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Guest Post: EOCI Index Now At Recession Levels
Submitted by Lance Roberts of StreetTalk Advisors
EOCI Index Now At Recession Levels
For the last several months we have been posting our Economic Output Composite Index and warning that it was heading to levels that typically denote that the economy is in a recession or about to be in one. With today's read of the Philadelphia Fed Regional Manufacturing Survey coming in a not just contraction levels but a massive collapse to the downside, as we have been saying was a possibility, the EOCI index is now at levels signaling recessionary warnings.
(The EOCI Index is a weighted average of the Fed Regional Manufacturing Surveys, the Chicago Fed National Activity Index, The NFIB Small Business Survery, Leading Economic Indicators and the STA Composite ISM index)
In our recent blog post "Are We Headed For A 2nd Recession", (Updated July 31st, 2011), we stated that "With the recent release of the Chicago Fed National Activity Index, our proprietary economic index is just one small step away from crossing the 35 mark which has always been a pre-cursor to recession." Today that indicator is showing a reading of 26.74.
We have discussed many times recently that the unemployment rate remains high, housing prices are slipping into a secondary decline, consumer and business spending is slowing, while gas and food prices remain high, eating up more than 20% of consumers wages and salaries. Add on top of these factors the likelihood of a Greek debt default, a slowdown in the Euro-zone, a weaker dollar and political infighting without resolutions in Washington, inflationary pressures mounting on the consumer — well, the list of risks far outweigh the positives.
The plunge in the Philly Fed index today was, as I said, not surprising even though it surprised the economists that were actually expected the number to increase. I can't figure out why they would expect it to when every other indicator continues to show signs of economic weakness filtering through the system. I will admit that the decline was deeper than even I expected but the trend of the movement has been evident for months.
Digging down into the survey we find that New orders fell to minus 26.8 from plus 0.1, shipments minus 13.9 from plus 4.3, number of employees minus 5.2 vs plus 8.9, unfilled orders minus 20.9 vs an already dismal minus 16.3. Price data show a contraction for output prices and a much slower rate of inflation for input prices. Delivery times improved significantly which is another sign of weakness. The six-month outlook also crumbled, coming in above zero but just barely at 1.4 vs July's 23.7. The Empire State report, released Monday, also showed 3 months of continued contraction which is also a recession pace as well.
It doesn't take an economist to figure out that any one of these factors could send us tumbling into a second recession. However, that doesn't seem to deter Wall Street economists and main stream media, who all seem to be wearing rose colored glasses these days. Even after the dismal economic news that has persisted over the last several months analysts and economists are still "hoping" that the economy will somehow avoid a recession. More disturbingly, however, is that they are still recommending to invest into stocks that currently are not priced to reflect the impact of an earnings growth decline due to a recessionary economy. Analysts are still predicting near record earnings growth and the reality is that if the economy slips into a recession we could see earnings decline to near $75 from current levels which is a far cry from the $105 level predicted for 2012.
It is disturbing that policymakers, while the say they have the weapons, do not seem to have fortitude or political willingness, or maybe it is just the lack of insight, to fight the current economic malaise. The policy measures that have been used to date have been ineffectual at creating organic economic growth as they have not targeted the root of the problem which is excess debt and jobs. With consumers restricted due to declining wages on a year-over-year basis and inflationary pressures rising the lack of final demand is keeping businesses from hiring. These problems are a large reason why the economy is more vulnerable to another recession as the policy measures that were used to drag forward future consumption leave a massive void when they are withdrawn. While we expect that the Fed is willing to step in, just like it did in 2009 and 2010 with Quantitative Easing - the reality is that those programs were a failure in terms of creating economic stability, employing labor or resolve credit issues with consumers. While another injection of QE might stabilize the markets short term it won't serve the long term economic needs.
Furthermore, it is important to realize that we are not in a normal manufacturing business cycle economic slowdown. This is a balance sheet recession the likes of which have only been seen in Japan and during the "Great Depression". Unfortunately, economists and analysts and politicians keep trying to cure a normal business cycle recession rather than a balance sheet recession. By utilizing the wrong medicines for the illness the symptoms might temporarily dissipate but the underlying infection continues to destroy the system. As history has shown, financial crises are often followed by very prolonged rolling recessions. Take a look at Japan as a study and you will see an economy that has struggled with recessions on a rolling 3 year basis rather than the 8 year basis we have witnessed since World War II. Long periods of sustained high unemployment, low growth and weak financial markets which mark these periods do not bode well for individuals trying to retire within the next 10-15 years .
The safe play in the current environment is hedged investments, cash and fixed income for the current time. This has not been, nor will it be any time soon, a "buy and hold" investing market. The management of risk, the conservation of investment capital and the generation of total returns from portfolios is paramount for investors to survive the cycles that we will face in the coming years.
