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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Caviar Emptor's picture

Signs we're entering a new Dark Age: 


Palm Beach County in the dark, thanks to I-95 wire clippers

Thieves have cast 33 miles of Interstate 95 into darkness in Palm Beach County by yanking out the underground copper wire needed to power the overhead lighting.

The wire can be sold to metal recycling companies for as much as $3 a pound. State officials say it will cost $200,000 to replace




Yes_Questions's picture



Palm Beach, Fl is already in one.

JW n FL's picture

you cant afford affordable housing in West Palm Beach.. $250k for the ghetto.. it was close to $400k for the ghetto at one point..

enjoy where ever you are.. and please, stay there. We are full!

Bring the Gold's picture

Infrastructure is a canary in the coal mine for the empire. This sort of thing is happening across the country. This is epic scale, but it's hardly the anomaly, more like the norm.

Caviar Emptor's picture

Too bad they're finally talking infrastructure just in time for raw materials at or near peak. Gonna make that railroad bill awful high. It almost doesn't matter what material they use. 

SokPOTUS's picture

I suggest Rearden Metal for all of Obama's High-Speed Fail Projects.

Mitzibitzi's picture

Happening increasingly in the UK, too. A mate who works on the railways was telling me the other day that they're spending so much time and money replacing stolen cable that safety-critical work is starting to suffer.

Caviar Emptor's picture

Last time this happened in the US was 1982-85 during the homeless epidemic and crack epidemic in NYC. All signs of economic and social desperation. 

midtowng's picture

Where's the link to the Bloomberg article? I'd like to pass that along.

The Deleuzian's picture

Quasimodo, even if there were riots.  You would never know about them until either:

A) It was coming to a town near you 


B) It was coming to a town near someone you personally communicate with on a daily/weekly basis

The riots will not be televised.  If they were, Martial law would most cetainly be next. Multitudes of difference between urban Philly and rural Iowa......

Bring the Gold's picture

The De-evolution will not be televised.

tip e. canoe's picture

while the evolution hides in plain sight.

darkstar7646's picture

That may be true, but they may have no choice but to televise them, because it might be about all that's left.

I personally think your comment is basically irrelevant, as, when TEOTWAWKI becomes TSHTF (and we've seen early splatters of fecal matter), one of those two conditions will be fairly immediate for anyone not in someplace like the rural Mid-west (probably have to add: west of Illinois).

gwar5's picture

Kumo Break, Bitchezz!

Hansel's picture

THIS TIME IS DIFFERENT.  Boom, now this is a bullish data point.

bugs_'s picture

That philly fed was killer.  Beware.

gwar5's picture

Kumo Break, Bitchezz!

Caviar Emptor's picture

Many of the world’s largest hedge funds have been left nursing billions of dollars in losses following the industry’s most brutal month since the collapse of Lehman Brothers.

According to provisional estimates from consultancy Hedge Fund Research, the average hedge fund has lost 4.1 percent during August – making the month the industry’s fourth worst ever.

knukles's picture

So fucking what...  The Hedgies ain't goin' belly.  They borrow from the prime brokers who keep their records, maintain the custody arrangements.... and all the prime brokers are TBTF banks.

Wake the Fuck up, everybody.
The TBTF banks are officially under regulations actually designated as systemic risks and thus, too big to fail.

Can you say on the Taxpayer Dime, Moral Hazard, bitches?

Oh, I knew you could.

Ms. Erable's picture

Being a banker means

never having to say

'Not Guilty, your Honor'.

Caviar Emptor's picture

Tyler: It's not Vesuvius but....


Another beautiful eruption of Mt Etna (Italy) on August 29 2011 + videos


tomreagan's picture

Buy Side says it can't get worse because we have already had too many layoffs. Buy Side says this is not 2008. Buy Side says TBTB know better than to let a bank  fail (although we are several elections removed from that decision). Buy Side says that QE3 is coming. Buy Side says that QE3 doesn't matter. Buy Side says that P/E is cheap. Treasuries down on no QE3, stocks up on QE3. Buy Side says that Equities are right, Credit is wrong. Buy Side says that if only we had this one government intervention. Buy Side says that regulation is the reason why we can't advance GDP. Buy Side checked FT, Bloomberg, WSJ, and <insert blog here> and says 'I see things differently'. Sell Side scalps it....or have the lines been reversed? Either way, future story tellers, philosophers, and kings will agree...We Saw It Coming

Caviar Emptor's picture

It's called talkin' your book. All the way. 

As I remember it, at the all-time NAZ peak in March 2000, stocks had never been cheaper. And this time was different because we were in a "new paradigm". And the economy was Goldilocks, and the Fed finally got it right. 

knukles's picture

Same shit as the old interest rate convergence in Europe amongst different soverign issuers because of the commonality of currency.

How'd that one work out for their clients?

zorba THE GREEK's picture

I don't think we are headed for a recession. Obama and Bernanke will throw caution to the wind

to keep us out of a recession. What we are headed for is what happens after all efforts fail to 

keep the house of cards, Ponzi, kick the can recovery going any longer. It's when the world

starts dumping dollars at panic pace. It's when runs on banks cause extended bank holidays.

What we are headed for is chaos. And if Obama is still president, God help us.

Withdrawn Sanction's picture

I don't think we are headed for a recession. Obama and Bernanke will throw caution to the wind

to keep us out of a recession


Your faith in their power and abilities is charming....naive, but charming.  

knukles's picture

Logic Flaw...
They already threw all caution to the wind and it's done more damage than had the system been left to natural cycle of events.

