By all counts, the latest ISM (a measure of manufacturing in the US) was a complete and total disaster. In August the ISM hit 49. Anything below 50 is considered a recessionary rating.
However, things are even worse below the surface. The ISM is made up of several components. Its Production component is back to May 2009 levels. The New Orders component is back to April 2009 levels.
And worse of all, Prices Paid is up to 54, up from a reading of just 39 in July.
In simple terms this tells us that inflation is hitting “lift off” in the US at the very same time that we are entering a recession that could be on par with that of 2008. And with corn and soybean prices at or near record highs, we could be on the verge of a stagflationary disaster combined with a food crisis at the very same time.
We get additional confirmation of a major economic contraction from corporate earnings. Recently we’ve seen earnings forecast cuts from Fed Ex, Bed Bath and Beyond, Proctor and Gamble, Adobe, Starbucks, McDonald’s and more. Indeed, when you remove financials, S&P 500 earnings FELL year over year for 2Q12.
This is hardly indicative of a strong economy. The fact a record number of Americans are on food stamps doesn’t bode well either. And the Rasmussen Employment Index indicates worker confidence is at levels not seen since the FALL OF 2008!
What does this tell us? That the US Federal Reserve has failed miserably to generate an economic recovery, despite spending trillions of Dollars in bailouts and expanding its balance sheet to $2.8 trillion in size (it was just $800 billion before the Crisis):
- Median income today is lower than it was during at the end of 2009 (when the recession supposedly ended)
- The percentage of Americans on food stamps has increased from 11% to nearly 15%
- The average unemployment duration has increased from 30 weeks to nearly 40 weeks
- The civilian employment to population ratio hasn’t budged
I don’t see any of the above pointing towards a “recovery.”
To top it off, the ECRI (which is a much better predictor of recessions than the National Bureau of Economic Research or NBER) believes that the US re-entered a recession in June.
And this is happening at a time when inflation is soaring due to the Fed’s money printing/ loose monetary policies. Agricultural commodities have risen some 20% since the last recession supposedly “ended.” Over the same time, Oil has risen by nearly $30 per barrel.
There’s a word for an economic contraction marked by high inflation: it’s called stagflation, and the US is in it big time.
Folks, this is the reality we’re dealing with. The Fed has gone “all in” in its efforts to stop the debt implosion… and it’s failed. All it’s done is unleashed an even more serious inflationary storm than the one we were already facing.
The time to start preparing is now. The printers are running. The Great Currency Debasement has begun. Some folks will walk out of this mess winners. Most will walk out as losers.
At Phoenix Capital Research, we’re taking steps to insure our clients are among the winners. We have a host of FREE Special Reports devoted to helping readers prepare for the coming Debt Implosions in both the US and Europe.
We also feature a special report devoted to inflation as well as which investments will perform best during periods of high inflation (periods like the one we’re entering).
All of this is available 100% FREE at www.gainspainscapital.com
Phoenix Capital Research