The Countdown To Recession Starts Now

It wasn’t just the punk 75,000 new jobs number posted for May that rang the bell. More importantly, there was a 75,000 downward revision to the prior two months. That means that the 151,095,000 payroll jobs originally reported for April are still, well, 150,095,000 for May.

That’s effectively stall speed in the labor market, which has been the last bastion of the Trumpian/Wall Street delusion that the main street economy is strong as an ox. Moreover, the revisions were so large as to remind that this is exactly what happens at turning points in the business cycle for a fundamental reason we have frequently addressed.

To wit, the BLS establishment survey does not really count jobs; it models them and those models have a heavy momentum quotient via the birth/death factor and other statistical techniques. So when the momentum stops, the BLS jobs model overshoots in the initial reports, opening the way to the revisions process for months and even years to come.

For instance, the finalized jobs numbers for the worst six months of the Great Recession are now in. Five years after the fact the BLS had finally reconciled its establishment survey model of the jobs market to the actual payroll records of millions of US businesses, large and small.

And as shown in the chart below, the difference between the BLS “model” as initially reported and real world tax-paying business records was nearly a negative 600,000 per month!

The BLS Jobs Count Is Useless At Cyclical Turning Points

Nonfarm Payrolls 2008-09 - Then and Now

Indeed, the loss of momentum in this months’ BLS jobs report is so severe as to actually be flashing “recession dead ahead”.

Thus, May’s purported 75,000 gain (we think it will be revised down considerably) compares to the 151,000 monthly gain in the three month moving average, 175,000 six-month average gain and the 196,000 12-month rate of gain.

Oh, and the Donald’s best economy ever—which was never validated by any data except the BLS monthly guesstimates—-has clearly come a cropper. He has now had 29 monthly reports, and the average gain is just 195,000. That compares to 220,000 during Obama’s last 29 reports.

Heavens forfend, of course, if that comparison should be interpreted in any way as vindicating Obama’s eight year long assault on American capitalism and fiscal and monetary rectitude. He was right up there with the worst of all the bad ones who have inhabited the Oval Office since the Gipper’s time.

Rather, our point is that the Donald has fixed exactly nothing and that there has been no acceleration whatsoever in economic performance on his watch. Even the alleged best year during this recovery for real GDP gains in 2018 is nothing more than an arbitrary statistical trick.

Yes, the Q4/Q4 growth rate during 2018 was 3.0% (actually 2.97%). But in Q1 2014 GDP was up by 3.04% versus prior year, while the 4-quarter gain for Q1 2015 and Q2 2015 was 3.81% and 3.37%, respectively.

That is to say, during what is now for all practical purposes the longest but weakest business expansion in history at 119 months, there have been a handful of spells in which real GDP growth approached the 3.0% +/- level. But they didn’t last under Obama and the brief sugar high last summer is already proving to be no different.

In fact, with Q2 nearly over, the New York Fed GDP Nowcast projects growth 0f just 1.0% during the current quarter. And that means that the deceleration evident in today’s jobs report is gaining momentum across the entire economy.

Again, the GDP graph below is for real final sales, which represents the total US economy save for inventory stocking and destocking movements. The latter have been especially volatile recently owing to the giant “beat the tariff” game triggered last year by the Donald’s unhinged Trade Wars.

So what is happening is quite evident: The post-tax cut sugar high peaked in Q2 last year when the annualized rate of gain in real final sales rose by 3.9%. But it then cooled to 2.9% in Q3, followed by 2.1% in Q4, just 1.4% in Q1 and apparently barely 1.0% in the current quarter.

Needless to say, an aging business cycle burdened with massive public and private debts and riddled with financial engineering in the C-suites and reckless speculation on Wall Street cannot afford to loose momentum at the rate shown below. Like in aeronautics, stall speed in the macroeconomy is usually followed by a fatal loss of altitude entirely.

In fact, under the hood of today’s jobs report was striking evidence that the US economy is actually losing altitude already. We are referring to the data for full-time jobs in the household survey, which historically have proven to be an accurate weathervane at cyclical turning points.

Thus, the number of full-time workers peaked in November 2007 at 121.875 million, which was the last month before the official start of the Great Recession. Three months latter that number was down by 401,000 and continued to plunge lower from there.

