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

Tyler Durden's picture

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.

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buzzsaw99's picture

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

SheHunter's picture

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's picture

"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's picture

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

Raynja's picture

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's picture

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

Raynja's picture

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


FOC 1183's picture

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's picture

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

nmewn's picture


It'll be...Krugman's little green aliens ate my homework!!! 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!!!

knukles's picture

Don't forget BUSH'S FAULT

nmewn's picture

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 just can't be his fault!!!

IMA5U's picture

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's picture

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's picture

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


are you nuts???

Long-John-Silver's picture

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's picture

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's picture

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's picture


NorthenSoul's picture

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?


The Deleuzian's picture

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's picture

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's picture

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's picture

<<--- Economy quietly entered a recession

<<--- Economy never left a recession

DoChenRollingBearing's picture

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?

The Deleuzian's picture

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's picture

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:

Gibu The Great's picture

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's picture



And they shill have their jobs.


Oh Freudian me.

Gibu The Great's picture

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's picture



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. 

Caviar Emptor's picture

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's picture

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

Row Well Number 41's picture

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



John Law Lives's picture

"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's picture

that's going to be one shriveled carrot.

quasimodo's picture

Martial law....riots......people on tee vee beating each other up over a stale dohnutt. Untill I start to see this happening, this is just another stupid farking story about blah blah blah. I am sick to farking death of everyone and thier "shtf is five, four, three...."

Is it really that bad out there?

Karl Tashjian's picture

Not yet Quasi, but pressure is building. What do you think the sheeple will do when they lose their part time jobs, the tea party takes their welfare away or their dollar menus become 5 dollar menus thanks to the Bernank?

In fact, it's already starting.

kito's picture

do you mean the educational system, particularly with respect to grammar? apparently so, based on your post....

Shell Game's picture

The illusion is a thing of national security, they've played it well.  Food stamps on plastic 'credit cards' so you look just like everyone else.  Mortgage $ going to pay more pressing bills....or consumption desires.  Foreclosures up, mult-family dwellings up,  Gold revealing the dollar desicration by the spend-happy .Gov and Federal Reserve fiat conjuring.  Nations divesting from US holdings in leau of more tangible assets, some making deals to buy oil in non-Dollar denominations.  We're knocking on the door of losing reserve currency status. You can't imagine the hell that will bring.  So, yes, it's kinda bad out there..

DoChenRollingBearing's picture

Only a tiny minority of people I have spoken to lately says that things are going "well" for them vs, say, 2008.

Disclosure: most of the people I talk to are typically middle to upper class, yet they feel the pinch.   I can only imagine what it is like to have no money, no job...

NOTHING .gov is doing so far will bring us back from the brink.  The only way is to ENCOURAGE capital formation and deployment in this country.  How?  By lessening regulatory uncertainty, lowering taxes and paperwork burdens, etc.  Will that happen?  Not likely anytime soon.  Lowering .gov spending would be a great relief as well, becuase so much is mis-spent.

Rich, middle class or poor, you better have some gold for the rough times ahead.  Yes, I know it is MUCH harder for the poor to buy gold, but they may need it the most...

tip e. canoe's picture

"Yes, I know it is MUCH harder for the poor to buy gold, but they may need it the most..."

yeah, maybe they can find the nearest river bed:

Gold For Bread - Zimbabwe

"You need 0.3 grams of gold a day to survive."

janus's picture

hey buddy,

like the new avatar -- serpent in the hermetic shadow? as it is above; so shall the serpent slither below.

thanks for bringing attention to zimbabwe: zimbabwians are some of the most gentle, peace-loving and naturally joyful people on earth.   in 1981 mugabe came to power -- the result of a successful revolt againts brit. colonialists.  it soon became evident that mugabe's happiness was contingent on his fellow citizens's misery; and things were from there only exacerbated: he destroyed commerical ag in the region's breadbasket, decimated his currency, fostered a poverty stricken and helpless ethos.   just a steaming pile of shit, that mugabe. 

it's also one of the most beautiful countries in the world.  I'd love to someday own a small tobbacco farm out that way. 

the people of zimbabwe deserve better; and i'm sure you can guess my feelings on mugabe's just desserts.

sic semper tyrranis,


Bring the Gold's picture

It is for people who make less thank 300k a year, which is most people. The US looks like well...the US compared to most countries. I don't expect that to last long and neither do the Banksters:

The Deleuzian's picture

Tyler! Never have I asked you to dig (I'm digging as we speak) out data and the people's opinion about Recession/Depression between the years 1929-1933.  This, atleast to me would speak volumes to where we are today!!

Yes_Questions's picture



Its not the vintage you are looking for, but majority of Americans aren't buying the hype: