Recent Data Do Not Point to an Imminent Economic Upturn

In a recent post, I demonstrated that there is a large amount of optimism amongst many Keynesians.  The general consensus was that if only the Fed could be allowed to perform more quantitative easing and thus allow the “fiscal cliff” issues to be deferred to yet a later date, the U.S. economy is something like a tiger ready to roar.  They feel that the recent/current “soft patch” will give way not just to another mild wave upward in economic activity such as keeps happening since 2010, but something much better economically is due up. 

As Bill McBride (aka Calculated Risk) said in his interview with Joe Weisenthal of Business Insider, he thinks the economy is in its best shape since 1997.

I hope he’s are right.  I expect that politicians will kick the fiscal cliff  can down the road again, though  with some dramatic headlines so that each side’s partisans can feel their guys are fighting for certain core principles.  But this fiscal cliff came about because the Federal government made certain economic assumptions in 2009 about the course of the recovery that simply failed to happen.  And the data continue to disappoint.  It’s hard to see that continuing to defer coming to grips with the fact that mainstream projections haven’t worked out as expected will suddenly yield much better results.  It could be the case, but… why should it?

My economic and market concerns are much more related to recession and stagnation than this fiscal cliff.  After all, did not the Federal government raise taxes in 1990 in the middle of a known recession?  Then, less than three years later, during a “jobless recovery”, did not the Clinton administration push through yet another tax hike?  If a recessionary U.S. economy could sustain two such tax increases a mere two decades ago, why is this fiscal cliff so in need of being a can that gets kicked forward yet again?

We can hope, but…  

Increasingly the hard economic data simply provides no actual evidence that I can find to accept that this happy outcome is “in the cards”.  Maybe, but can or should we actually plan for that in our business and financial lives?  In that regard, a skeptical approach that a fresh business cycle upturn is imminet may be wise right now.  There might be more pain ahead before the good times roll.

The Chicago Fed produces an aggregate economic score, the eponymous Chicago Fed National Activity Index.  This aggregates numerous pieces of economic data.  Please take a minute and read it.  You will see a tepid recovery off the massive decline in economic activity, and a fresh downturn to near recessionary levels.  The CFNAI also address “inflation”, and looking at that chart will at least make today’s record-low interest rates a bit more understandable.

This recent downturn in the CFNAI comes in a different setting from that at the outset of 1997.  One can see that 1996 was a very good year for the U.S. economy.  Not so, 2011 and 2012.  By 1997, the private sector appeared so healthy that the Federal government was moving rapidly to a balanced cash budget.  Now, the broad shoulders of the government are busily “supporting” all sorts of activities, as private sector activity has failed repeatedly to meet official projections ever since “Recovery Summer” of 2010 led instead to QE 1.5 in August followed by QE 2 in the fall.

The American Trucking Ass’ns says that “trucking serves as a barometer of the U.S. economy, representing 67% of tonnage carried by all modes of domestic freight transportation” (LINK).  Some of you will remember the much-derided ECRI call last in September 2011 that the U.S. economy was either in a recession or was tipping into one (time unspecified in the interview ECRI gave in the media).  Perhaps that call was not so wrong.  Here is the ATA’s chart of tonnage carried.  The peak was precisely then, and there has been a sharp recent drop that began before Hurricane Sandy.

The Association of American Railroads in its latest Rail Time Indicators shows a roughly similar chart for rail traffic (charts on page 2).

The Federal Reserve attempts to measure industrial production (LINK).  Its data, shown in summary form on Table 1, page 5 of its latest release, also show recent declines.  Total industrial production has gone nowhere for about ten months.  Manufacturing output peaked around the end of 2011.

Re actual people, officialdom had this to to say in late October about how real people were doing economically (LINK):  

Real DPI — DPI adjusted to remove price changes — decreased less than 0.1 percent in

September, compared with a decrease of 0.3 percent in August.

Line 48 of Table 2 of this release also shows that per capita real disposable income was about the same in 2012 as in 2010, as the effects of the recession were finally waning.  (Note:  this uses “chained” 2005 cost-of-living data, which is said to methodologically understate cumulative price changes.)

