Pretty good if you ask me. Most economic indicators this year have moved relentlessly in the direction of recession, and now the Cass Freight Index is saying a US recession may start in the 3rd quarter, fitting up nicely to my prediction that we would be entering recession this summer.
Cass comes on board
The Cass Freight Index is one of the most robust proxies for the US and global economies there is. If freight isn’t moving, the economy is dying. As Cass says, their’s is a simple, fundamental approach to encapsulating the economy:
As we try to navigate the ebb and flow of the economy, we don’t pretend to have any ‘secret sauce’ or incredibly complex models that have exhaustively analyzed every data point available. Instead, we place our trust in the simple notion that the movement of tangible goods is the heartbeat of the economy, and thattracking the volume and velocity of those goods has proven to be one of the most reliable methods of predicting change because of the adequate amount of forewarning that exists.
The Cass Freight Index has now been negative for eight months, marking 2019 as a year of recessionary decline.Cass Information Systems notes they have been highly reserved in stating the index reveals arecession is nowbecause the index periodically goes negative without the US going into recession, but they also note the weakness has rarely gone as deep as this time or spanned so many modes of transportation.
Might this be why Trump, while he claimed in self-defense this week that most economists don’t now see a recession coming, was immediately thereafter mulling over the idea of atemporarypayroll tax cut? Sounds like an emergency measure to me.
Several senior White House officials have begun discussing whether to push for a temporary payroll tax cut as a way to arrest an economic slowdown, three people familiar with the discussions said,revealing the growing concerns by President Donald Trump’s top economic aides.
While the sources there were anonymous, as is the media standard these days, Trump let the cat out of the bag, himself, by saying he was considering a payroll tax cut but not any more.
Payroll tax cuts have typically only been granted during economic downturns as a form of instant tax stimulus. Such a cut that benefits the middle class would certainly have been more effective at stimulating the economy, instead of just the stock market, than the corporate tax cut we got; but it would still add just as badly to the national debt.
One might ask, if the corporate tax cuts were effective as was promised and if they sent us much deeper into debt, as we now know, why are more tax cuts even being considered? Might Trump’s consideration of more cuts mean the previous cuts failed to deliver on their promise? Or that things are looking more dire than the president let on?
To prove he’s not concerned about the current economic downturn, Trump has unleashed White House Lunatic Larry Kudlow and Peter Navarro and Kelly Ann Conway to spin up as much cotton candy in the public narrative as possible. They seem to have been working overtime in the past week to convince the nation that all is well. Methinks they doth protest too much.
What I find funny is how, each time Laughable Larry and the other guy tell us the economy is doing exactly as their tax plan said it would do, they end by begging the Fed for more free recovery stimulus money at the end of the interview, even though the Fed is already at historically stimulative interest rates. I think Larry is starting to sound a little desperate.
Doesn’t Larry sound just a wee bit drunk when he says, “What’s wrong with just a little bit of optimism?” The last time Larry didn’t see a recession coming at all was at the end of the George Bush years. Now that we know your code, Larry, thanks for the warning. And this is “about as good as it gets” he tell us.
I’ve pointed this out before, but here is Larry finally admitting he made that mistake and then trying to cover for it at the same time:
Back then he was championing Trickledown 2.0 and trying to convince the nation it was working when it wasn’t. Now, he’s trying to tell us Trickledown 3.0 is working “about as good as it gets.”
Ah, yeah, nobody saw it coming, Larry. Well, except for those of us who did back in the same month when Larry wrote there was no recession anywhere in sight, which he wrote because some people were beginning to ask if a recession wascomingwhen, in fact, one wasalready there! (As Lance Roberts noted above.)
On that note, notice how talk of recession now has suddenly shifted into thepresent tense:
“I don’t think we’rehavinga recession,” Trump told reporters. “We’re doing tremendously well. Our consumers are rich. I gave a tremendous tax cut and they’re loaded up with money.”
…Trump gave up the long pretense that the economy is not sliding into recession, and said itcouldbe sliding into recession and it could be due to his China trade war,but it will be short:
President Trump has spent days arguing that recession fears are a media construct meant to take him down. His aides have told us that the “fundamentals of our economy are very strong” and that there is no recession on the way. They even falsely denied that he’s looking at quick fixes (such as a payroll tax cut) to ward off economic pain.
But Tuesday, Trump sang a much different tune. Rather than play off the idea of a downturn, Trump leaned into it — and even suggested that a short-term recession might simply be the cost of waging his much-needed trade war with China….
A couple of points: First, the entire monologue undercuts Trump’s regular assurances that the trade war isn’t hurting the economy. He has frequently said (wrongly) that China pays for the tariffs, and his administration has argued that the impacts are negligible — whether on consumer prices, on the stock market or with a potential downturn.
The fact that Trump is now entertaining the possibility of a downturn shows he knows he can deny, deny, deny for only so long….
