How The Economy Quietly Entered A Recession On Friday, And Why The GDP Predicts A Sub-Zero Nonfarm Payroll Number

While the key market moving event from last Friday may have been Bernanke's Jackson Hole speech which merely left the door open to future QE episodes, the most important event from an economic standpoint was the first GDP revision Q2, which dropped from preliminary 1.3% to a sub stall speed, in real terms, 1.0%. What is just as important is that as the following chart from Bloomberg demonstrates, the YoY change in real GDP, which is now at 1.5%, is a slam dunk indicator of recession: "Since 1948, every time the four-quarter change has fallen below 2 percent, the economy has entered a recession. It’s hard to argue against an indicator with such a long history of accuracy." Bernanke agreed that "growth has for the most part been at rates insufficient to achieve sustained reductions in unemployment." And while Bernanke is shifting dangerously into Greenspan territory with the open-ended interpretation of his statement, another thing that is more actionable is the observation that virtually every time real YoY GDP has dropped below 1.5%, this has led to a negative nonfarm payroll number. Granted, the result may not be as shocking as what the Philly Fed implied vis-a-vis this Friday's NFP, but we believe a subzero print in the August labor report will convince the three Fed holdouts that the time for yet another monetary intervention is here (Arab Spring part deux consequences be damned).

Real GDP YoY:

And Real GDP YoY vs NFP:

Also, below is a complete compendium of all the mecroeconomic charts that matter this week:

And lastly, sealing the deal for the "recession" argument is the following data from John Lohman which finds that the collapse in real-time economic data over the past three months is the sharpest in history.

To wit:

Another day, another disappointing real-time indicator declines AND is below consensus estimates.  In fact, every manufacturing index for the month of August has missed expectations and signaled further weakness.  As Bernanke, the IMF, and most Wall St. economists cling to the notion of a second-half acceleration, the rest of us are witnessing a deterioration in global growth which is unprecedented.
 
Few pictures sum up this collapse in output better than the chart below which plots the three month change in the “Global Surprise Model” (GSM).  I created the GSM in the late 1990’s as a means of tracking how the most important (as measured by timeliness and market response) economic statistics were being reported relative to estimates.  Although Goldman, and later Citigroup, created comparable models in the early 2000’s, it remains a very useful tool for tracking the change in economic growth (2nd derivative) relative to consensus forecasts.
 
As shown, the current three month change is the largest in the history of the model.  In other words, the collapse in real-time economic data (such as ISM, German IFO, etc.) over the past three months is the sharpest of the last two decades for which data is available.
 

Comments

[lolmao500]

Bernanke should man up and raise the rates to 15%. That should create some fun.

[Shocker]

15% would throw us right into a recovery, you know that.

[Hugh G Rection]

Friday numbers won't matter.  JP monkees will let Ag spike a bit, then it's hammer time... Go back to sleep CFTC.

[Long-John-Silver]

If they can raise margins multiple times they can raise interest rates that exceed the rate of inflation. It's time our seniors eat something other than dog food.

[Michael]

Here is one of the main reasons why we have entered a double dip;

Alt-A Mortgage Disaster in 2010-2011

http://www.investingblog.org/archives/592/alt-a-mortgage-disaster-in-2010-2011/

[foofoojin]

Right into recovery, no.

Price discovery, YES.

and price discovery would lead to long term contracts existing again.

long term contracts would lead to confidence and proper fiscal planning.

and then recovery.

[max2205]

Buy the news

[Libertarian777]

you mean seniors would be able to live off the interest on their savings and not even worry about social security?

aah but the truth is that the government dare not give that power to seniors, it relies on them needing the teat of government so they can garner the baby boomer votes.

[chubbar]

Someone check my numbers here but 14 trillion in debt X 1% = 140 Billion X 15(%) = 2.1 Trillion in annual debt payments. Annual Tax receipts are a bit less than 2 Trillion IIRC. Game over. I don't think it has anything to do with seniors collecting interest payments. This is the box the FED/Gov't is in.

[Thomas]

Assuming 100 million taxpayers, each owes about $140K. Ouch. If one accepts Larry Kotlikoff's recent numbers on unfunded liabilities of $200 trillion, the taxpayers are each on the hook for $2 million. I'm gonna need a HELOC for that one. 

[LawsofPhysics]

Come on guys, use your < sarc > flags, you are confusing chubbar.

[zen0]

If seniors actually made some interest income, they would pay more tax, so the game would not be over at all.

[tmosley]

That's why you default on the national debt first.

But the big banks wouldn't like that.  No sir.

