Tag Archives: Recession

This Is How the Status Quo Unravels: As the Pie Shrinks, Everybody Demands Their Piece Should Get Bigger, by Charles Hugh Smith

Demographics and debt guarantee that the American pie will shrink for a long time. That will inevitably lead to political conflict. From Charles Hugh Smith at oftwominds.com:

Fragmentation, discord, discontent, class war: this is the inevitable result of a shrinking pie.

The politics of the past 70 years was all about horsetrading who got what share of the growing pie: the “pie” being cheap energy, government revenues and consumption, sales and profits.

Horsetrading over a growing pie is basically fun. There’s always a little increase left for the losers, so there is a reason for everyone to cooperate in a broad political consensus.

Horsetrading over a shrinking pie is not fun. Everybody is shrilly demanding their piece of the pie should either grow or be left untouched; any cuts must come out of someone else’s slice.

Everyone turns on their most compelling emotion-based defense: “we wuz promised” is a reliable standard, as is “we need more money to defend the nation from the rising threat of XYZ.” “Help those in need” plays the heartstrings effectively–as long as the “help” comes out of somebody else’s pocket.

Everyone sharpens their knives, the better to carve a slice off somebody else’s slice of the pie. A passive-aggressive free-for-all ensues as everyone reacts with aggrieved defensiveness to any attempt to diminish their slice, even as they launch shrill attacks on everyone else’s defense.

As the pie shrinks, the motivation to join a broad consensus vanishes like mist in Death Valley. Any cooperation is merely a brief tactical move designed to carve a big chunk off another player’s slice. Once that’s accomplished, the alliance quickly splinters as the survivors battle over the meager spoils.

To continue reading: This Is How the Status Quo Unravels: As the Pie Shrinks, Everybody Demands Their Piece Should Get Bigger

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Recession 2017? Things Are Happening That Usually Never Happen Unless A New Recession Is Beginning, by Michael Snyder

Real GDP increased an estimated 1.6 percent in 2016, and for each $1 increase in growth, debt increased $5.70. If you have to borrow $5.70 to generate a buck’s worth of growth, are you even growing? Notwithstanding growth bought with debt and the official statistics, SLL argues that the economy has been in a recession, headed for depression, for several years (see Debtonomics Archive). More support from Michael Snyder at theeconomiccollapseblog.com:

Is the U.S. economy about to get slammed by a major recession? According to Gallup, U.S. economic confidence has soared to the highest level ever recorded, but meanwhile a whole host of key economic indicators are absolutely screaming that a new recession is beginning. And if the U.S. economy does officially enter recession territory in 2017, it certainly won’t be a shock, because the truth is that we are well overdue for one. Donald Trump has inherited quite an economic mess from Barack Obama, and it was probably inevitable that we were headed for a significant economic downturn no matter who won the election.

One of the key indicators to watch is average weekly hours. When the economy shifts into recession mode, employers tend to start cutting back hours, and that is happening right now. In fact, as Graham Summers has pointed out, we just witnessed the largest percentage decline in average weekly hours since the recession of 2008…

In addition to the decline in hours, Summers has suggested that there are a number of other reasons to believe that a new recession is here…

The fact is that the GDP growth of 4%-5% is not just around the corner. The US most likely slid into recession in the last three months. GDP growth collapsed in 4Q16, with a large portion of the “growth” coming from accounting gimmicks.

Consider the following:

• Tax receipts indicate the US is in recession.
• Gross private domestic investment indicates were are in a recession.
• Retailers are showing that the US consumer is tapped out (see AMZN’s recent miss).
• UPS, another economic bellweather, dramatically lowered 2017 forecasts.

To me, even more alarming is the tightening of lending standards. In our debt-based economy, the flow of credit is absolutely critical to economic growth, and when credit starts to get tight that almost always leads to a recession.

To continue reading: Recession 2017? Things Are Happening That Usually Never Happen Unless A New Recession Is Beginning

After Obama, a New Dawn or More of the Same? by William L. Anderson

President Trump will be faced with a decision: let a painful economic contraction perform its therapy on the economy, or use the same sorts of gimmicks President Obama did to try to kick the can down the road. From William Anderson at mises.org:

Nearly four decades ago, political pundits were shocked as voters turned away President Jimmy Carter and voted in Ronald Reagan, who promised to bring fundamental change to Washington and the indwelling political establishment. At the time, unemployment was rising quickly and inflation raged in double-digits, and Reagan had promised to deal with the economic failures by cutting income tax rates, slashing government spending, and reducing the regulatory burden.

As we know, Reagan succeeded in convincing Congress to do one of those three things — cut income tax rates — but the spending and regulatory monster continued to grow. The Carter administration already had initiated most of the major deregulation initiatives, and Reagan’s role in that area was minor at best. Reagan had to deal with something else in 1982 that threatened to turn his presidency into a one-term failure: a major recession in which the nation’s unemployment rate rose to above 10 percent and the disappearance of whole swaths of the nation’s industrial sector, resulting in what has been called the “Rust Belt” of the northern United States.

