The recession has arrived. The first estimate of first quarter GDP was for .2 percent annual growth. That number will be revised into negative territory after March’s increase in the trade deficit, which subtracts from GDP, is incorporated into the next estimate.The Atlanta Federal Reserve issues a GDPNow forecast that did a far better job than Wall Street and Washington economists of predicting the first quarter GDP (it was at .1 percent). For the second quarter the Atlanta Fed is at .7 percent, but that’s down from a recent .9, and there is still a month and a half left in the quarter (“Q2 GDP Forecast Cut To 0.7% By Atlanta Fed,” zerohedge.com). In all likelihood, first half GDP will be negative, which will be dismissed as a “technical” recession by most of the mainstream “experts.”
Those are the same experts who assured us that the big drop in oil prices would act as a tax cut, spur consumer spending, and propel the economy to the nirvana of 3 percent annual growth—which the US has not had for 9 years—this year. What happened to the tax cut? According to the experts, consumers instead paid down debt, and winter kept them out of the malls. There wasn’t much snow in April, however, and retail sales were flat month-over-month, up only .9 percent year-over-year. Since inflation was over 2 percent, real sales have declined since last April. One factor boosting first quarter GDP was an inventory build. Retailers, wholesalers, and manufacturers were stockpiling finished and intermediate goods and raw materials that they could not sell. If final sales are flatlining, inventories along the production chain will have to be disposed of, reducing second quarter GDP.
What the experts missed, back when gas prices were dropping and they were making their predictions, were rising medical insurance costs. “What Happened To The Big Cut In Gas Bills—Obamacare Ate It,” by Michael Pento at davidstockmanscontracorner.com is a good analysis of the impact of the Affordable Care Act. It has made medical care and insurance less affordable, as anyone who knows anything about how government actually works would expect, wiping out most if not all of that gas tax cut, some of which the market has already taken back.
With disposable income shrinking, demand collapsing, and inventories piling up, one would expect prices to drop, and apparently they are. Yesterday the government reported the Producer Price Index was down .4 percent in April and 1.3 percent year-over-year (“Wholesale Deflation Strikes US Economy: April PPI Has Biggest Annual Drop In 5 Years,” zerohedge.com). Import prices fell 10.7 percent in April, and even backing out the fuel category, the drop was 2.7 percent (“Import Prices Plunge For 9th Month In A Row, Biggest Drop Ex-Fuel Since 2009,” zerohedge.com).
SLL does not generally deep dive into economic statistics. They are often misleading, usually revised, and always boring. For those who want more facts-on-the-ground chapter and verse, see “Why the Heck Is the Trucking Business Slowing Down?” on wolfstreet.com, “The US Is In Recession According To These 7 Charts,” from zerohedge.com, and “Is The Dam Bursting?” from Jeffrey P. Snyder at davidstockmanscontracorner.com. SLL tries to anticipate what’s going to happen and lets markets and later, economic reality and the statistics, catch up. By definition that makes SLL early. Generally the bigger and more obvious the impending trend change, the earlier SLL is in highlighting it.
SLL has been predicting depression since last year (see “Oil Ushers in the Depression,” SLL, 12/1/14), not just the recession at which the statistics now seem to be pointing. That prediction is grounded on a few facts. The world is more indebted than it has ever been and debt has grown far faster than underlying economies for decades. The global economy is saturated. Years of central bank monetization of financial assets and interest rate suppression, culminating in the most massive such effort in history over the last six years, have driven the marginal return on productive investment to less than zero, left the global economy with huge surpluses of everything except solvency, and retarded saving, the true source of future economic growth. Finally, governments and central banks have no pixie dust left to counter economic contraction and its attendant financial stress. Short-term interest rates are zero, or in some cases negative; with the world choking on it, additional debt only imposes additional costs and no benefits, and central bank balance sheets are already grotesquely swollen relative to their equity capital.
Pixie dust has been the only thing keeping equity markets afloat. Paradoxically, gathering economic weakness may keep them elevated a little longer. It delays—in the case of the Federal Reserve—any prospective interest rate increase, and extends cheap money policies in Europe, China, and Japan. Speculators may not realize the economy is heading south until they happen upon a bread line or soup kitchen (doubtful), or Apple announces a shortfall in revenue and earnings (more likely). One more reason SLL is predicting a depression: those speculators are riding record leverage funded at minimal cost (see “Crisis Progress Report (7)-Carry On!” SLL, 5/11/15), and their bid disappears at the first sign of trouble ( see “How the Liquidity ‘Delusion’ Leads to a Crash,” by Wolf Richter, SLL, 5/15/18). Which leaves markets primed for a fall that could be set off by anything, for instance Janice Yellen clearing her throat. SLL wishes the best to anyone still bullish and confident they can get out unharmed when the music stops.
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I suspect that the economists don’t take demographics into account. I am a tail end charlie of the baby boomer generation. The fact is the days of my big expenditures are behind me. The kids are grown and out, I have downsized the household, so from a microeconomic point of view I am not factor in the consumer side of the economy. Nor are my peers. So my children should be taking up the slack. Ok, but the fact is the population shadow of the Boomers is at best 2/3rds of the parents. Not even replacement value. Fact if it was not for immigration this country would have had thirty years of negative population growth.
Take all that into account and the ability to spend like it was the 1960’s is just not there anymore.
Not to mention that we have buried the younger generation under a mountain of debt.
Continuing with drdog09 I would like to add the higher costs of rent and homes. With house payments double or triple now from those who bought in the 80s, added health insurance costs, leaves little or no money for other purchases. My sisters house payment is half mine on homes with approximately the same value, only difference is decade purchased.
Families now might pay 200 monthly for cell, 100 for cable and x for health ins, which used to be provided free or for a few dollars per paycheck.
These costs didnt exist previously. Would like to add another difference, the 4th largest employer in my town with almost 1000 employees is a temp agency! In 30 years they might be the largest.
I’m amazed that articles like this don’t touch on REAL inflation and not the BS government inflation number. The bigger picture is that inflation has been running in the 7-8% range for years which lowers GDP into negative numbers for years.
Wake up! There is a reason a can of Campbell’s soup was $.35 in 2000 and now is $1.75, gold was $300 and how is suppressed to $1200, ground beef was $1 and now is $4.35.
You can’t believe the numbers anymore, a record amount of people not working and the unemployment rate is 5.5%, yea right.
Depression is a result of unhealthy thinking and can be cured in simple way by changing our way of thinking. We won’t need any medication for this. I tried to cure my depression through healthy thinking and have succeeded. I was motivated a lot by thoughts of -‘ Pandit Sri Ram Sharma Acharya’. I thought of sharing this with everyone. If it helped me, I trust His teachings and way of healthy living can help others also. You can find his thoughts here- http://quotes.awgp.org/chintan.php?qType=1&lng_id=2
aradhay is out of context.
Back to topic… Americans have enjoyed easy life because of the petrodollar. Your easy life for the past 4 decades was at the expense of other countries. You destroyed countries when they tried to get out of petrodollar.
I feel there is an unknown force that is now starting to bring back the balance. So Americans shouldn’t feel bad. They can now join in the suffering of the 3rd world countries. Eventually, that supreme being will be kind to you since you shared in the sufferings of your fellowmen (fellowmen = people destroyed by your petrodollar).