[TruthInSunshine]

Indeed.

This gentleman just wrote an incredible piece on precisely how the 'not called a default,' but a 'default not called a default' is going down, and in a way that will attempt to save Wall Street/Banks/MIC, but devastate just about everyone else.

Fortunately, we all know how (non)great the government and Federal Reserve is at carrying out anything close to a plan with any degree of success.

Dear Ben, Please Print Us More Money

by Wolf Richter

Dear Ben,

Please print us more money. We want you to prop up the stock market. Everybody knows it's a Ponzi scheme that will collapse without your support. You don't want us to end up like Bernie Madoff's clients. No, Ben, we love Ponzi schemes. We get in early and get out before they collapse. That's why we're rich. The bad thing is that they sometimes collapse before we can get out. But you already bailed us out twice in the last couple of years through printing trillions of dollars. Why not a third time?

That will also keep the bond-market bubble inflated. We have to admit that you've done an excellent job there, hands down. Negative real yields all the way up the yield curve! Awesome. Now if you could just print a few trillions and buy up the sovereigns from the PIIGS. Euro crisis over. End of story. And we'd get richer because we'd sell them to you at face value though we bought them at fifty cents on the dollar.

And why not forever? Just keep printing. Because as soon as you stop, stock markets will crash again, and credit markets will seize, and then we're back on this awful ride to hell.

Of course, it'll cause inflation, which is good. You yourself said that. You stated many times that you want inflation. In fact, you said that one of the goals of the Fed, after propping up the markets, is to create inflation. So stick to it, Ben. Don't slack off suddenly just because some cowboy threatened you.

Inflation, in conjunction with your near-zero yields, has all sorts of benefits. For example, it will eat up the Social Security trust fund, whose $2 trillion balance is invested in treasuries. Fixed-income investors, retirees, and everybody who has any savings will also be demolished. And homeowners. But don't worry. They won't figure it out. They don't get a statement every month that shows how much inflation cost them. It's a quiet way of stealing from them, and it'll impoverish them over time, but it'll make us, the recipients of the money you print, richer.

You see, Ben, we can charge higher prices for our goods and services. And even if we have to pay more for raw materials, we look good. Our inventories increase in value, and we can claim sales jumped 10% because we raised prices by 10%. Analysts dig that.

Recently, Ben, you've done a decent job on inflation. In July, we were running at an annual rate of 6%. Not bad. But you need to preempt any cooling off. So keep printing.

Now, we're not talking about wage inflation. Oh no. We have to keep wages down. We need cheap labor, or else we'd have to send these jobs to China—which we're doing anyway. And not just to assemble iPhones...

Read the rest:

Link: Dear Ben, Please Print Us More Money

[SheHunter]

Great read.  thnx

[GetZeeGold]

Boom......WINNING!!!! 

[spiral_eyes]

the real issue nobody will talk about is oil, food prices, and population growth

http://azizonomics.com/2011/08/25/team-america-world-police/ 

[LawsofPhysics]

Why talk about it when these things take care of themselves?

[Shocker]

Oh we been entering a recession way before friday :)

Also payroll, who knows what the number is they are going to report. Most already know the numbers are not good

http://www.dailyjobcuts.com

]

[Troll Magnet]

WHAT?  We're in a recession?  Could've fooled me!  I thought we were in a depression!

Shit!  This is BULLISH news!

[RockyRacoon]

http://www.youtube.com/watch?v=sWS-FoXbjVI&feature=player_embedded

You betcha!

[Lady Heather...UNCLE]

...bullish for stocks...right?

[Id fight Gandhi]

Yup. Bad news is good for some reason. Oh the qe3 coming... But that wasnt even hinted at. It was a clear pass to Obama and his shovel shit ready jobs program.

[CrashisOptimistic]

No, Rufus.  It's smell the coffee time.

There is no market.  There is no array of guys sitting and assimilating economic data and deciding what it will do to earnings.

There was.  There was just a few weeks ago.  They tuned their algorithms to the Euro, because multinational sales in Europe looked better dollar-wise when the Euro rose.

But not now.  Not the past week.  Now it's about an array of guys with their algorithms looking at each other and knowing that their cubicles will go empty if the market drops sharply going into end of month 401K reviews.  

You see, those guys aren't paid for guessing right.  They are paid for having money under management.  Guessing right might help attract money, or even keep it, but it's not critical.  You can sell ice cream to eskimos if you're good enough at it.  It's all about holding onto money under management, because the only way that number has been growing is via portfolio advance.  No One Is Sending New Money In.

