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Page added on May 18, 2016

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The Real Economy Is Already In Recession

The Real Economy Is Already In Recession thumbnail

You are about to see a chart that is undeniable evidence that we have already entered a major economic slowdown. 

In the “real economy”, stuff is bought and sold and shipped around the country by trucks, railroads and planes.  When more stuff is being bought and sold and shipped around the country, the “real economy” is growing, and when less stuff is being bought and sold and shipped around the country, the “real economy” is shrinking.

I know that might sound really basic, but I want everyone to be on the same page as we proceed in this article.

Just because stock prices are artificially high right now does not mean that the U.S. economy is in good shape.  In fact, there was a stock rally at this exact time of the year in 2008 even though the underlying economic fundamentals were rapidly deteriorating.  We all remember what happened later that year, so we should not exactly be rejoicing that precisely the same pattern that we witnessed in 2008 is happening again right in front of our eyes.

During the month of April, the Cass Transportation Index was down 4.9 percent on a year over year basis.  What this means is that a lot less stuff was bought and sold and shipped around the country in April 2016 when compared to April 2015.  The following comes from Wolf Richter

Freight shipments by truck and rail in the US fell 4.9% in April from the beaten-down levels of April 2015, according to the Cass Transportation Index, released on Friday. It was the worst April since 2010, which followed the worst March since 2010. In fact, shipment volume over the four months this year was the worst since 2010.

 

This is no longer statistical “noise” that can easily be brushed off.

Of course this was not just a one month fluke.  The reality is that we have now seen the Cass Shipping Index decline on a year over year basis for 14 consecutive months.  Here is more commentary and a chart from Wolf Richter

The Cass Freight Index is not seasonally adjusted. Hence the strong seasonal patterns in the chart. Note the beaten-down first four months of 2016 (red line):

 

Cass Freight Index - Wolfstreet

This is undeniable evidence that the “real economy” has been slowing down for more than a year.  In 2007-2008 we saw a similar thing happen, but the Federal Reserve and most of the “experts” boldly assured us that there was not going to be a recession.

Of course then we immediately proceeded to plunge into the worst economic downturn since the Great Depression of the 1930s.

Traditionally, railroad activity has been a key indicator of where the U.S. economy is heading next.  Just a few days ago, I wrote about how U.S. rail traffic was down more than 11 percent from a year ago during the month of April, and I included a photo that showed 292 Union Pacific engines sitting in the middle of the Arizona desert doing absolutely nothing.

Well, just yesterday one of my readers sent me a photograph of a news article from North Dakota about how a similar thing is happening up there.  Hundreds of rail workers are being laid off, and engines are just sitting idle on the tracks because there is literally nothing for them to do…

North Dakota Railroad Engines Idle

Intuitively, does it seem like this should be happening in a “healthy” economy?

Of course not.

The reason why this is happening is because businesses have been selling less stuff.  Total business sales have now been declining for almost two years, and they are now close to 15 percent lower than they were in late 2014.

Because sales are way down, unsold inventories are really starting to pile up.  The inventory to sales ratio is now close to the level it was at during the worst moments of the last recession, and many analysts expect it to continue to keep going up.

Why can’t people understand what is happening?  So far this year, job cut announcements are up 24 percent and the number of commercial bankruptcies is shooting through the roof.  Signs that we are in the early chapters of a new economic downturn are all around us, and yet denial is everywhere.

For instance, just consider this excerpt from a CNBC article entitled “This key recession signal is broken“…

Treasury yields are behaving as if they are signaling a recession, but strategists say this time it’s more likely a sign of something else.

 

The market has been buzzing about the flattening yield curve, or the fact that yields on longer duration Treasurys are getting closer to yields on shorter duration securities.

 

In the case of 10-year notes and two-year notes, that spread was the flattest Friday than it has been on a closing basis since late 2007. The yield curve had turned negative in 2006 and stayed there for months in 2007 before turning higher ahead of the Great Recession. The spread was at 95 at Friday’s curve but widened Monday to more than 96.

Treasury yields are very, very clearly telling us that a new recession is here, but because the “experts” don’t want to believe it they are telling us that the signal is “broken”.

 

 

For many Americans, all that seems to matter is that the stock market has recovered from the horrible crashes last August and earlier this year.  But in the end, I am convinced that those crashes will simply be regarded as “foreshocks” of a much greater crash in our not too distant future.

But if you don’t want to believe me, perhaps you will listen to Goldman Sachs.  They just came out with six reasons why stocks are about to tumble.