There are also signs of stress on corporate America.  From Political Calculations (courtesy of S&P):

Number of Public U.S. Companies Posting Decreasing Dividends, January 2004 through October 2012

If past is prologue, then by comparison to the “Great Recession”, the U.S. economy is already many months into another one.

Finally, Marcelle Chauvet is a mainstream economist who analzyes recent economic data to try to gauge a nearly real-time estimate of the chance that the U.S. has entered a recession.  (The official recession arbiter, NBER, is careful and took about a year into the “Great Recession” to make its recession call.)  Her graph showing probabilities that the U.S. recently was in recession looks nothing like that of 1996 or 1997 (LINK):

Any % chance of recession above 0.1 (i.e., more than 10%) is a rare event outside of an actual recession and indicates significant economic stress.  So far as the CR analogy to the 1996-97 period goes, it is clear that this did not occur at any time in the 1990′s as soon as the 1991 recession wound down.  Not once.

She also puts out a business cycle indicator:


 The extent of the August dip below the zero line was only seen in the run-up to the 1990 recession and before that in the late 1970s.  Of course, I am excluding the 2005 dip that was due to Hurricane Katrina, and which showed an immediate reversal.

Dr. Chauvet’s website is appreciated.  So is she:


Marcelle Chauvet

Brains and beauty (that really is she, LINK to second photo shows her academic affiliation in case you would like to take one of her classes, LOL).  Just like my better half.   

That’s all for this post.  In a final follow-up, I will tie this one and its predecessor post together into some market-related comments.  Please note that interest rates are dropping a large amount in Germany, the U.K. and the U.S. yet again today.  Despite expectations of even more aggressive inflationary policies in Japan, their 10-year bond yield dropped yet again to approximately equal its lowest yield ever, except for a sharp spike bottom in yields in 2003.  And, the Shanghai Index dropped again to yet another multi-year low.

Deflationary forces may still be lurking.


13 comments to Recent Data Do Not Point to an Imminent Economic Upturn

  • dd

    hi Doc.

    on Bill McBride you say, “I hope he’s are right.”

    i challenge you, the Good Doc, and Jeff as well (in past writings) on repeated comments like this — why do you hope he’s right? you know he’s wrong. i have young children, this path, this method of thinking, it’s all wrong! and you, me, Jeff, anyone with an IQ north of 100 knows that it is not sustainable. let’s just dispense with the pleasantries, seek the truth, and expose those who are doing their very best to ruin our economy. some have good intentions, some do not. it doesn’t matter, they are all wrong and guys my age will be the ones to have to pay for it, and my children will be the ones who suffer for it. that is what gets me when i read these kinds of lines.

    guys, the time to be nice is over. the game is over. i’d say the way out is the fracking revolution, which could go a long way to fixing this mess. kind of like how arming the world then rebuilding it after WWII fixed us last time we faced these kinds of numbers. but we know that won’t happen with all these hippies running the show.

    let’s just tell the truth. we’ve been hiding the truth for years … every time i convince myself there’s a great party, i wake up with a hangover. consuming away 200 years of built-up wealth, then replacing it with debt to keep the punch bowl full … i hope it breaks sooner than later. i hope this fool McBride is dead wrong, fired, and put to pasture. the sooner the better.

  • Hi dd, I do hope the “economy” – that abstraction- starts working better. That’s where I hope he’s right. Another “Great Recession” may have unpleasant consequences. Clearly his post expressed skepticism that this happy result can be predicted or that continuing large structural Federal deficits based on optimism for the future is appropriate.

    • dd

      the consequence of not fixing this nonsensical method of conducting business and government will make the “Great Recession” look like a picnic with peaches and cream. it must end, and hoping that things “work out” do not get to that end.

      i didn’t read the dimbulb’s post, i refuse to read anything that involves the economy not looking this good since 1997. not acceptable in any terms. it’s one thing to challenge one’s own views, to introspect and question oneself, it’s another to pollute their mind with garbage. anyone who says what he said is posting garbage.

      i think i am going to be sick.