At all costs they must not have present money depart.  That direction points at the unemployment line.  And so end of month goosing is the unspoken imperative this week.

[LawsofPhysics]

Well that explains the four fucking weeks it has taken fidelity to move some funds to Valic for one of my employees.

Fuck all these paper pushing fucknuts. 

[Surly Bear]

paper pushing fucknuts

I salute you.

[SheHunter]

paper pushing fucknuts

I double that salute.

[chinaguy]

_{But not now.  Not the past week.  Now it's about an array of guys with their algorithms looking at each other and knowing that their cubicles will go empty if the market drops sharply going into end of month 401K reviews.}

I am friends with three of these guys - HY, HR - hundreds of billions under management - They have nice kids & nice wives...we party, get drunk, and discuss local zoning code nonsense. et al.

Group think, Yes, absolutely especially in the face of overwhelming contrary evidence, Jerk off the clients yes, Jerk off the clients more than the next guys...critical to survive yes...

These guys are NO smarter than the guys in "Boiler Room"...bunch of paid monkeys IMO...and maybe the monkey's are smarter....

[chump666]

No.  What you got to do is look at Asia, when US stocks go on a fantasy meltup via that madman Bernanke.  Asia freaks on inflation, more so China.  US stocks up, USD down, inflation hits China, China raises the RRR bank % and sweats on oil inflation, China stocks go down.  Tasty.  Bernanke/Obama keep this up and China inflation crash time line gets shorter.

They (China) crash and QE won't mean sh*t for anything.

[Dick Darlington]

Russell 2000, the wealth creator, was up 4.75% yday so yes, recessions are bullish for stocks.

[cgbspender]

Everything is gonna burn, we'll all take turns. I'll get mine too.

[Thomas]

Nowhere to hide. Gotta use the dumbell strategy--cash and inflation hedges. Pray one works. Diversifying now means you diversify your holdings in different and different types of financial institutions (including a little midnight banking in the garden).

[RockyRacoon]

I use a dumbbell strategy!  Gold on one end and silver on the other.   Working out every day.

[Ausperity]

This monkey's gone to heaven...

[Long-John-Silver]

I'm hedged in each and every way. I'm bring Marshmallows and Graham Crackers. 

[lolmao500]

I think Bernanke will do QE3... and that it will lead to war.

Probably between Taiwan and China in January-February 2012 due to the nationalist party winning the elections in January 2012. And the US will do nothing about it. China will ``win``... and then the US will say :``we must arm our allies so it doesn't happen again``... leading to creating jobs, selling arms to China's neighboors, scaring the people... focusing them on China instead of the bankers...

Cutting the deficit will no longer be an issue ``in face of the chinese threat``....

Win again for the military industrial complex. And because of that, Ron Paul will NOT be elected with his isolationist policy.

Just you watch.

They'll never cut the deficit... cutting the deficit means cutting the GDP... who has enough balls to do that? No one, that's who.

[chubbar]

Can anyone explain to me why someone who extolls pulling out of undeclared foreign wars is somehow an  "isolationist"? Ron Paul is not against free trade, just against nation building vis a vie foreign wars. How is this considered "isolationist"? I mean really? This is just the latest talking point that MSM detractors are spewing enmass in an effort to redirect the conversation. Unfrickin real.

[lolmao500]

I was just saying... using what the MSM will use to portray him.

Ron Paul is indeed right... and the US should mind it's own business.

[Joy on Maui]

In a manner of speaking, yes.  That is, if we are ASKED to mind someone else's business (South Korea comes to mind), THEY should be made to carry the cost, not the US taxpayer.

[FreedomGuy]

Ron Paul is also not automatically against all war, either. He believes that Congress ought to actually declare war before we begin wholesale hostilities. I think there's something in that useless old document, the Constitution of the United States that says something about it.

[CrashisOptimistic]

You do realize Apple's production comes from Taiwan?

[lolmao500]

And? The more foreign jobs lost, the better. Those jobs will move to elsewhere... Vietnam, Philipines, Japan... maybe even the US.

I have never seen an ``Apple lobbyist``... but I have seen thousands of ``defense`` contractors lobbyists.