Temporalist's picture

You misinterpreted that comment.


They "will throw caution to the wind" and ATTEMPT to keep the U.S. out of recession.  I don't think the comment meant it will work, just that will be the reasoning behind their attempts.


Clearly the commentator thinks it will not be a recovery but a major collapse.

Cursive's picture

@zorba THE GREEK

What we are headed for is chaos.

When our society exists on the logic of water running uphill, that is a rational conclusion.

tip e. canoe's picture

from your friends at comcast cable:

Transformation 2011: “Positive Chaos” Means New Opportunities

"With all those bells and whistles, we love our TVs now more than ever: one of the statistics shared during the conference was that Americans spend an average of almost four-and-a-half hours a day consuming television. It remains the most powerful medium for reaching a mass audience, even as we become more adept at multitasking and using multiple "screens" at once (underscoring the importance of a well-rounded, multi platform media mix)."

""Baby Boomers" have a remarkable similarity to teens when it comes to media consumption. For instance, when it comes to mobile phone usage and consuming entertainment online, the two groups are nearly the same. "

they're already working on making a mold around her zorba, but how much can they contain once she's unleashed?

Naphtha ( or ) normally refers to a number of different flammable liquid mixtures of hydrocarbons, i.e. a component of natural gas condensate or a distillation product from petroleum or coal tar boiling in a certain range and containing certain hydrocarbons.

"potential energy precedes kinetic energy, right?"

HCP's picture

Conduct disorder Bitchez! Hey Zero, are you a money maker or a blogger? Is it hyperinflation or great depression? Will you ever be specifically right rather than generally right? When your wrong will you ever take responsibillity or just blame it on iStupidGovernmentNonexistentQELowvolumeNewworldordermaaaaaaaaaaaaan!...?

HCP's picture

BAC worthless, S&P @ 400, Gold worth multiple thousands. Your here, you should know what the hype is and the difference between reality. Day after day, Month after month, Year after year... Interesting but wrong. I'm guessing thats why these guys blog because they can't get hired... That and a little front running and insider trading :/


T-shirts, donations & google ads > Wallstreet... Cuz we so smart Bitchez!

tomreagan's picture

Perhaps. But it is all a horizon and last I checked gold is up, treasuries are down and stocks are a general trendline sense of the word...will you come back and post if it turns out to be true? Or will you not be able to afford your internet connection? Nothing wrong with a little Capitalism now is there?

HCP's picture

Oh don't you remember??!?! Treasurys are a ponzi scheme maaaan! Buy TBT! How silly of you to break from the pack. Just like you should buy Gold over equitys because S&P will go to 400 and gold will go to 7012.00 with or without inflation.

tomreagan's picture

depends on your position

Ned Zeppelin's picture

Not so sure about all this collapse is imminent stuff. Seems much more likely that endless and eternal iterations of QE are our fate. Buy gold and equities, and enjoy the ride. 

mynhair's picture

Need 2 months to make a recession, but the window breaking property of Irene will squelch that.

Be nice if a candidate would bring up firing the entire bureaucracy.

knukles's picture

Don't forget the "transitory"
Last 4 years have been "transitory"

Ned Zeppelin's picture

Obama: proudly brought to you by the good folks at Goldman Sachs

HCP's picture

I LOVE zero, gives me a good defensive mindset with hedging. But... For example. It feels like Zero has been talking for years about JPM crashing due to silver prices. With all the fancy charts, can we finally get like... a time frame of when this is supposed to happen? You can't just repeatedly say X will happen eventually and maintain your credabillity.


Any Zerohedge writers, excluding faggy Mark Keiser are invited to my Nebraska house to enjoy fresh air, a stress free rural enviroment and enjoyable women. Maybe if you had that you could be less troll and more like your lord, master and technical idol Warren Buffet.

slewie the pi-rat's picture

welcome to zH, HCP

i see where you joined right about "ceiling day" almost 4 weeks ago

and now, you are writing stuff and posting it on zH! 

cornhuskers are generally not as retarded as you, asswipe

tomreagan's picture

awesome... so you you have been short gold, long financials, pro-cyclical, and wrote a bunch of European CDS for how long now?. Classic Hedge moron. Go Back to Yahoo Finance

Lndmvr's picture

Take you up on that but they still haven't opened any bridges south of Plattsmouth. ( in SW Iowa) And for what it's worth, the west iowa storm last week ruined thousands of acres of corn and some soybeans. Prices should be up.

chump666's picture

and a bankrupt US market rallies, yet Asia (creditor) barely moves. that is a f*cked up picture right there.  Nutjob Bernanke will have to wait till major market slaughter ala oil price under 80 before QE3 or he unleashes a wave of inflation to Asia, and if China goes, Japan sinks...that's the doomsday trade. And we are getting very close.

Anyway major bull trap set, selling/volatility till Sept 20th

RockyRacoon's picture

Ain't Fight Club a hoot?  I still have 2 black eyes after more than 2 years.

AlmostEven's picture

I entered a recession on Friday, too! Coinky-dink! Oh, wait...wrong website.

Insiderman's picture

Looks like a contraction (deviation under trend) rather than recession (negative growth) based on your first chart.

zerosumtimes's picture

Consider referring to event of Fed announced indecision not as Bernanke's
"Jackson Hole" speech but as the "sump" speech or "hole" speech like in lowest hydraulic sucking elevation or astronomical gravitational sump.  The seventh President, AJ, put the Second National Bank out of business in the 1800s and would likely not want to associate with the 2011 banking imbroglio.