We mention that because this time around full-time employment appears to have peaked at 130.159 million in February 2019. And that makes the May number reported this morning almost uncanny: It posted at 129.695 million, representing a 464,000 drop from the February peak.

Indeed, in percentage terms, which captures the interim growth in the labor force, you virtually have two peas in a pod. The three month drop from the November 2007 peak was 0.33% while the three month drop as of May was 0.36%.

Moreover, the annualized change in full-time employment has decelerated at a startling pace since last November.

As shown in the chart below, the year-over-year gain in full-time employment back then posted at 3.1 million, but as of today’s report for May 2019, the gain has plunged to just 1.07 million. In effect, two-thirds of the momentum in full-time jobs growth has vanished since last Halloween.

As it happened, the year-0ver-year gain in full-time employment had dropped to nearly an identical 1.3 million in November 2007, and then headed straight south as the Great Recession gathered momentum. By May 2008 the year over-year number was negative and thereafter plunged until it bottomed at an 8.4 million Y/Y loss in October 2009.

As a general matter, we have minimum high regard for the short-term BLS data, but when the longer term trends–like those above—get reinforced by other more reliable sources, it is time to take notice.

So the recent monthly data on job layoffs from Challenger couldn’t be more apt. For the month of May, announced job cuts were up by 86% from prior year.

The May jobs picture thus reinforces the general pattern of rapidly weakening incoming data. The trade data this week was another case in point—with exports for April resuming their downward path.

Altogether, US exports are down 5.3% from their May 2018 high, when soybean and other exports were pulled forward by the unfolding trade wars.

More importantly, the $136.9 billion level of goods exports in April was actually below the $137.8 billion level reported way back in May 2014.  That is, five years of no change in nominal exports—just as the world economy heads into a sustained decline in total trade volumes for the first time since the Great Recession ended a decade ago.

Needless to say, with the countdown to recession underway, the boys and girls on Wall Street have stuck their head in the sand for one final flight of blind faith in the money printers domiciled in the Eccles Building and in their counterparts around the world.

But as Sven Henrich exclaimed in his morning missive, its Game Over because it is now evident that 10-years of reckless monetary expansion have not cured anything, but have only dug a deeper hole:

The grand central bank experiment of the last 10 years has ended in utter and complete failure. The games of cheap money and constant intervention that have brought you record global debt to the tune of $250 trillion and record wealth inequality are about to embark on a new round of peddling blue meth again.Australia has already cut, so has India. The ECB is talking about it, markets are already pricing in multiple Fed cuts. The new global rate cutting cycle begins anew before the last one ever ended. Brace yourselves as no one, absolutely no one, can know how this will turn out.

Absolutely staggering. We are witnessing a historic unraveling here. Everything every central banker has uttered last year was completely wrong. Every projection they made over the last 10 years has been wrong. No wonder Jay Powell wants to toss the dot plot. It’s a public record of failure.

Why place confidence in people who are staring at the ruins of the policies they unleashed on the world and are about to unleash again?

All the distortions of 10 years of cheap money, debt, wealth inequality, zombie companies, negative debt, TINA, you name it, will all be further exacerbated by hapless and scared central bankers whose only solution to failure is to embark on the same cheap money train again. All under the banner to “extend the business cycle” at all costs. Never asking whether they should nor considering the consequences. But since they are not elected by the people and face zero consequences for failure they don’t have to consider the collateral damage they inflict.

The is really not much further to say, except that worked well!

For instance, the ECB has more than tripled its balance sheet since the eve of the financial crisis in its misbegotten quest to stimulate inflation and inflation expectations.

What actually happened, of course, is that the ECB literally destroyed the European bond market as measured by this weeks plunge of the 10-year bund yield to a record negative 0.23%–even as so-called inflation expectations continued to drift lower.


Yet these Keynesian central bankers are never done with their wanton insistence on monetary destruction. Here was Draghi after this weeks ECB meeting:

European Central BankVerified account @ecb

Draghi: Several members of the Governing Council raised the possibility of rate cuts, others the possibility of restarting the APP or the extension of forward guidance

Holy Moly!
What is there left to cut?
So now the recession begins with nothing at all left in the monetary tank.