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Cue the "Doom Song"
http://www.youtube.com/watch?v=S4qMeVmYKpk
A bit of reaction to the news from the Philly Fed:
http://azizonomics.com/2011/08/18/missing-the-point/
Tiger Lillies bitchez:
http://www.youtube.com/watch?v=cbEKFVCrArA
The EUR is going to blow up, taking us into the a far darker and deeper rabbit hole than the overwhelming majority think is possible.
People still think Germany is going to save the entire EU experiment for the sake of saving itself, when in reality and by basic math, Germany can't save the EU even if its citizens WANTED TO and if they passed that message on to Germany's politicians (which they don't and they won't).
Anyone clinging to the dope fantasy that China, which has been providing a sort of backup for the euro, is going to be able to save it when the real drop sets in is delusional, also - China is going to bail fast to tend to more pressing crises at home.
Ahh, the beauty of global derivative products and a flat earth, interwoven global economic and financial structure, no?
Sehen sie in Wunderland, Hündinnen.
if the EUR comes apart...what, that's #2 world reserve-ish currency? They can't just back out of the EUR without blowing everything sky high. And I mean everything.
Some observations on the post. Basically, it's wrong. At the Recession indicator, the market makes a bottom, then there's a rally. The reflex rally is already occuring. The bottom is already in. Attempts to "hedge" will be painful. Secondly, there are no investors, and no markets to invest in. Never were. Both are products of brokerage house propaganda over a 25 year period; that's why you believe there might be such a thing as a buy and hold market; it's a triumph of propaganda. There are three things that matter in real estate; location, location, and location. In Trading, there are three things that matter, timing, timing, and timing. You buy the large solid stocks now, if you're a stock market person, and sell them later at a profit. Personally, I'd rather trade Commodities Futures; at least we never had the idea we were going to buy and hold !
Our Risk On/OFF Model has been sniffing recession triggering a risk-off trade 6/30 so we've missed the entire move down in SPY and are now +8% YTD vs negative SPY. We are opening up our weekly commentary to those on ZH emailing me at eclark@breakaway-partners.com. Just send me your email and I'll add you to our weekly market update with risk-on/off signals. Got gold?
At what level is depression?
After the great war against the aliens, the history books will be updated to indicate that this period was a depression.
There won't be a war. Either aliens can't live in a radiated environment, or they can and we can't. If that's the case, there's just a few years at the hostess station waiting for some seats to open up.
their battle fleets will emerge and thrust from Uranus and penetrate Venus
blue beam, bitchez
All the old religions and myths talk of gods mating with Earth girls. They made it sound like fun, yet that scene in Alien Resurrection . . .
so,...all that dripping goo on the alein was KY?
At the current level
And Nicholas Carroll encouraging people to walk away from their mortgages as an act of "Good Citizenship" for main street so can reset the mortgage bubble and get money out of that and start putting into small business where jobs may eventually be created as SP500 have no intention of creating jobs or helping with the unemployment that is the national scourge now. Artificial housing prices need not be supported.
Again, my term is Debt Saturation. No way out except large repudiations.
Sorry, but that has already happened. It was called "the recovery".
Logically, and reasonably, this conclusion is irrestible. As Mises, or somebody over there says, the crack up bust after the inflationary party is un-avoidable. The only problem is the timing.
http://blogs.ft.com/gavyndavies/2011/08/18/what-went-wrong-with-the-glob...
What went wrong with the global recovery?Really, we had such a good recovery! Pre-fab Gavin Davies on roller skates. Nobody could have foreseen this.
Is this guy brain dead, drunk or both?
The recovery is limited to the financial centers. Ferrari is having a record year in record unemployment. Ask yourself how that happens.
All the bad news is now priced in.
Time to start betting on "the recovery".
</sarc>
When is the Jackson Hole meeting?
I want QEIII, and I want it now!
The fat bottom girls are forming up now
Fat bottom girls make the rockin world go 'round.
Spot on, dude.
OT but Austria is also calling for collaterall like the Finns.
So it begins.
Some players are beginning to realize that "there will be bagholders".
And positioning themselves accordingly.
Manipulism,@ 14:14,
If your being used as a whore, how many times do you give it for free, before you whant Restitution?.
This entire debacle is a total disaster. It is just like Bernaks shite, except on a different continent.
If I were Germany, I would have said, My Arse from day uno.( One of two European countries left, that's semi slovent.)
the german word is Arsch, not Arse.
But, but; ?Austria is the country where they have the "sound of music"; and that pretty girl dances through the wildflowers; so it must be alright.
