This article was published by The McAlvany Intelligence Advisor on Wednesday, November 18, 2015:
As a general rule a recession is two quarters of negative growth (aka decline) in the country’s gross domestic product (GDP). GDP, in simplest terms, is a measure of industrial production, employment, real (inflation-adjusted) income, and wholesale and retail trade.
The trick is knowing when a recession is coming. Even trickier is knowing what to do about it beforehand.
The Bureau of Economic Analysis (BEA) said GDP went negative in the first quarter of the year, but bounced back strongly in the second while falling back in the third. It gave all manner of reasons for GDP’s drop to just 1.5 percent on an annualized basis: lackluster inventory buildup going into the holiday shopping season, decline in personal spending, slowing exports, and, surprisingly, slowing imports as well.
According to Nomura, the Japanese financial holding company, the decline was due to “weak tourist traffic” and “fickle consumer spending behavior.” Bank of America blamed the weather. It was too warm to go clothes shopping for winter wear, causing retail sales in October to drop by three percent.
An entire industry has grown up around predicting the economic future. There are leading indicators, concurrent indicators, and lagging indicators. In other words: here it comes, here it is, there it goes.
One of the most popular and highly regarded is the Empire State Manufacturing Survey, issued monthly by the New York Federal Reserve Bank. Although it measures manufacturing activity (a smaller and smaller part of the overall economy) in a relatively small geographical area, its predictive power is remarkable.
On Monday the authors of its latest report minced no words:
Business activity declined for a fourth consecutive month … new orders and shipments declined … labor market conditions continued to deteriorate, with survey indicators pointing to a decline in both employment levels and hours worked.
Nearly every one of its leading indicators either remained negative or became more deeply negative. The bad news: this four-month decline is the longest since 2009 – that’s six years.
Since the so-called start of the recovery from the Great Recession (called by the National Bureau of Economic Research, the NBER, in June, 2009) the rebound has been anything but robust. With that recovery now getting long in the tooth, observers are looking for signs of the next recession.
They’re already trickling in. There are the disappointing results from retailers like Best Buy, JCPenney, Macys, and Sears. There’s the report from the Cowen Group that reported that retail traffic for the first week of November was down almost 10 percent compared to a year ago (which was also down from the previous year), and predicted another similar decline, year-over-year, for the second week.
There’s the world trade volume reported by Jim Quinn at his Burning Platform blog, showing declines for the first time since the start of the Great Recession. There’s this from Zepol, which analyzes trade data through millions of bills of lading: for the first time in at least a decade, imports fell in both September and October at each of the three busiest U.S. seaports: Los Angeles, Long Beach, and New York. Between August and October, usually the busiest time of the year as retailers are building their inventories for the holidays, imports fell by more than 10 percent.
There’s the inventory-to-sales index, which is approaching a high not seen since 2001.
There’s the Baltic Dry Index (BDI), a daily economic indicator issued by the London-based Baltic Exchange that provides an assessment of economic activity by measuring the price of moving raw materials like coal, iron and grain by sea. In early August the BDI peaked at 1,200. On Monday the BDI was 550.
There’s the Labor Department, which reported that the trucking industry laid off more than 2,700 people between August and October. There’s Citigroup with its take on consumer confidence, suggesting ominously that the fallout from the Paris massacres could be worse than that following 9/11:
It is probable that the impact could be more severe this time, especially if there were more attacks and therefore greater disruption to business activity from enhanced border controls.
And then there’s the lengthening litany of unfolding disasters worldwide: the slowing Chinese economy, news just in that Japan has entered recession, student loans topping $1.2 trillion, which are choking off new household formations, unemployment far higher than officially reported thanks to part-time and discouraged workers not being counted while the total workforce continues to shrink, and corporate profits expectations being revised downward.
Take your pick. There are plenty of indicators showing a slowing economy.
Investopedia: 6 Factors That Point to Global Recession in 2016
MarketWatch: Empire State index remains deeply negative in November
MarketWatch: Retailers feeling the heat from abnormally warm weather
Wall Street Journal: Security Issues Threaten Global Economy
Wall Street Journal: Quiet U.S. Ports Spark Slowdown Fears
ZeroHedge.com: How Many More Recession Confirmations Do You Need?
Empire State Manufacturing Survey – summary
Background on Nomura Holdings, Japanese financial services company
Baltic Dry Index last 12 months
GDP Negative in First Quarter as Economy Contracts
BEA: National Income and Product Accounts Gross Domestic Product: Third Quarter 2015 (Advance Estimate)
Great Recession ended officially in June, 2009