US Economy – Slip-Sliding Away
Submitted by Pater Tenebrarum via Acting-Man.com,
Economic Conditions Continue to Worsen
It must be China. Or the weather, which is usually either too cold or to warm – somehow the weather is just never right for economic growth. Surely it cannot be another Fed policy-induced boom that is on the verge of going bust? Sorry, we completely forgot – the Fed is never at fault when the economy suffers a boom-bust cycle. That only happens because we have “too few regulations” (that’s what Mr. Bernanke said after the 2008 bust – no kidding).
Photo credit: Matthew Emmett
No matter what economic data releases one looks at lately, one seems more horrendous than the next. This is apart from payrolls of course, which are not only a lagging indicator, but are apparently a number that is occasionally made up out of whole cloth – such as in December, when 281,000 of the reported 292,000 in non-farm payroll gains were the result of “seasonal adjustment”, which is bureaucrat-speak for “didn’t actually happen”.
Today the markets were inundated with data that strongly suggest that the negative trends observed over much of 2015 continue to accelerate. In what is by now a well-worn tradition, Fed district surveys of the manufacturing sector continued their decline with today’s release of the Empire State survey. One no longer risks being accused of hyperbole by calling its recent trend a “collapse”:
Empire State Survey, general business conditions index. Such readings are usually not seen during economic expansions – click to enlarge.
As is often the case, not a single economist came even remotely close to correctly forecasting this meltdown. As Mish noted earlier today, it was quite a big miss:
“The Econoday Consensus estimate was for a slight improvement to -4 from a November reading of -4.59. The actual result was -19.37 with the lowest economic estimate -7.50.”
Our friend Micheal Pollaro has provided us with several charts, including the following comparison chart, which shows the Empire State survey’s new orders index for January, as well as the new orders index of the National ISM and the average of the new order indexes of the Fed district surveys as of December. Not only are new orders one of the most important components of such surveys, as they lead future manufacturing activity, but in recent months the Empire State new orders index has begun to lead other survey data. If it continues to work as a leading indicator, one should expect more negative data points to be released in the near future.
New order indexes: Empire State (red line, for January), average of all district surveys (brown line, as of December) and ISM (blue line, as of December, rhs) – click to enlarge.
Admittedly, this is an especially volatile regional survey, so it is probably not useful as decisive evidence for a broader economic downturn, but every other data points released today proved to be a disappointment as well. The industrial production index has also continued its decline in December. Industrial production was down 0.4% in for the month (3.4% y/y) and the November reading was revised lower to minus 0.9%. In this case, no mainstream economist managed to forecast any of this either. It is noteworthy that readings similar to the current ones have never been recorded outside of recessions in the post WW2 period. Here is a chart showing developments since 1970:
Industrial production declines further. Keep in mind that NBER is backdating the beginning of recessions once they are six months old or older. This means that a recession is never officially recognized when it actually begins. In other words, a recession may have begun already; we will only know for sure a few months down the road – click to enlarge.
It is quite funny that the failure to forecast the decline in IP was once again blamed on the weather. The credibility of that excuse is really beginning to wear thin – are economists as a group unaware of the weather? What was it about the weather that hindered industrial production this time? Apparently it was too warm. One might be tempted to conclude that it is the mere fact that weather as such exists that is the problem here, but the reality is of course that forecasts of specific economic data down to 10ths of percentage points are essentially a waste of time. One might as well toss a coin.
But surely December retail sales would come in at a reasonably good level? No luck on that score either, although this weak report (down 0.1%) was actually the best of the day. This time expectations were only slightly undercut, but there were large declines in a broad range of sub-sectors, all of which normally tend to do well in the Christmas season.
Lastly, the Census Bureau reported business sales and inventories for November, with the slide in sales continuing – inventories declined by 0.2% on month-on-month, but were still up 1.6% from a year ago. Sales declined at a similar pace month-on-month, but were down 2.8% from a year ago. As a result, the inventory-to-sales ratio remained stuck at its recent interim high – which is still the highest level since mid 2009. Mid 2009 wasn’t a particularly happy time for the economy.
Business sales (red line) and inventories (black line) and the inventory-to-sales ratio (blue line, rhs) – click to enlarge.
Negative stand-out in terms of business sales were wholesalers’ sales, which have declined by 5% year-on-year as of the end of November. Inventories are declining as well (m/m), but not fast enough yet – the inventory-to-sales ratio of this sub-sector has consequently made a new high for the move:
Wholesalers: y/y change rate in sales (purple line), inventories (red line) and the inventory-to-sales ratio (blue line, rhs) – click to enlarge.
