"
"We're an autonomous collective."
its as simple as, we have basically gotten rid of our manufacturing and became a net importer rather than exporter.
That is one side of the ledger.
We needed to be an importer of everything but one to be the reserve currency.
Could you imagine the misery if we had to domestically consume all that extra debt?
Why, people might start asking questions.
pods
you chanelling robert triffin?
The face of our exports have merely changed. Instead of material goods we now export financial weapons on mass destruction, freedom bombs, and waste products. All of which are not to be confused with the others.
Are stawks still up? Yes.
All that matters.
That's a transitory situation. I can assure you of that much beyond any doubt. Why? Because the Fed still has hubris enough to believe they're still in control.
Well, up-ish, maybe. Not like we're hitting new highs three times a week any more. More's the pity,
Are you from Venezuala?
I stopped reading when he used the BDI to support his theory. Sorry Lance but you don't know what you're talking about.
what "economic prosperity"?
i don't see any.
i do see empty store fronts, higher food costs, higher energy costs, layoffs, mandatory furlough days, reduced w*rk hours and few j*b openings...
is that what we're calling prosperity now?
We're killing it, all the way down.
pods
"higher energy costs"
You might want to remove than one from the auto-populate field.
Your energy costs are higher?
'Five man electrical band'...? I thought 'signs' was a Tesla tune...?
Tesla now does Chariots of Fire.
Fuck Tesla
That could be a shocking experience.
The author may not think a recession is imminent but I do. What is imminent? By the summertime of this year and best guess three quarters of negative growth. That will make this a triple "W" shaped depression so far since 2008, with each leg down occurring in roughly four year cycles.
We'll see how the debt gets restructured between now and 2020. When it does that will certainly have ripple effects to the wider economy for a solid year at least.
Subtract the Wall Street sector from the numbers and the economy has never recovered. It's a depression, five years and counting. The growth of BS has never been higher. It's never been a better time to buy!
I think it started in 2005/6 time frame. October 2007 is when the stock market finally took notice. FU Fed.
All seasonally adjusted BS just like the jobless claims
Will it be because of Europe?
Or will it be for cyclical reasons, the same as Europe?
Or both?
I am thinking the correct answer is BOTH.
How about: half of 600 applications received within 24 hours for a min-wage serf job were Masters' degrees or better? Is that one of the signs of the apocalypse? Cue the cackling clueless idiots on MSM.
AND ALL OF THE FEDS PRIINTING AND ALL OF THE FEDS MEN COULDN'T PUT THE ECONOMY BACK TOGETHER AGAIN !
Deflation is occurring due to the reduction in consumerist driven growth. The fact people are cutting back on their spending due to stagnant wages, uncertainty of future economic conditions, and the inflation in the cost of necessary commodities (oil excluded). It would seem that consumers "cutting back" would decrease demand thereby lowering prices. However you see inflation in the cost of almost every item you purchase at the grocery store. Is this more the result of dollar devaluation via bailouts/QE or is it that producers of those items are attempting to catch more dollars by keeping prices high (I'm also including here the effect subsidies have in passing costs along to the end user)?
When growth is based on credit and there is no credit then there is no growth.
I don't follow the Cause -> Effect chart mumbo-jumbo articles that appear at least once a day here. The reasoning is too complicated.
For me, it's simpler than that:
For the economy to grow, somebody has to be produce something of value. If someone produces something of value, they get a paycheck. The more value, the bigger the paycheck. So the % of people working and the amount they get paid will be increase faster than population growth. I.e., gross income growth % > population growth %.
US currently has: record % people NOT working; record people on disability; record people on Food Stamps; wages shrinking; small businesses closing faster than they open, etc. So who is out there creating all this economic growth if nobody's working?
Finally, there's been no technological breakthrough like the Internet recently, or a world war, right?
If people aren't working, there is no growth. It's just that simple.
simple is as simple says----growth occures when something "grows" to become more of what it is---its a noun/verb thing. Now if you want additional verbage you might say "Growth is neccesary" and add because and then say to service debt---Or you might say Growth is a natural cycle beginning in birth and ending in death. In any case it is economic politico speak and is irrelevent to anything outside of economic models. Whats relevent is price --Now price is for all practical purposes a way of subtracting from the value of all the days you have left to live. The rub is that you have to do things with the time you have left as a trade to have the things neccesary to realize or extend the time you have left to live. Price is what you use to keep the books. By injecting concepts like "free" or "reduced" or "compounded" or "leveraged" or "growth" price is distorted. Distorting the price is a con used to fudge the books. Who better to fudge the books than market makers like central banks. Economic Growth is a con job that benifits book fudgers who use it to make what they have more pricey and what you have less pricey. Ditto for inflation or depression. Pretty simple theft if you ask me. It really doesn't have diddly to do with work, value or a paycheck.
You must be from Seattle.
> "For months now I have been discussing that despite the "hopes" that this time is different, there is little chance that the U.S. can remain an island of economic prosperity in the sea of global deflation."
"I am a rock,
I am an island.
And a rock feels no pain;
And an island never cries." - Paul Simon
Since when was it ever strengthening. It has been like shit for at least 15 years now.