Or perhaps you will believe Bank of America.  They just came out with nine reasons why a big stock market decline is on the horizon.

To me, one of the big developments has been the fact that stock buybacks are really starting to dry up.  In fact, announced stock buybacks have declined 38 percent so far this year

After snapping up trillions of dollars of their own stock in a five-year shopping binge that dwarfed every other buyer, U.S. companies from Apple Inc. to IBM Corp. just put on the brakes. Announced repurchases dropped 38 percent to $244 billion in the last four months, the biggest decline since 2009, data compiled by Birinyi Associates and Bloomberg show. “If the only meaningful source of demand in the market is companies buying their own shares back, then what happens if that goes away?” asked Brad McMillan, CIO of Commonwealth “We should be concerned.”

Stock buybacks have been one of the key factors keeping stock prices at artificially inflated levels even though underlying economic conditions have been deteriorating.  Now that stock buybacks are drying up, it is going to be difficult for stocks to stay disconnected from economic reality.

A lot of people have been asking me recently when the next crisis is going to arrive.

I always tell them that it is already here.

Just like in early 2008, economic conditions are rapidly deteriorating, but the stock market has not gotten the memo quite yet.

And just like in 2008, when the financial markets do finally start catching up with reality it will likely happen very quickly.

So don’t take your eyes off of the deteriorating economic fundamentals, because it is inevitable that the financial markets will follow eventually.

The Economic Collapse blog



59 Comments on "The Real Economy Is Already In Recession"

  1. GregT on Thu, 19th May 2016 12:48 am 

    “Ahmedabad temperature touches 49 degree Celsius ; red alert issued”

    Wait a second, isn’t Ahmedabad the evil dictator of Iran? And what does Celsius mean?

  2. makati1 on Thu, 19th May 2016 1:12 am 

    GregT, I assume you are being facetious, not serious. Watching it on what? A piece of plastic that no longer has a way to power up?

    Electric/electronics is NOT forever, no matter what some believe. Even solar requires some form of converter to be useful and the panels themselves will die sooner or later. Not to mention that all of those toys have a built in obsolescence where they will just stop functioning.

    Anything stored in them will be gone when they will not even turn on. Ditto for any “wealth” stored in the form of ones and zeros on an electronic gadget, ATM, bank computer, etc. Those can all be gone in an eye-blink. Not to mention just a simple computer virus preventing them from being accessible.

    Soon, finding your next meal and a safe place to sleep may take all of your time. No time to play with toys. Ask the millions of homeless in America today how much fun time they have.

    I suspect that the near future is not going to be fun at all, much as we would all like to believe it will be. And the distant future will be dangerous, brutish and short. From “civilized” to Neanderthal in one generation? Maybe. We live in interesting times.

  3. Apneaman on Thu, 19th May 2016 2:08 am 

    I don’t even read these economic collapse shit articles by Michael Snyder.

    I tend to be un-trusting of people who believe that a snake talked to people and think a dude name Noah built a giant ark (ripped off from the much older Sumerian tale of Gilgamesh) and put all the animals on it. How the fuck did the kangaroos and koala bears get there and the animals from the Americas? Tons of shit in that book reads like Harry Potter except with rape and slavery. How can people who’s entire lives are informed and shaped by science and the technology and industry it brings them believe in that shit? Don’t believe in evolution? Good then never take antibiotics because they were invented based on evolutionary theory along with almost all modern medicine. None for your kids either.

    Yep Michael Snyder is going to get raptured up so he just can’t wait for the SHTF. Wifey got a ticket too. But first they have to sell a bunch of junk prepper supplies to their religious retard readers who think their going too. They need cash – heaven has a hefty cover charge. If they all going to heaven then why prep? Isn’t an economic collapse all part of gods plan? Why are you fighting gods plan? Don’t y’all want to get to heaven ASAP? I hear it’s awesome. You get to hang out with all the most boring, repressed, humorless people whoever existed. For eternity. I’ll take hell where all the sluts you could ever want are and all the dead rock stars are jamming all the time. I can’t wait to see Elvis and Jimmy again.

  4. Go Speed Racer on Thu, 19th May 2016 2:18 am 

    Some guy wants to get railroad spikes pounded thru his hands, to try and make you love him?

    The Repub’s got rid of the regular Jesus anyway, now he is ‘Rambo Jesus’
    http://whatwouldjackdo.net/JesusRambo.jpg

  5. theedrich on Thu, 19th May 2016 2:42 am 

    For “progressive” types, “progress” means (1.) race mixing and (2.) BAU, in that order.  However, the race mixing depends on the BAU, although politicoes may not see or care about this.  As the “real” economy deteriorates, the redistributionists will have less to redistribute.  And newly jobless Whites may cease to believe that muds are entitled to eviscerate the American economy in order to turn some millionaires into billionaires.