He has decided (correctly) that he’s going to have to own any kind of a downturn or recession that might happen, so he has set about making the argument that it would be temporary pain in the service of a long-term gain.
So, even the president, long a recession denier, is admitting, “Yeah, OK, this could be taking us into a recession, but it won’t last long.” Why is talk, even at the presidential level, moving in this recessionary direction all of a sudden? Because the recession is developing right now and can no longer be denied; so, political talkhas toswitch to managing that crisis. This was the first presidential step into controlling the narrative that is now everywhere — not by denying it but by saying it will be short and is happening for the right reasons.
Little does Trump know (unless the conspiracists are right) that Trump is needlessly taking the blame right into his own lap by pinning the recession fully on his trade war when it is really the Fed to blamer which was foreseeable all along, not inconceivable. By design of default, as I said before the election, he will become the Trump Chump for the Fed’s failure. (More on that at another time.)
Consumer sentiment finally joins my parade
One usually thinks of parades as a “procession,” but this is arecessionaryparade. Consumer sentiment had been holding out on me, refusing to join the march of statistics moving in the direction of my summer recession prediction. CNBC noted this month that consumer sentiment remained strong as a bulwark against recession and that retail sales were up accordingly!
Yay! Well, until it wasn’t.
Sentiment is a lagging indicator. Consumer’s feelings don’t change until theyfeelproblems building around them. Those feelings can turn quickly when employment turns and hits home. As noted many times, recessions typically begin 1-3 months after unemployment starts to rise. Sentiment has just made such a quick turn, so let us not forget that this is a consumer-driven economy; things speed up going downhill when sentiment turns south and starts pushing them. It’s a lagging indicator, but a big accelerant once it recognizes the fall has begun.
The Fed’s rate cut did what I’ve said it would do and triggered concerns about recession (both in the bond market and the consumer market). As a result, the University of Michigan’s Consumer Sentiment Index fell hard in August, dropping from 98.4 to 92.1, which was worse than any economist expected inBloomberg’searlier survey. Consumer opinions about current conditions and expectations regarding future conditions both fell to their lowest point since Trump was elected:
They’re losing faith. Consumer sentiment overall fell 6.4% month-on-month and 4.3% year-on-year. 33% of consumer’s polled also noted without prompting that the imposition of additional Chinese tariffs had them concerned.Consumers concluded, based on the Fed’s action, they will likely be more careful from this point on about spending.
Consumer sentiment declined in early August to its lowest level since the start of the year. The early August losses spanned all Index components. Although the Expectations Index recorded more than twice the decline in August as the Current Conditions Index …,the Current Conditions Index fell to its lowest level since late 2016…. Perhaps the most important remaining pillar of strength for consumer spending is favorable job and income prospects, although the August survey indicated some concerns about the future pace of income and job gains.
If and when employment completes the turn it appears to have started, consumer sentiment will sink like rock.
Employment now marching with me
About this oft’-spoke idea that employment is remaining strong: The BLS just published a revision to its count for jobs in the economy and dropped the count by half a million jobs. It’s not abnormal for them to revise their count down, but the size of the revisions was substantially more than usual — the largest downward revision for a year’s worth of data (March 2018-March 2019)since 2009:
What this means is that the average 223,000 per month gain in new jobs reported during that period was actually about 180,000 new jobs per month, which is just above the recessionary 150,000 that breaks even with growth in the labor pool,which takes us down to the lowest job growth rate we’ve seen in years:
So much for trickle-down economics trickling down. The big losers were retailers and restaurants, where I’ve been saying for two years we were going to start seeing a lot of job losses and economic damage due to the Retail Apocalypse. Once again we find the government statistics getting revised downward a year later.
Business bankruptcies have been rising this year, and that is starting to drive up job losses:
“Bankruptcy-related job losses are grimly reminiscent of the Great Recession.”
In the first seven months of the year, U.S.-based companies announced 42,937 job cuts due to bankruptcy, up 40% on the same period last year and nearly 20% higher than all bankruptcy-related job losses last year, a report released this month concluded. Despite record-low unemployment,bankruptcy filings have not claimed this many jobs since the Great Recession…. “It is the highest seven-month total since 2009 when 50,258 cuts due to bankruptcy were announced…. In fact, it is higher than the annual totals for bankruptcy cuts every year since 2009.”
(Ever notice how everything keeps point back, to being as bad as the Great Recession?)
So, it should be no surprise that “continuing jobless claims” turned the corner this year and are starting to rise:
The long downward trend incontinuedunemployment has clearly found its bottom. Continued unemployment is starting to rise. Note that this is usually considered alaggingeconomic indicator — a sign of where we already are.
Job openings in the US just hit a four-month low, and hiring has dropped to its slowest since Trump became president. As you can see job openings have formed an evident top:
Three-month, six-month, and one-year moving averages for payroll gains are all down sharply to their worst levels … since the end of the Great Recession: (Using the averages all of the noise and seasonality.)
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