[RockyRacoon]

“Restoring American Competitiveness” (Harvard Business Review, July-August 2009)

The U.S. has lost or is on the verge of losing its ability to develop and manufacture a slew of high-tech products and components. Amazon’s Kindle 2 couldn’t be made in the U.S., even if Amazon wanted to:

• The flex circuit connectors are made in China because the US supplier base migrated to Asia.
• The electrophoretic display is made in Taiwan because the expertise developed from producting flat-panel LCDs migrated to Asia with semiconductor manufacturing.
• The highly polished injection-molded case is made in China because the U.S. supplier base eroded as the manufacture of toys, consumer electronics and computers migrated to China.
• The wireless card is made in South Korea because that country became a center for making mobile phone components and handsets.
• The controller board is made in China because U.S. companies long ago transferred manufacture of printed circuit boards to Asia.
• The Lithium polymer battery is made in China because battery development and manufacturing migrated to China along with the development and manufacture of consumer electronics and notebook computers.

[TruthInSunshine]

Rocky, you are speaking Truth.

When the time comes, we're going to have to get together with others from ZH and other places, steeped in Truth, to re-form a more perfect union.

[topcallingtroll]

I hope you are right.  I pulled a Leo and sold my last stock fund EWZ at 60 and some change a couple of days ago.  The damn thing better pull back!

[Taku]

Second half acceleration?
Wasn't Timmay talking green shoots back in 09?
Fear not, as long as the recovery is 'just round the corner' they'll get it right eventually.

[booboo]

The problem with "just around the corner is that on a round planet you always end back up where you are, no I mean where you are. Watch, see, you just slouched past yourself. (say's hi, gets strange look from self)) Living in a alternative universe is a bitch.

[LawsofPhysics]

Yep, everyone is going to have to deal with everyone else, whether they like it or not.  The question is whether of not this will be a "team building" excercise or not.

[buzzsaw99]

Genocidal Ben will vanquish the balance sheet recession with more bankster bonuses bitchez!

[dwdollar]

And Obama will 'fix' the jobs issue with another prIvy League numbskull.

And it gets better.  We have Perry to look forward to in 2012-2016!

God we are so f'cked.  I mean we are completely and totally f'cked beyond any conceivable hope.

[buzzsaw99]

yes, f'cked, and not in a good way.

[SheHunter]

If Perry makes it into the white house our seniors will not even be able to afford the salt they use to try and camouflage the taste of their Wally-World dog food.

[bigdumbnugly]

"And lastly, sealing the deal for the "recession" argument is the following data from John Lohman which finds that the collapse in real-time economic data over the past three months is the sharpest in history."

well, it's not as if the first lady hasn't been doing her part  to stave it off.

[lolmao500]

``In history`` doesn't mean 20 years Tyler... which this graph qualifies as ``history``...

[Raynja]

learn to read dipshit

As shown, the current three month change is the largest in the history of the model.  In other words, the collapse in real-time economic data (such as ISM, German IFO, etc.) over the past three months is the sharpest of the last two decades for which data is available.

[lolmao500]

In ``history of the model`` still isn't ``history``.

[Raynja]

his story is whatever he says it is, i'm not sure what you're trying to get at. 

[FOC 1183]

Exactly. Consensus estimates are only available to 1990. And as for the Bloomberg study, quarterly GDP via BEA is only from 1948. So, to go further back in history we'd need to call Al Gore and the UK Met for the 'official record'

[Seasmoke]

Obama has the answer.........just be patient , he will get to it sometime in September

[nmewn]

Nahhh...

It'll be...Krugman's little green aliens ate my homework!!!...it wasn't my fault!!!!...there was an earthquake!!!...a terrible flood!!!...wrath of God type stuff!!!...they didn't serve peas!!!...then he'll give everyone those eyes...ROTFL!!!

http://www.youtube.com/watch?v=9TuLBa-rgBk&feature=related

[knukles]

Don't forget BUSH'S FAULT

[nmewn]

Ooohhh, now you've done it, and those damned teabagging racists too!!! They're behind it all!!!

He's surrounded himself with the most complete incompetents he could possibly think of...it just can't be his fault!!!

[IMA5U]

And that's why Old Country Buffet wanted a short squeeze.  It's a smoke screen to cover up reality going into Obama's "Jobs" Plan, which is really just another attempt to buy votes and expand the government's power.

[disabledvet]

Obama's Presidency is on the line. That's my bullish take plain and simple. The Republicans have no interest in standing in the way of a flailing Administration vis a vis it's economic agenda. The irony that this Administration has one of the best national security teams in decades should be lost on no one. In other words "it makes the economic team look as bad as it actually is." Is that reason to be bullish? Absolutely not. Wall Street is behaving even worse. Having said that "the self correcter" known as Warren Buffet has spoken: "i'm the richest guy in the world and i'm gettin' richer." if GLD starts unloading it's physical and the "barbaric relic" get's "rationalized" then we all really will see how a guy who likes bubble baths really does get it better than the rest. This is gonna sound strange but i wish Wall Street would jettison the rule of law for a few quarters as well. Whatever happened to the Predator's Ball ethos in this town? And I ain't talking the 80's either--I'm talking turn of the Century Rockefeller, Morgan, etc...

