Even though economists see a mere 20% chance of recession in 2016, I am increasingly confident a recession began in December 2015.

It was another disastrous factory orders report this month.

  • December factory orders fell 2.9%
  • Durable goods orders -5.0%, nondurable goods -0.8%
  • November factory orders revised from -0.2% to -0.7%.
  • Core capital goods orders fell steep 4.3%
  • Inventories rose 0.2%
  • The inventory-to-sales ratio rose again which portends weakness for future hiring and production.
  • Shipments fell a steep 1.4%

The Econoday Consensus Estimate was -2.8%, nearly on the mark in a range of -3.7% to +0.2%. It’s mind-boggling that an economist would predict a rise. Are they throwing darts?

New Orders and Shipments

Factory Orders 2016-02-04

Core Capital Spending

Year-over-year core capital spending by manufacturers has been in negative territory for eleven months. Core capital spending is defined as nondefense capital goods, excluding aircraft.

Core Capital Goods 2016-01-04

The chart appears as if spending was positive last October, but that reading is -0.3%

Case for Recession Builds

  1. ISM Negative 4th Month, Employment Shows Significant Declines.
  2. Non-Manufacturing ISM Cracks Appear: 8 of 18 Industries in Contraction
  3. Portion of US Treasury Yield Curve Inverts.
  4. Like Lemmings Over a Cliff: Fed to Test Negative Interest Rates

Fantasyland Material

I repeat my claim Economists in Fantasyland: Economists See 20% Chance of Recession That’s at Least 20% Likely Already Here.

With this disastrous report and a clear slowing of the service economy, a recession has arrived. Given NBER dating mechanisms, we may not know for another year!

Mike “Mish” Shedlock