QE3 is coming, they have no choice, QE to infinity. We never came out of the recession. That is because we are in a Depression, and we will be for quite some time, until our politicians finally wake up and do the right thing.
http://silverliberationarmy.blogspot.com/
...ain't nobody waking up my friend, this is the prophetic strong delusion being fulfilled right before our eyes. When you ride this beast understand, the gains are the result of ate up individuals, you know, like your mother or some stranger that might have saved the ones you love. QE is just another way to say Black Hole ...Bitchez. We crossed the event horizon and our judgment is coming, count on it!
http://www.youtube.com/watch?v=vby9GAYv9sg&feature=related
All you need to know about the developing crisis in American politics and economics is the Obama Administration’s decision to deny Taiwan its request to purchase 66 new F-16C/D fighter aircrafts. Not only does it deny American manufacturing dollar volume but it also solidifies the lack of leverage (freedom) America has against the Chinese leviathan in this Bernanke Era of debt after debt after debt.
America’s foreign and monetary policy has emerged as a consolidated effort against freedom.
Please do not let a Congress that gives Bibi Netanyahu 57 applauses (29 of them standing ovations) tell us once again that arming an ally is important to America’s freedom when Taiwan sits on the brink of stopping Chinese economic and, yes, military expansion over the entire Southeast Asian region. The hypocrisy on every high tech weapon sale (and gift) to Israel is literally staggering. Is there no statesman other than Ron Paul who will stop this sellout of America’s freedom?
Suicidal national debt and impoverishment of the American people is the weapon of choice to bring the developed nations to their subservient knees, to a people willing to forego freedom while begging for a semblance of world order. The answer to this planned economic disruption has long been in the works. It is a single international currency to “reestablish economic order” in the hands of a single authority – the International Monetary Fund (IMF).
IOW, the debt-creators have created a nation-breaking bankruptcy problem and they are following it up with a self-serving global solution built on the twin pillars of totalitarian socialism and world government. NAFTA, said Henry Kissinger in 1993, “will represent the most creative step toward a new world order taken by any group of countries since the end of the Cold War…”
The timing may be just short of David Rockefeller’s earlier date set for America’s total slide into world government - primarily via the route of debt - but the slide is accelerating rapidly.
Admiral Chester Ward, USN – a 20-year veteran of membership in the Council on Foreign Relations - identified the goal of the Establishment insiders in 1975: [The CFR goal is] “the submergence of U.S. Sovereignty and national independence into an all-powerful one-world government…. This lust to surrender the sovereignty and independence of the United States is pervasive throughout most of the membership.”
Simply, the CFR intends to abolish the United States and its Constitutional guarantee of liberty. Ben Bernanke and a willing Congress and President are working overtime to achieve these goals - manipulating nations into wars and into debt, using inflation to rob and destroy the wealth of the American people, spending the nation into the poorhouse and into national bankruptcy.
There is no doubt you are correct in identifying that we have suicidal national debt and the American people are being impoverished. As to motives and CFR planning - I suggest "You have attributed conditions to villainy that simply result from stupidity". If the CFR's goal is one world government - they've failed massively. Nations are breaking down into feudal entities, not melting into a super-state.
DonutBoy,@ 14:30
Depends on what you think, or know to be the END game...................
What happens when it all goes to shite, and ONE person seems to have all the answers for everyone?.
It would be the last mistake we ever make, if we underestimate not only the extent of the tyranny undermining our institutions but the deliberate and planned dissolution of our representative government.
Your point is well taken regarding the current divisive chaos among nations, but I would never underestimate the looming crisis the Fed has created worldwide under the threat of the national bankruptcy of America.
Barry Goldwater saw it in 1979: “In my view, the Trilateral Commission (the CFR’s sister organization) represents a skillful, coordinated effort to seize control and consolidate the four centers of power: political, monetary, intellectual and ecclesiastical… What the Trilateralists truly intend is the creation of a worldwide economic power superior to the political governments of the nation states involved… As managers and creators of the system they will rule the future.”
Even David Rockefeller (UN Business Council, September 23, 1994) admitted it openly: “We are on the verge of a Global transformation. All we need is the right major crisis and the nations will accept the new world order.”
It’s wise, IMHO, to remember that the more potent the threats to their plans, the more vicious will be their tactics to counter them, i.e., total devaluation of the world’s reserve currency, the dollar, through massive printing of worthless paper – QE3.
Obama and his cronies are socialist-statists. They have the required arrogance, ignorance and lack of honor required to push the United States to a second or third world status. Look at our credit downgrade. Too bad there are so many useful idiots in the U.S. to keep supporting him.
I have a lot of Taiwanese friends and they are all excellent people. They are hardworking, smart and start businesses everywhere. They also have fueled the Chinese growth by moving there and helping them with business. The damn commies had no idea of how to run a business, be honest or hit a deadline. The Taiwanese taught them all that...still working on some of it. The other great thing about Taiwan is that they actually LIKE America and Americans. That's something not easy to find these days. Like Israel I believe they would come to our aid if needed even though they are a pint sized island with about 22 million people.
