Undeniable Evidence That The Real Economy Is Already In Recession Mode

Evidence - Public DomainYou 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.

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  • diogenes

    No harm in “evidence” of this kind but it escapes me how anyone with eyes and a brain could live in America outside the gated bubble of the 1% and not understand that America has been in a DEPRESSION since 2008 and that it keeps getting worse. The “new normal” is third world. Welcome to Wall Street’s plantation of debt-, rent-, and mortgage-serfs. Where I live there have been more power outages in the last five years than in the previous 40. There are no end of signs. But hey, let’s have another Coke and watch some porn!

  • jadan

    Everybody knows we’re heading for crisis. Voices in the establishment have been issuing dire warnings for years now, right along with the usual fringe actors, like Snyder. The right wing loves disaster and blames it on entitlements, laziness, drug addiction, moral depravity, etc, that is to say, “them”. Their solution is cheap labor, tax cuts, religion, and prison. Work for minimum wage, don’t smoke pot, or break the 10 commandments. When these loud mouths get up on their high horses, they will tell you what needs to be done and this is healthy behavior, for them, if not for society. Snyder seems to be clueless about what to do even though indications are he’s a right wing conservative. He keeps on crying wolf over and over. This is the behavior of a doom porn addict. He could use some therapeutic intervention. There may be doom porn support groups. The knowledge of imminent systemic crisis should focus the mind on solutions. This is the normal human response: If it’s broke, fix it! But apparently the doom porn addict gets stuck in a nihilistic loop and takes pleasure in disaster scenarios and fantasies of destruction for their own sake. He may imagine himself to be a prophet of an angry god on a holy mission, when in reality he’s just a pain in the butt.

    • kimyo

      if he’s got the facts wrong, feel free to correct him. why waste your time with the ad hominem attacks? why is it snyder’s resposibility to ‘fix it’? what in the world does his religious/political affiliations have to do with the accuracy of the information he presents?

      you should grow up and stop playing junior high school debate club. try it – swear off ad hominems for 30 days. my guess is you’d have nothing left to say.

      • jadan

        You into doom porn, too?

        • kimyo

          i’m into sites which provide accurate information. your inability to rebut any of snyder’s points is why you descend into name-calling.

          grow up. it doesn’t matter if i’m tall or short, into doom or tentacle porn, bilingual or bisexual. it’s childish to attack in this manner and it doesn’t do anything to advance the conversation.

          why do you do this? because you’d rather talk about snyder’s personality than the information he presents.

          Dumb people talk about people, average people talk about events, intelligent people talk about ideas.

      • wunsacon

        >> what in the world does his religious/political affiliations have to do with the accuracy of the information he presents?

        It *can* and often does affect it. But, in Snyder’s case, I detect little if any inaccuracy in the information he presents and the conclusions he draws. (I read every article posted on WB, including Snyder’s.)

    • wunsacon

      I like seeing his data regularly, though not necessarily his proposed solutions (which he fortunately doesn’t restate in every article). I think he does us a service.

      The economy is doing poorly. But, my neighborhood is doing well enough that I wouldn’t know it without seeing this kind of data regularly. My neighbors are clueless but I’m not — because I read quality “doom porn” like what Snyder delivers.

      • jadan

        Snyder doesn’t have any solution to restate. He’s got no economic program. He’s in vested in economic (and social) collapse. It turns him on. I do not disagree with his data and I, too, believe the system is going to collapse. He’s right! And if for an hour or so I begin to think things may be OK out there, I can always check into economiccollapseblog and get the latest reasons why this is not so. He’s crying “fire!” in a crowded theater. And he’s correct! He’s got powerful data. His eminence, GW, thinks so. The place is already smoking if one cares to look.

        We are in danger, all of us, we’re in dire straights, and our way of life is going to end sooner than later. Millions of people feel this even if they don’t speak too loudly about it. The “Left Behind” series of books, by Tim LaHaye and Jerry B Jenkins, which deals with the fictional “End Times” have sold many millions of copies. If Snyder had written these books, they’d have been better written, but the message is essentially the same.

        The situation is more critical than most care to admit or even think about. But this is not how one deals with it. You don’t cry fire in a crowded theater. You arrange for an orderly exit. You don’t exploit the issue to promote your own fanatical religious agenda, which is what Snyder is doing. This is what Christianity is all about from the beginning: exploiting the fear of the future to scare the herd into becoming Christians. You aren’t familiar with Snyder’s other site, apparently, in which his religious beliefs are fully displayed. His influence in the right wing Christian conservative movement is growing. His data is good, his message is powerful because our way of life is not sustainable. What I am saying is that he’s an irresponsible opportunist. Religious fanatics usually are.

  • Mencken’s Ghost