Selected Other Indicators
While we have no new update yet on charge-offs and delinquencies in the commercial and industrial sector, it should be noted by way of reminder that this is yet another datum that is consistent with an incipient recession (the data are as of Q3):
The sum of C&I loan charge-off and delinquencies vs. the FF rate – click to enlarge.
Junk bonds have continued to decline – with yields reaching new highs for the move on Wednesday and improving by just one basis point yesterday. In light of today’s carnage in risk assets, with junk bond ETFs once again falling sharply, it can be safely assumed that yields have yet again reached new highs today. As always, the lowest-rated bonds are the worst performers, but even the Master Index II effective yield has by now nearly doubled from its late June 2014 low. Energy debt plays a big role in these moves, but in the meantime the weakness has begun to spread to other sectors as well:
Junk bond yields keep surging – click to enlarge.
Lastly, our coincident boom-bust indicator, the ratio of capital equipment to consumer goods production, remains at quite an elevated level. This suggests that if a bust has indeed begun, it is only in its beginning stages.
Three booms induced by loose monetary policy, as seen in the ratio between capital and consumer goods production – click to enlarge.
The ratio of capital equipment to consumer goods production gives us a rough idea toward which stages of the production structure the bulk of investment is flowing. Just as capital theory suggests, during times when interest rates are artificially suppressed and the money and credit supply are expanding, the higher stages of production (capital goods producing industries) attract a greater level of investment and display more activity relative to the lower stages (consumer goods).
However, this can never work out in the long run, as production is ultimately not funded by “money”, but by real capital, i.e., by real savings. It is impossible to print the economy to prosperity and these artificial booms are therefore never sustainable. The denouement of the boom can be delayed by keeping monetary policy loose for longer, but such delaying tactics will as a rule merely worsen capital consumption and hence the subsequent bust. The chart above is telling us that more society-wide impoverishment definitely awaits.
Conclusion
Everything continues to suggest that the economic recovery is in the process of screeching to halt. The recovery was already the weakest of the post WW2 era to begin with. Only one datum still gives us pause, and that is the rate of growth of the broad true money supply TMS-2, which has seen a rebound to approx. 8% year-on-year in November.
On the other hand, the annual growth rate of narrow money M1 has reached a new low for the move of 4.65% in mid December, compared to a peak reading of approx. 24.6% attained in October of 2011. While this volatile series has rebounded sharply between mid December and early January (to 9.5%), the effects of changes tend to arrive with a considerable lag. We continue to suspect that it will lead the broader measure TMS-2 lower as well.
Lastly, the stock market, oversold as it already was, proved unable to withstand Friday’s onslaught of data and proceeded to fall out of bed completely. At one point the DJIA was down more than 500 points. By the close it had recovered to a loss of 390 points, which is still quite hefty. As we noted yesterday in this context: “[An] oversold market can easily become more oversold when it keeps being inundated with evidence that economic conditions are not what they were thought to be.”
The S&P 500 Index bounces after briefly undercutting the August 2015 low by a mere seven points. This level seems ideally suited for a rebound to begin, but at the same time, it remains uncomfortably close – click to enlarge.
Based on technical grounds we still believe that the market is likely close to a short term rebound, but keep our recent warning in mind: Sharp declines during usually seasonally strong periods are a typical bear market characteristic. In fact, as Jason Goepfert reports, the recent combination of market moves has only been seen in the vicinity of a handful of major historic market tops.
Note that Mr. Goepfert’s observations are independent from what we said about seasonal patterns. If we add the occurrences of past warning signals given by unusual seasonal cycle inversions to his list, we find a few overlaps, as well as additional examples (namely 1962, 1973, 2001, 2007, 2008 and Tokyo 1990 – there may be a few more examples for this, but these are probably the most prominent ones). In connection with the economy, the relevance of this consists of the fact that a putative bear market (“officially” the market is merely in a strong correction so far) would almost certainly go hand in hand with a recession.
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It's an eerie destination..
There will be no real recovery what so ever!
The elite will soon run and hide in the bunkers paid for with citizens taxes, after engineering a full economic collapse as well as starting WW3, plus they will make sure that there are enough Jihadi's in the West to start a race war.
That should be enough to cover up the failed fiat ponzi scheme and take care of the 'excessive' population......
http://beforeitsnews.com/global-unrest/2016/01/the-lion-is-it-time-to-fi...
