The Best Evidence Yet of a US Recession This Year

This article was published by The McAlvany Intelligence Advisor on Monday, March 14, 2016:  

The best evidence comes from the US Treasury with its daily report of tax receipts from wages and salaries. It’s pure, it’s timely, and it’s free of massaging and/or manipulation. And it’s ugly.

John Williams, the skilled and capable economic statistician whom the establishment economists love to hate, author of ShadowStats.com, has built a graph (see source below) showing the decline in revenues, year-over-year, using a smoothed monthly average of those daily reports. Although Williams’ study is still in its infancy, Lee Adler of the Wall Street Examiner saw enough:

The annual rate of change in withholding taxes has grown increasingly negative … for more than a month. Following on the heels of a weak December, it is a clear sign that the US has entered a recession…. February looks much worse in the early going.

Adler is a little ahead of himself: recessions are defined as two quarters of negative growth – or rather a shrinkage in economic output, to be accurate – and the US hasn’t seen two negative quarters since the end of the Great Recession. But they’re coming.

Even those establishment economists are coming online. Last month Bloomberg reported that they, in their collective (collectivist?) wisdom, thought the chances of a US recession were 20 percent. On Monday, Morgan Stanley wonks upped that to 30 percent. Said the bank’s strategists: “Weaker growth forecasts and rising political risk lead us to close our positive tactical stance and lower exposures to global equities. The probability of a global recession has risen … our economists put the probability of a global recession at 30%, the highest of this cycle.”

David Stockman, another in the same category as John Williams (a thorn in the side of government economic seers and prognosticators who play the “what number do you need it to be?” game), who quit the Reagan administration when Ronald agreed to another tax increase, has been negative on the US economy for months. He noted in early February that earnings per share for the companies making up the Standard & Poor’s 500 Index have been declining and “are certain to be down [further] in the current quarter.” Based on the most recent reports, those earnings per share (EPS) have already declined by more than 14 percent since the peak, “replicating the exact pattern which occurred during the 2007-2009 collapse.”

For four states – Alaska, North Dakota, West Virginia, and Wyoming, the recession has already begun, with three more likely to join them shortly: Louisiana, New Mexico, and Oklahoma. Not all of these are suffering from the decline in oil prices, either. Louisiana is suffering from a contraction in manufacturing along with Illinois, Wisconsin, and Mississippi, each of which has suffered economic declines in the past few months.

Fed Chair Janet Yellen added during testimony on February 10th that “There would seem to be increased fears of recession risk. We’ve not yet seen a sharp drop-off in growth, either globally or in the United States, but we certainly recognize that global market developments bear close watching.”

Indeed they do. Japan is currently in a recession, and unless the communist/Keynesian leaders running China’s economy are able to pull off a miracle, China will shortly join it.

Zero Hedge weighed in with its report that more than 70 percent of regions tracked worldwide saw manufacturing sentiment deteriorate in February compared to January. Chris Williamson, the chief economist at Markit, a global financial services giant located in London, added:

The February data add to signs of distress in the US manufacturing economy. Production and order book growth continues to worsen, fed by falling exports. Jobs are being added at a slower pace and output prices are dropping at a rate not seen since mid-2012.

One of the numbers most annoying to Michael Snyder, author of The Economic Collapse blog, is the unemployment rate. The establishment always uses the top line number (now down to 4.9 percent) instead of the one buried in the text – U6, which is closer to reality – showing 10.5 percent. Wrote Snyder: “No matter that Obama may say, unemployment remains a major problem in the United States … unemployment rates in 36 states are higher [now] that they were just before the last recession hit in 2008.”

And then there are the student loans now topping $1.2 trillion. The debt service on that monster number is keeping recent graduates from doing much more than earning enough to service that debt. Getting married (to a spouse also weighed down with student loans) isn’t an option, and so household formations are suffering, along with the attendant lack of economic stimulus such formations generate.

The best indicator of the increasingly likelihood of a recession before the end of the year comes, surprisingly, from a government agency that is NOT paid to massage or manipulate the numbers for political purposes. And it reveals an economy headed into recession.

Just in time for the election.

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Sources:

MarketWatch.com: Morgan Stanley cuts S&P 500 target as recession fears rise

David Stockman: The Spook In the Casino—–Recession Just Ahead, Part 1

Stockman: Recession Will Engulf ‘Entire World,’ Including US

Michael Snyder: Plunging Manufacturing Numbers Mean That It Is Time To Hit The Panic Button For The Global Economy

6 Factors That Point to Global Recession in 2016

John Williams: An Analysis of Withheld Income & Employment Tax Receipts  March 2nd, 2011

Bloomberg: The U.S. States Where Recession Is Already a Reality

Wall Street Examiner: Collapsing Federal Revenues Through February 4 Show US In Deepening Recession  by Lee Adler • February 6, 2016

The New American: China’s Economy Continues to Unravel as Gov’t Lays Off 5M Workers

Background on Markit