Vacuuous, self centered, arrogant, people with no sense of honor like Obama have no problem hanging our friends out to dry while consorting with or at least understanding our enemies. You have to ask yourself, "Why?".
The only thing worse than being America's enemy, is being our friend.
Wow. I didn't know that. That denial of purchase is really bad. Too bad they don't put that on the evening news every night. Communist China has "most favored nation" trade status. That's when you knew we were going to get fucked. "Me fuckee, long time, GI"; what a mess. I could fix this whole thing in 90 days but I"d have to have dictator powers. 13 million illegal aliens, and another 10 million temporaries that can be sent home. Cancel the EPA, the DEA, the DOE, the FDA, cancell almost all the foreigh military bases. Cut off Chinese imports; cold turkey. turn the ship around it won't be allowed to dock or unoad; in six months we'd be making socks and undershirts and shoes and Wal Mart could downsize, (radically), and sell American products. At one time we exported millions of pairs of shoes to China. Look it up. This is the root problem. You can fix banks until the cows come home and if you don't have manufacturing, you don't have anything. Also, of course, drill ! Everywhere. At Once. 12 million high paying jobs instantly. Fuck Federal drilling permits; you got the money and the drill, go for it. It's called free market business, and it worked like a mother-fucker, and it'll work again.
Absolutely. None of the insiders’ plans would have a ghost of a chance to succeed if the American people possessed economic awareness. Thankfully, because of the internet and Zero Hedge-style reporting and opinion, more and more Americans are awakening to the enormity of inflation, the cost to taxpayers of the national debt, the deliberate loss of 50,000 American jobs per month since China was admitted to the WTO in 2001, the permanent loss of 46,000 manufacturing facilities transferred from the U.S. to China in the past decade, and the massive spending for wars and foreign aid and military power to provide global security to U.S. multinational corporations profiting from transferring the American economy to foreign shores that offer cheap labor, as well as exploiting politicians to gain low-cost access to foreign resources – at taxpayer and nation-stripping expense. Now that the final bill is being toted up since the Fed took over the total economic life of the nation in 1913, the American people are finding that they and their nation are financially and morally broke. This appears to be a valuable eye opener.
Interesting, isn’t it, that the America’s miracle wrought from freedom and a free enterprise supply and demand economy where a man’s handshake was as good as a contract was so strong and dynamic that it took nearly 100 years to destroy it?
As you say, it's called free market business and it'll work again - if the Fed’s nation-destroying monetary system is shut down. There is an answer; it’s Ron Paul, if the American people are smart enough to realize it.
The plans have been laid out for a long time:
http://video.google.com/videoplay?docid=5064665078176641728
Charlie Rose November 15 1994(Ok to skip the Laura Tyson section in the middle.)
Real revelations and accurate predictions of what would occur, all the way to the end of the interview.
Sir James Goldsmith, Member-European Parliament/ Laura D'Andrea Tyson, Chair-President's (Clinton) Council of Economic Advisers
they already ARE drilling everywhere, moron
You've come a long way in 1 year and 18 weeks. I remember your struggle with that IQ145 thing. Took a whippin' but you stuck with it. Now we're getting somewhere.
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Yep, and that's where this is going to end up ... forced non-national eviction.
Either the govt does it, or a furious, hungry, and out of patience and tollerence population, will.
fed saying rates will remain at zero for 2 years was a less fancy way of saying recession
Then they'll raise rates, and find out the debtors stopped paying two years ago.
Idjits!
I think I get it!
www.youtube.com/watch?v=uTmfwklFM-M
No profit-taking bounce in Europe and nothing much here either: a black Thursday followed by a black Friday will be party time here tomorrow, and hopefully a long, painful weekend for the fiat-debt-equity crowd.
"unfilled orders minus 20.9 vs an already dismal minus 16.3."
How can you have negative unfilled orders? Would that be fulfilled orders?
Im investing in food production and protection. People can have these fraud markets in a major depression, Im done.
Uh.................
"cash and fixed income for the current time."
What's current?.
Cash(losing value daily, fixed income, losing value daily)........................hell of a deal there.( and wait till real inflation kicks in.)
Hedged?, what do you hedge that does not involve paper, which can be destroyed in a nano sec?.
Market lows bitchez....
Your welcome,
Barry O.
Market still seems pretty expensive.
the usa has been in a great depression since at least 2007.....the cancer of debt grows larger; the marginal productivity of debt ever more negative....therefore the usa is doomed doomed doomed....the tsunami is being felt already....fuck the fed and the banksters.....
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Don't forget, they broke the very mechanism of REAL PRODUCTIVE investment as well.
Hard to generate REAL economic activity without functional trustworthy 'marketz'.