Anyone who didn't see this coming was blind. Here is a chart that shows that anyone who expected anything but a crash from the rate hike was simply stupid or lying.
Frankly the market crash was likely the goal of the fed raising rates in the first place, never let a good crisis go to waste after all.
The market had to come down sometime. You either do it on your own terms, or have it done to you. There are no happy ending scenarios left for anyone now.
Unless you have no money in stawks.
OK, I do, in some miners, and they are truly at a "minor" valuation!
After seven years of ZIRP, how do you NOT raise rates? It has to be done sometime. The rest of the world can go ZIRP indefinitely, or even NIRP, but the Fed is the world's backstop, which means they HAVE to make interest rates positive again, lest the global financial system slip into the black hole of capital annihilation.
I'm sure the Fed understands this, and I'm sure they understand they should have done this years ago. But we know that Fed is thoroughly politicized, which means that Obama gave them strict orders not to raise rates until the end of his term, so that either Hillary or the Republicans would get left holding the bag.
What planet are you from? Artificially set interest rates is a command and control mechanism to increase FRA7A dividends and interest payments on excess reserves. Want to advocate for free markets and rationality, advocate for a market set Federal funds rate.
But that's just the thing, Buckaroo - in due course, the Fed will No longer be, the 'worlds backstop'. What will be, is XX,000 tonnes of physical gold being employed by the Chinese to either back the Yuan, or back global trade, both. Backstopping the world with the $USD and the worthless paper that backs it, is on its last legs.
Of course the Fed knew the result of a rate hike: It allowed them to blame it all on China.
It's the Curse, baby. Simply that darn CURSE >>> http://wp.me/p4OZ4v-3z
The problem this time is systemic and that means no matter what gets tried to fix it...it will not work. We need a new system- How about one where the Rothschilds and their pyschopath mates do not get to asset strip the general public. How about a system that is FAIR??? (Radical thoughts)
OK, why not? I actually agree, but being devil's advocate, why not contract everything then start over with a new ponzi?
You guys are "peddling fiction"
So says the Magic Negro.
not much hope for a country run by traitors that don't give a fuck about anything but their swiss bank accounts filled with stolen loot
Add to that Obamacare taking the equivalent of two car payments from every working household. There will be no consumer economy. Without subsidies nobody wants to pay $700 for an iPhone. Gee.
they will do whatever it takes to strip-mine every last asset from this country leaving behind a dessicated husk knowing they have full cooperation from our "representatives"
Not strip it, "Privatise it"....... Think the bank of America /Hoover dam........ The Apple/Golden gate bridge..........
"pull it!"
When you have every government operating a central bank and managing their local economies, i think this is the prescription for the worst economic collapse - ever.
That's the funny thing about globalism. In the old days when the world economy wasn't synched, you could move your money out of the non-performers. Now, there is nowhere to run.
That's why I keep coming back to personal possession of gold and silver.
Gold, Bit-Chez!
By design I'm sure. If not, at least it is a happy side effect for 'they'.
I don't know how they kept the world economy afloat for the last 7 years but they did. I don't know if that is good or bad. I think right now today the economy has imploded. I say this because the banks not having to declare defaulting energy loans in default must be close to one of the last efforts the FED can do. They have trotted out their members to the news media and had them make ludicrous statements to try to turn the market but it hasn't worked. I expect Janet to appear on Monday. The only other thing they can do is print...and if they do the people may not accept it and that would also be catastrophic. Almost every large bank on the planet has said the world economy is going down...as if they are forcing it to. Think about it....all their clients have been advised to sell. How much will the banks make on the way down?
Plenty. And from your portfolio right into your broker's waiting hands. They pumped the global markets up with QE - a fake recovery- in order to ultimately have their fake correction.
Just like the economic Dread Doctors - "Your economic condition worsens - your economic condition is terminal."
"... production is ultimately not funded by “money”, but by real capital, i.e., by real savings ..."
"Money" made out of nothing as debt is negative capital, which is injected into the political economy by public governments enforcing frauds by private banks. Since the public "money" supply has become about 99% MAD Money As Debt, the political economy has become about 99% based upon that fundamentally fraudulent financial accounting system.
That slippery slope, whose inclination has been jacked up and UP by the vicious spirals of political funding enforcing frauds, has practically become a vertical cliff ... Making "money" has become MADDER & MADDER. The physical realities of human beings and civilization operating as entropic pumps of environmental energy flows have been buried deeper and deeper under the MADNESS of everything becoming more and more based upon public governments enforcing frauds by private banks as the foundation of the entire political economy.