Ending 1970s-Style Inflation

We know the rest of the story. The economy recovered (despite interest rates that were above 10 percent) and Reagan won re-election in 1984 in a huge electoral landslide. We also know that while the Reagan administration had many failures, capital investment nonetheless turned toward the “high-technology” sectors and telecommunications.

To continue reading: After Obama, a New Dawn or More of the Same?

 

“Or We’ll Lose the Whole Middle Class”: Gallup CEO, by Wolf Richter

Regular readers of SLL know the economic recovery, such as it has been, is faltering and may be over. From Wolf Richter at wolfstreet.com:

Jim Clifton, Chairman and CEO at Gallup, who presides over endless surveys of American consumers and businesses and knows a thing or two about them, has a message for the media and the political establishment that seem to be clueless: this meme about the recovering economy – “It was even trumpeted on Page 1 of The New York Times and Financial Times last week,” he says – “I don’t think it’s true.”

In an article posted on Gallup’s website, he made his case:

The percentage of Americans who say they are in the middle or upper-middle class has fallen 10 percentage points, from a 61% average between 2000 and 2008 to 51% today.

Ten percent of 250 million adults in the U.S. is 25 million people whose economic lives have crashed.

What the media is missing is that these 25 million people are invisible in the widely reported 4.9% official U.S. unemployment rate.

Let’s say someone has a good middle-class job that pays $65,000 a year. That job goes away in a changing, disrupted world, and his new full-time job pays $14 per hour — or about $28,000 per year. That devastated American remains counted as “full-time employed” because he still has full-time work — although with drastically reduced pay and benefits. He has fallen out of the middle class and is invisible in current reporting.

And these “Invisible Americans,” as he calls them, are facing the “disastrous” emotional toll often associated with a sharp loss of household income. It hits “self-esteem and dignity,” and produces an “environment of desperation.” Even many American with good jobs and incomes are just “one degree” away from the misery of those with falling wages, or the underemployed or unemployed.

Clifton names three metrics that “need to be turned around or we’ll lose the whole middle class”:

1. According to the U.S. Bureau of Labor Statistics, the percentage of the total U.S. adult population that has a full-time job has been hovering around 48% since 2010 — this is the lowest full-time employment level since 1983.

2. The number of publicly listed companies trading on U.S. exchanges has been cut almost in half in the past 20 years — from about 7,300 to 3,700. Because firms can’t grow organically — that is, build more business from new and existing customers — they give up and pay high prices to acquire their competitors, thus drastically shrinking the number of U.S. public companies. This seriously contributes to the massive loss of U.S. middle-class jobs.

3. New business startups are at historical lows. Americans have stopped starting businesses. And the businesses that do start are growing at historically slow rates.

“Free enterprise is in free fall — but it is fixable,” he says. It all depends on small businesses. They need to thrive again. They’re “our best hope” for the economy to pick up some speed. And once they’re thriving again, they can “restore the middle class”:

Gallup finds that small businesses — startups plus “shootups,” those that grow big — are the engine of new economic energy. According to the U.S. Small Business Administration, 65% of all new jobs are created by small businesses, not large ones.

To continue reading: “Or We’ll Lose the Whole Middle Class”: Gallup CEO

US Tax Receipts Have Never Done This Without A Recession, by Tyler Durden

SLL will be vacation 8/12-8/18 and will resume posting 8/19.

US tax receipt growth is slowing dramatically. While it’s always good news when the government takes in less, in this case it also signals a weakening economy and perhaps a recession. From Tyler Durden at zerohedge.com:

US Federal Tax Receipts are rising at just 1.2% year-over-year (12-mo rolling), slowing drastically from its 13.4% YoY growth in June 2013. While “it’s probably nothing,” we thought readers may be interested to note that the last six times tax receipt growth was at this weak a level, the American economy was in recession…

So ignore US Tax receipts (hard data), ignore US productivity (hard data), ignore the bond market (hard data), and ignore GDP expectations… but pay attention to the non-farm payrolls headline data – because that’s what you’re told to do!!

http://www.zerohedge.com/news/2016-08-11/us-tax-receipts-have-never-done-without-recession

ECRI’s Simple Math Goes Global, by the Economic Cycle Research Institute

Recession risk is rising and trend global productivity and economic growth rates are falling. From the ECRI at business cycle.com:

The risk of a global recession is edging up, as the global slowdown we first noted last fall continues (ICO Essentials, September 2015). This danger is heightened because longer-term trend growth is slowing in every Group of Seven (G7) economy, as dictated by simple math: growth in output per hour, i.e., labor productivity – plus growth in the potential labor force – a proxy for hours worked – adding up to real GDP growth.