    “Progressivism” (also called “Liberalism”) is actually spoiled-bratism.  Nowadays, this can be seen most clearly in the idiocy of screeching snowflakes on the campuses of many tax-supported universities.  And advanced stages of this disease can be seen in the current state of Venezuela.  But it appears that, once a population becomes infected with this mentality, prognosis is for an agonizing decline inevitably ending in death.  Since the cure is too painful for the affected populations (What?  No coloreds?  No mud serfs?), the only result can be the end of the empire.  And this end will occur regardless of whether the empire decides to commit more war crimes like the nuking of Hiroshima and Nagasaki or the carpet-bombing of civilian German cities.  For zombies only appear to be alive, no matter how much chaos they effect.

  6. Apneaman on Thu, 19th May 2016 3:08 am 

    Douchy, what disease is Racism? I think I read somewhere it was caused by the same genetic mutation that makes retards. Except the retards don’t drool as much.

  7. Davy on Thu, 19th May 2016 6:56 am 

    None of the systematic economic instability has gone away it has just smoldered and in fact is building. What we have is a macro system in decline. This is not a business cycle it is full blown decent. Foreign exchange is the best gauge of this. It is one economic area that cannot be managed nor can it be manipulated as other sectors can. It is too large for even the fed’s or PBOC balance sheet and the resulting activity too divisive. Look to the foreign exchange market to guide us to where the global economy is going and that direction is ominous.

    Let’s face it the high markets is what is keeping confidence afloat. Crashed markets will be the end of economic confidence and central bank policy. This is why the central banks are doing everything they can to avoid a market crash. Except it is a game and a game with competitive cooperation that is breaking down. Growth is stagnating and tough decisions avoided. Extend and pretend is no longer working.

    “China Sends Hawkish Fed A Message – Devalues Yuan Near 2016 Lows”
    http://www.zerohedge.com/news/2016-05-18/china-sends-hawkish-fed-message-devalues-yuan-near-2016-lows

    “Just as we warned was probable, The PBOC sent a message loud and clear to the newly hawkish Fed following today’s surge in the dollar after the minutes were released. With the 2nd biggest daily devaluation since the August collapse, China pushed the Yuan fix against the USD down to its lowest since early February – barely above the January lows. As we warned earlier, the China-Panic trade looms loud now as turmoil appears all that is left to stop The Fed unleashing another round of liquidity-suckiong rate hikes sooner than the market wants.”

    “All eyes have been firmly focus on the Yuan’s move against the USD but in fact the Yuan has been falling non-stop against the world’s major currencies…The critical issue now is that the U.S. dollar is appreciating again. The Bloomberg Dollar index is up 2.8% in the last two weeks and another 2% wouldn’t be an unreasonable consolidation in the context of it dropping more than 7% in the previous three months….That previous dollar slide distracted from the fact that yuan depreciation never abated. Against the basket, it’s been weakening at an average rate of almost 1.2% per month for the last five months.”

    “It appears that it is the USD’s turn to face The PBOC once again… The 2nd biggest daily devaluation of the Yuan fix against the USD since August’s collapse. Simply put, China does not want The Fed sucking the liquidity lifeline out of world markets right as it embarks on another round of desperate credit reflation……As we have warned before – bullish stock market investors should be careful what they wish for – the higher stocks go, the higher the chances of rate hike, and the more likely China pre-taliates with some turmoil-inducing events to stall the unwind… the last time traders panicced about China, bad things happened to stocks…”

  8. HARM on Thu, 19th May 2016 12:17 pm 

    “For “progressive” types, “progress” means (1.) race mixing and (2.) BAU, in that order.”

    Gee, thanks for clearing that up, theedrich! I don’t recall the meeting where my Progressive ZOG-Bilderberg overlords precisely enunciated those goals, but given I’m a card-carrying “progressive” apparatchik, it must have taken place.

    Well, this has been fun and enlightening, but apparently I gotta go keep up with the BAU and race mixing –those races won’t mix themselves, amiright??

  9. theedrich on Fri, 20th May 2016 2:40 am 

    Glad you have finally seen the the light, Harm.  That’s a lot better than what insectoids crawling up out of British Columbian outhouses have been able to do.  Maybe one day you will even be able to understand that the puppets who seem to be in charge of all the race mixing and BAU propaganda are not the puppeteers themselves.

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