    • dd

      Doc, i just don’t know about any abstractions, i see life staring my children in the face, i’m all set, i’m worried about them. “unpleasant” is the upside. the Great Recession was not great, it just wasn’t. those of us in markets saw the worst of it, the real economy wasn’t much worse off then post 2006/07 housing bust. but the Fed fixed it, like it never had before. presto, paper mache.

      this is a much deeper and unfixable disaster in the making. absent the reserve currency status, the petro-dollar, we are southern europe, and that’s an indisputable fact. arithmetically and demographically that is irrefutable. we don’t have enough bombs to stop every country from doing oil transactions in non-dollars. we stopped Gaddafi and the Dinar, but the line behind it is long, Turkey, Syria, then India, Russia and China.

      buckle-up, the progressives are in control and they are armed with debt and deficits. and for the first time in USA history, the people are in agreement.

      i may be young, inexperienced and jumpy, guilty as charged. but i’m not stupid or blind.

  • dd, you are not stupid or blind.
    We have been here before and much more IMHO. Think Woodrow Wilson, FDR and LBJ. Jimmy Carter and price controls.
    I’m trying to stay cool in the Florida shade.

    One other point. IMHO it’s a logical non sequitur to speculate on what would be if the US didn’t have reserve currency status. It does (we do), and that’s that– for now. It would be a different world with different history if Bretton Woods 1944 had not occurred.

    • dd

      Doc, in economic terms, i have to disagree. we have never had these debt or deficit numbers outside of WWII, numbers on welfare, disability, Americans not paying federal income tax, food stamps, and it’s not close. spending money on tanks and guns, many of which we could sell later, and many of which were assets not just one-time spending, is not the same as handouts. we have never been in worse economic shape, and i don’t think it’s even close.

      i don’t see a way out this time, that situation is not comparable. the 1960s and 1971 are now unleashing their wrath. this is different. there may be a way out, but i don’t see it. we are a sick country, to the soul. we have more takers than makers, the Keynesian tipping point has been reached.

      on reserve currency, “for now” is the key term. think about who we’ve bombed / killed in the last 10 years, outside of the hindu kush (and for damn good reason there), anyone who tries to do oil transactions in non-dollars. Gaddafi didn’t make a peep for decades, until the tried to re-institute the Dinar. no WMD? not the issue, it was the euro oil sales, which was quickly corrected. keep an eye on Syria, Iran, Turkey.

      this fiat currency / reserve currency status will die, and i say that with as close to 100% certainty as i can. i don’t know when, but i do know it will happen.

      i have my eye on a few states for the future, i will not die with the Northeast or CA, both of which are long-term toast, good night.

    • D


      Where do you live in FL? Thinking of relocating there from the ‘left coast’ and not sure where to go, nothern of southern FL. And what do you like about it?

      Also, I don’t recall you ever addressing the impacts of what FATCA may well do to foreign investment in the US. Pre-2008 foreign investment dropped off in the US. FATCA is set for full implementation in 2014, though I believe they are ramping it up next year.

      My suggestion (and I do exactly what I suggest) is to own some property outside of the US — just in case.

  • All these issues are important, and i am glad to found your site… Thanks :)

  • John F. Opie

    Just got the US GDP figures, 2nd revision: revised upwards 70 basis points (yikes!) from 2.0 to 2.7: inventories and exports, with private consumption and imports revised downwards. Fits with the story here: the decrease in shipping is the result of inventories not being sold.

    Nice to have more growth, but growth of inventories always points to a downturn, it’s the classic harbinger of doom, so to speak. Gonna be fun these next several months…


  • Californio

    Just got another Health Insurance raise, second one in 8 months. The first one was 7.6%, this one is 24.6%, all praise Obamacare.

    Just another Tax so the fruits of my labor can be passed to someone else.

    dd, I here you.

  • D, my home is several miles north of Miami Beach. How do you do with heat and humidity? Once you get north of Palm Beach on the east coast of Fla, the Gulf Stream veers off eastward and one starts getting cooler winters, at least. Summers stay steamy, though. There are no earthquakes in peninsular Florida, which is why it is flat as a pancake. Re what do I like about, well I moved here a long time ago to join a medical practice. That was when I was young enough to enjoy playing two hours of tennis at 2 in the afternoon in the summer.

    Re FATCA, I haven’t taken that into account yet. Thanks for the “tip”- will look into it. If you’d like to chat by email or phone, Jeff Harding can pass your contact info on to me:

    D: Thank you!