[PaperBugsBurn]

The irony that this Administration has one of the best national security teams in decades should be lost on no one.

are you nuts???

[sun tzu]

Obama "got" OBL hahaha

[Long-John-Silver]

Book smart and Work smart are two totally different things.

Book smart people should never be allowed in a Work area.

We now have Book smart people that have fired the Workers and made a total mess of the Work.

[Missiondweller]

Did we need any confirmation we are actually in a depression?

The SHTF this fall, maybe next month.

Good for my gold. Not so good for my job prospects.

[Long-John-Silver]

My job prospects are looking good. When no one can afford to buy new stuff they are forced to repair what they have.

I weld, precision machine metal, certified electrician, Gas Turbine, Gasoline and Diesel mechanic, electronics tech, hydraulics, pneumatics, and can program PLC controllers. 

[kito]

must....dig.....moat....deeper....and....stock....with....piranha

[NorthenSoul]

No confidence, no accountability, no debt restructuration, destruction of the Consitution, immense and futile efforts wasted at keeping the status quo.

Gee! And a recession should come as a surprise?

Mbwahahahahaha!

[The Deleuzian]

Haven't we been in a recession since late 08' early 09'??  All of these economic indicators/charts/graphs tell us the same thing...

We never left the recession camp!! welcome to the permanent recession!

[LawsofPhysics]

Inflation adjusted, we have been in a recession since 1980.  Do you think we can get credit for at least ONE lost decade already?  Sort of like a "time served" kind of thing?

[NorthenSoul]

Can't wait to witness Phase 359 of the food fight between the Reichpubliscums and Brother Obysmal about jobs.

It'll be quite the freak show; Don't forget the popcorn!

[Manthong]

<<--- Economy quietly entered a recession

<<--- Economy never left a recession

[DoChenRollingBearing]

29 was mine.  I think it is pretty clear that in real terms, we never did leave the recession.

An interesting question, raised by Thomas Donlan of Barron's last weekend, was have we already started a stealthy QE3 ALREADY?

[Aguadulce]

Or did QE2 never really end...

[The Deleuzian]

Middleton's charts (@ above column ZH) on our "connect the dots" comparison to Japan is really scary business.  Are we turning Japanese/or are we "the Argentinian"

[Bring the Gold]

That's the 1.4 Quadrillion dollar (notional otc derivatives) question isn't it?

Don't worry though the banksters have been planning this all for a long time and if people don't like it...well they've planned for that too:

http://www.salon.com/news/opinion/glenn_greenwald/2011/08/29/terrorism

[TruthInSunshine]

We're Turning Japanese

I REALLY think so.

[Gibu The Great]

What irks me is that we have these data points that tell us "Whenever this data point yielded X result, it accurately predicted a recession 100% of the time" that all these people we have on CNBS have the audacity to say "no, there's no way we are entering a recession.  This is just a soft patch.  This time is different, really."  I guess I just haven't been in the industry long enough to get used to this, because I know back in 2007/2008 the same people were saying the same damn things.  

[Yes_Questions]

And they shill have their jobs.

Oh Freudian me.

[Gibu The Great]

The funny thing is since I don't work on Wall Street, if I am flat wrong like many of these guys are and screw clients over, I would definitely lose my job!  

[Yes_Questions]

Somehow, I can see time spent on Wall Street as a negative factor on a resume soon enough.  Consider yourself lucky for not having the pedigree. 

[dumpster]

to wit...

lol

[Caviar Emptor]

The distortions from all the ongoing Fed and fiscal programs make the numbers less reliable. 

We're in a depression. So this won;t be a 'double dip' or a new recession. It's the next leg down with a bounce in between. Like a rubber ball bouncing down the stairs. Some day everyone will realize it. 

[tomeuchre]

take away government spending excsss in GDP and you have a depression. Period.

[Row Well Number 41]

The Bungee Economy has a 600 trillion pound gorilla at the end of it.

#41

[John Law Lives]

"Bernanke may never have to announced QE3 - he just has to keep dangling the carrot before the market that one day, soon, he just may follow through on his promise/threat."

Gee, we are lucky to have Chairsatan looking after our best interests...

[SokPOTUS]

that's going to be one shriveled carrot.