The vicious spirals of political funding enforcing frauds do NOT violate any of the laws of nature. Human beings and civilization continue to operate as entropic pumps of environmental energy flows. HOWEVER, the ways in which those processes are misunderstood by the people living INSIDE those economic systems, which have become almost totally controlled by public governments enforcing frauds by private banks, resulted in mainstream discussions of that kind of political economy becoming as absurdly backwards as possible, in every way, on every level.
Although human beings and civilization live as entropic pumps of environmental energy flows, everything with respect to doing that has become based on the maximum possible bullshit, in proportion to the degree to which the MAD Money As Debt systems have become dominate. That situation has become hyper-complicated and intensely paradoxical, due to the ways that enforcing frauds is based upon integrated systems of legalized lies, backed by legalized violence. Thus, the collective power of "We the People" is mainly mobilized in ways which are based upon "US" lying to "ourselves," while simultaneously forcing "US" to act as if "our" lies were not false.
Since enforcing frauds never stops those from still being fraudulent, the article above understates the degree to which the "US Economy IS Slip-Sliding Away!" To the degree that the political economy became based upon ENFORCING FRAUDS, which were systems of debt slavery, backed by wars based on deceits, the consequences have been getting worse, faster, at an exponential rate, for decades (particularly since 1971, when the American public "money" became almost total MADNESS!)
The physical realities of the US Economy have become so totally buried under deeper and deeper layers of bullshit based upon ENFORCED FRAUDS that it has become politically impossible to dig down to those realities.
Greenspan - Bernanke- Yellen
The three stooges!
You are forgetting the fourth Stooge, eh.
closing time I guess. it feels like we are past last call and just waiting for somebody to turn off the lights.
can't say I will be sad to see it burn though, after all I certainly didn't benefit from the last eight years of central planning and policy manipulation. life for me and many others here I'm sure just kept grinding along, going nowhere in the economic sense. all the while watching this absurd circus play itself out and wondering how long could it last?
I hate to say it but I do take some small sense of satisfaction away from watching it all crumble. if only because every time I posted a blog or talked to people about just how fake this "recovery" really was and how it was in fact setting us up for an even bigger crash in the future, I was treated like a nutter with a tin foil hat and viewed as an alien with three heads.
so on monday, or soon thereafter, all those people have one big, fat " I told you so" coming.
of course they still won't be paying attention, the DOW will have to drop 10,000 points, 401k's will have to be vaporized, millions of jobs lost, the ATM's have to stop working and the government benefit spigot turned off before the large majority realize just how wrong they were to put their faith in the system. after all things could never get that bad, such a catastrophic failure could never happen here in the US right? normalcy bias at it's most dangerous. to them I will still just be "peddling fiction" as the TOTUS said.
they never saw it coming, or this wasn't supposed to happen will be phrases we will hear a lot in the time ahead.
I have no idea how bad things will get nor how long it will last or even how I will get through it. but at least I can say with all honesty I'm not surprised, not blindsided and I did, in fact, see it coming.
The lights might go way dim for the U.S., but someone's light is going to shine very brightly in the presence of XX,000 tonnes of physical gold hoarded away for just the right time to employ. Gee, can't imagine who that 'someone' might be, can you...?
So wur essentially on Biff's timeline now where Biff's Casino/Wall Street took over the future https://www.youtube.com/watch?v=S4m848bh1iY
I'm calling bullshit on this article given the underlying premise that a real recovery actually took place after March 10th 2008 when no recovery whatsoever has taken place since that date. In point of fact, there has been no sort of recovery whatsoever, and I, for one, guarantee that there will never be a recovery given the inherent fraud in the system since 1945, or 1912.
Since the beginning of time .......
This is all PSYOPs ..
I can watch ZH as I would watch Drudge et al .. (grant it, ZH is far more entertaining)
Every single story is a component of overall -- P S Y [chological] O P [eration] s
Keep your eye on the ball ..
Watch this and this .. (the first this watches the second. Holter told me himself)
Everything else is fluff ..
Don't take my word for it. Sinclair explains back in September ..
(Wanta calls it -- theater)
Believe me, Barry has been personally informed. He damn well knows what is going on. If anything, he gets an earful from Joe ..
How about we try getting the US back at least in the top 10 of the economic freedom index?
I have diamonds on the soles of my shoes.
" not a single economist came even remotely close to correctly forecasting this meltdown"
except that they did: Durden, Sprott, Snyder, Hayek, Mises . . . shall I go on