Recession Indicators, Part II

Are we in a recession, heading towards one, or not? The stock market seems unconcerned with the Dow rising 3.2%, S&P up 4.2%, and the Nasdaq 4.9%. This collection of news items will help you sort this out.

The central question for those holding 401k, brokerage, or other stock bearing accounts is "should I hold, or should I sell?" Since stocks tend to decline heavily during recessions, it is important to keep your eye on the signs of recession. So far, stocks are indicating that there is literally no concern about an impending recession. The data says this is a perplexingly out-of-touch view to hold.

And for people who are wondering if perhaps they should hold off on that next big purchase and save a few bucks for a rainy day, keeping an eye on the recession indicators is also important.

First, let's start with automobiles which are usually a very reliable indicator of the direction of the economy. More auto sales? Then the economy is going up. Fewer? Then it's going down. This news is about as ugly as it gets.

U.S. auto sales fall in March as consumers hold back

Automakers reported double-digit U.S. sales declines in March as demand for trucks and sport utility vehicles plummeted and consumers held back because of concerns about gas prices, the housing slump and tightening credit.

General Motors and Chrysler both reported a 19 percent drop in U.S. sales Tuesday. Ford's sales fell 14 percent and even industry stalwart Toyota was down 10 percent compared with last March. Nissan fell 4 percent, and Honda reported a 3 percent drop. Some automakers warned things could worsen in the near term.

Not only are fewer people buying cars, but among those who already did? They're not making their payments on them. This next article also reveals that we are trending into territory we have not experienced for a very long time.

Overdue Consumer Debts Highest Since 1992, ABA Says

April 3 (Bloomberg) -- Consumers fell behind on car, credit-card and home-equity loans at the highest level in 15 years during the fourth quarter, another sign the U.S. economy is slowing, according to an American Bankers Association survey.


Auto sector feels pinch of credit crunch

April. 2, 2008 (MSNBC) The number of Americans who are more than 60 days late on their car-loan payments rose to a 10-year high in January, Fitch recently reported, attributing the rise in late payments to “increasing pressure on the consumer” in a weakening economy.

Below, we find that employment suffered its worst decline in 5 years and that jobs losses have occurred for four straight months.

U.S. payrolls contract by 80,000 in March

WASHINGTON (MarketWatch) -- In employment data that would seem worthy of the name recession, the government reported Friday the steepest monthly job losses in five years as well as a spike in the unemployment rate for March.

The report confirms widespread pessimism about the near-term economic outlook.

Nonfarm payrolls fell by an estimated 80,000 in March, the Labor Department said. It marked the largest decline seen since March 2003, underscoring how reluctant employers remain to committing to making new hires.

Private-sector payrolls have now declined for four consecutive months, the data showed.

Perhaps most interestingly, the mainstream media is even beginning to question these basic statistics, much as I have over the past 4 years. Why do I care? Only because this indicates to me that the illusion may finally be starting to wear off. Our economy is, literally, a Ponzi economy, and faith in the official numbers is a prerequisite to its continuation. So my antennae quiver anytime I see something like these next two articles, both of which came out this week. Is the dam beginning to break?

Jobs market worse than it seems

NEW YORK ( 4, 2008
[T]he headline unemployment rate might not be the best way to judge how the overall labor market is doing.

That's because the unemployment rate calculates only the percentage of workers who describe themselves as unemployed, divided by the number of those potential workers counted in the labor force. So under-employed people don't show up as unemployed.

Also not showing up as unemployed are those who want a job but are no longer counted as being in the labor force for a variety of reasons. The number of people fitting this category rose by more than a half-million between November and February.

The great inflation cover-up

Apr. 3, 2008 (FORTUNE)
A March CNN poll indicates that 91% of the population is concerned about inflation. I'd ask a member of the remaining 9% what they're thinking - and what levels of relative fiscal comfort allow one not to be concerned about inflation - but I'm entirely surrounded by 91-percenters. So how do we account for the discrepancy between the Federal Reserve's recent assurances that inflation is under control and the 91% of the population that's worried it isn't?

There are several possibilities: The first is that we're all paranoid. We simply need reassurance from the authorities: Inflation rates are fine, nothing to see here, move along quietly. The second is that the Fed's insistence on focusing on "core" inflation - a measure that strips energy and food from the consumer price index (CPI) because they're theoretically subject to short-term volatility - makes inflation seem smaller than it is, or than we feel it to be when our gallon of milk that was 12% cheaper last year gets swiped across the grocery store scanner, beeping ominously like a tiny alarm bell. (While core inflation was just 2.3% in February, the CPI was 4%.) The third and most disconcerting possibility is that the CPI systemically understates inflation, in which case we're paying for it taxwise, and the government is underpaying Social Security recipients. In the words of many a UFO spotter, it isn't paranoia if they're really out to get you.

Wow. Two articles in two mainstream press magazines openly talking about the most obvious and glaring disconnect of our lifetime - the gap between our daily lives and government statistics. There is something in the air...

This is a companion discussion topic for the original entry at