As we laid out over a year ago (USCO Essentials, June 2015), this simple combination of productivity and demographic trends reveals that U.S. trend GDP growth is converging toward 1%. This is reminiscent of Japan during its “lost decades,” where average annual real GDP growth registered just ¾%, which is why we have cautioned that the U.S. is “becoming Japan” (USCO Essentials, February 2016)and (ICO, July 2013).

Expanding this analysis to the rest of the G7, we find that every economy is effectively becoming Japan, and the sharpest slowdowns are happening outside North America. Thus, as trend growth falls in the world’s largest advanced economies amid the ongoing global slowdown, the threat of a global recession is growing.

In the face of slowing U.S. trend growth, the Fed had hoped that the U.S. economy would recover to earlier levels of trend growth, provided they could find the right size and mix of quantitative easing and low interest rate policies. We dubbed this effort, a “Grand Experiment,” which has served only to pull demand forward, ultimately depleting future demand and failing to achieve the Fed’s objective. Other G7 central banks have arguably made even greater attempts at ginning up growth, but with even less to show for it.

To make our simple math analysis consistent internationally, we used comparable annual data for productivity, labor force, and potential labor force for each G7 country. Then, we examined the data for the half-century preceding the Global Financial Crisis (GFC). Separately, we examined labor productivity growth in the 2010-15 period and potential labor force growth in the 2015-20 period to estimate trend growth in the latter period. As productivity is notoriously difficult to predict, and there is no compelling reason to expect it to change significantly in the near term, we used the last five years’ average productivity growth as the best available estimate for the next few years. The results for the U.S. were quite consistent with our original findings.

Outside of North America, trend growth will likely be even worse. Indeed, the German outlook is substantially weaker than that of the major developed English-speaking economies. While average productivity growth was relatively high at 0.8% from 2010-15, as shown in the chart (upper panel, red line), with negative 0.4% annualized potential labor force growth for 2015-20 (lower panel, red line), trend GDP growth is expected to be only 0.4% over the second half of this decade. To what extent Brexit will change the growth trajectory remains to be seen, but it is unlikely to help.

To continue reading: ECRI’s Simple Math Goes Global

11 Signs That The U.S. Economy Is Rapidly Deteriorating Even As The Stock Market Soars, by Michael Snyder

The real economy deteriorates. From Michael Snyder at theeconomiccollapseblog.com:

We have seen this story before, and it never ends well. From mid-March until early May 2008, a vigorous stock market rally convinced many investors that the market turmoil of late 2007 and early 2008 was over and that happy days were ahead for the U.S. economy. But of course we all know what happened. It turned out that the market downturns of late 2007 and early 2008 were just “foreshocks” of a much greater crash in late 2008. The market surge in the spring of 2008 was just a mirage, and it masked rapidly declining economic fundamentals. Well, the exact same thing is happening right now. The Dow rose another 222 points on Tuesday, but meanwhile virtually every number that we are getting is just screaming that the overall U.S. economy is steadily falling apart. So don’t be fooled by a rising stock market. Just like in the spring of 2008, all of the signs are pointing to an avalanche of bad economic news in the months ahead. The following are 11 signs that the U.S. economy is rapidly deteriorating…

#1 Total business sales have been declining for nearly two years, and they are now about 15 percent lower than they were in late 2014.

#2 The inventory to sales ratio is now back to near where it was during the depths of the last recession. This means that there is lots and lots of unsold stuff just sitting around out there, and that is a sign of a very unhealthy economy.

#3 Corporate earnings have declined for four consecutive quarters. This never happens outside of a recession.

#4 Profits for companies listed on the S&P 500 were down 7.1 percent during the first quarter of 2016 when compared to the same time period a year ago.

#5 In April, commercial bankruptcies were up 32 percent on a year over year basis, and Chapter 11 filings were up 67 percent on a year over year basis. This is exactly the kind of spike that we witnessed during the initial stages of the last major financial crisis as well.

#6 U.S. rail traffic was 11 percent lower last month than it was during the same month in 2015. Right now there are 292 Union Pacific engines sitting idle in the middle of the Arizona desert because there is literally nothing for them to do.

#7 The U.S. economy has lost an astounding 191,000 mining jobs since September 2014. For areas of the country that are heavily dependent on mining, this has been absolutely devastating.

#8 According to Challenger, Gray & Christmas, U.S. firms announced 35 percent more job cuts during April than they did in March. This indicates that our employment problems are accelerating.

#9 So far this year, job cut announcements are running 24 percent above the exact same period in 2015.

#10 U.S. GDP grew at just a 0.5 percent annual rate during the first quarter of 2016. This was the third time in a row that the GDP number has declined compared to the previous quarter, and let us not forget that the formula for calculating GDP was changed last year specifically to make the first quarter of each year look better. Without that “adjustment”, it is quite possible that we would have had a negative number for the first quarter.

#11 Barack Obama is poised to become the first president in U.S. history to never have a single year during his time in office when the economy grew by more than 3 percent.

To continue reading: 11 Signs That The U.S. Economy Is Rapidly Deteriorating Even As The Stock Market Soars