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I’ve Seen Enough, the US is in Recession Now, Q&A on Why

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117 comments on I’ve Seen Enough, the US is in Recession Now, Q&A on Why

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Dot Plot of GDP Outlook from latest FOMC material.

Recession Q&A

Q: Doesn’t it take two consecutive quarters of negative GDP to start a recession?
A: The NBER, the official arbiter of GDP, has no such requirement. Instead it looks at a variety of conditions. 

The Pandemic recession did not even have a full quarter of negative GDP. It had two months of recession. 

Two consecutive quarters of declining real final sales (not just declining GDP), is a sufficient condition but not a necessary one. A decent slump in Q1, a small rebound in Q2, and a bigger slump in Q3 would likely mark the start of recession in that first quarter, not the third. 

Q: Aren’t you looking ahead?
A: Indeed I am. Do you want me to wait until Jerome Powel, President Biden, and Janet Yellen are the last three people on this earth to be in denial? 

Q: Don’t you tend to be early on recession calls?
A: That’s true. I have been. I even called for one that didn’t happen, as did the ECRI. But in contrast to the ECRI which denied the 2008 recession after it started, then labeled it “a recession of choice”, I insisted it had started and I was correct. 

Q: Aren’t Fed Chair Jerome Powell and Treasury Secretary Janet Yellin still promoting a soft Landing?
A: So what? The Fed has never forecast a recession in history. Former Fed Chair Ben Bernanke denied a housing bubble and a recession after it already started. We see that again right now, by the Fed, by President Biden, and by Secretary Yellen.

Dot Plot of GDP Expectations

Not a single Fed participant forecasts anything less than 1% growth despite Powell repeatedly stressing how difficult a soft landing might be, how risks are skewed to the upside, and how it has no control over food and energy prices. 

What a hoot!

Not There Yet

Next 12-18 Months?!

Gee, that’s going out on a limb.

Fed’s “Wisdom”

https://twitter.com/ResearchRonin/status/1539648921474981889

“No one good at forecasting” 

What a hoot. The Fed has certainly proven it can neither forecast inflation nor recessions. 

The Fed is so bad, they should stop trying and let the market set rates. 

Not Happening Soon?!

Fact Check Wrong

The Atlanta Fed does not “forecast” recessions. Indeed, it stresses that it does not forecast anything although everyone (including me) refers to their “NowCast” as a forecast.

That aside, the true bottom line estimate of the economy is not GDP but real final sales. 

 GDPNow Latest Release 

GDPNow data from Atlanta Fed, chart by Mish.

Real Final Sales is a very healthy 1.7%. 

Q: O.K. With Real Final Sales at 1.7% , how can you possibly suggest we are in recession now?
A: I can think and I can look ahead. 

Think!

  • Retail sales plunged into negative territory, housing is miserable and rates to get much worse. 
  • The Fed is in huge tightening cycle and rates to stay that way for at least one more big rate hike. 
  • It takes a while for hikes and QT to work their way into the economy. Yet, retail sales are already negative.  

Retail Sales 

Please consider Retail Sales Flounder in May With Negative Revisions in April.

The advance retail sales numbers for May were negative for the month and the Commerce Department revised April slightly lower.

Sales dropped 0.3 percent in May. That may not sound like much, but it’s “real” inflation adjusted sales, not nominal sales that drive GDP.

Real Retail Sales 

Real retail sales since 2021, data from Commerce Dept via St. Louis Fed, chart by Mish

  • Inflation then accelerated and sales have struggled to keep up with inflation. In real terms sales fell from 233,724 to 230,852 from April to May.
  • That’s a month-over-month decline of 1.2 percent, using the CPI as a deflator. It’s real, not nominal spending that’s an input to GDP.

Existing Home Sales Skid Another 3.4 Percent in May, Down Fourth Month

Existing home sales courtesy of Trading Economics annotations by Mish

Please note Existing Home Sales Skid Another 3.4 Percent in May, Down Fourth Month

  • Existing home sales declined for the fourth month. Sales are down 16.8 percent since January.
  • Sales were down 3.4% from the prior month and 8.6% from one year ago.
  • Existing home sales are recorded at closing, new homes at signing. May sales reflect March and April’s mortgage rates, not June’s.

The Current Rise in Mortgage Rates Is Unlike Anything in History

Mortgage rates from Freddie Mac via St. Louis Fed, chart by Mish

Largest Mortgage Rate Swings in History

  • In 18 months, the year-over-year percentage change in rates went from -27.8 percent to positive 80.4 percent, a swing of 108.2 percentage points.
  • The December 2020 decline of 27.8 percent is the largest decline in history.
  • The June 2022 year-over-year rise of 80.4% is the largest rise in history.

Monthly Average Mortgage Rate Percent 

Mortgage rates from Freddie Mac via St. Louis Fed, chart by Mish

Highest Rate in 11 Years

5.37 percent is not a high rate historically, but it is the highest rate since 5.42 percent in June 2009.

Moreover, one cannot get anything close to that rate now. That’s a Freddie Mac weekly average rate from early June and it is very stale.

New Home Sales Plunge 22.5% In April, 16.6% From Deep Negative Revisions

On may 24, I reported New Home Sales Plunge 22.5% In April, 16.6% From Deep Negative Revisions

We do not have new home sales for May yet, but expect them to be miserable.

Q: What about durable goods?
A: With new and existing housing in a freefall, demand for appliances, cabinets, landscaping, paint, furniture, are all plunging.

Q: Is there any other evidence of declining demand?  
A: Yes, plenty. We have seen warnings from Walmart, Kohls, and two warnings from Target about excess inventory and falling discretionary demand.

Target Warns Second Time of Weaker Profit, Bloated Inventories, and Slumping Demand

On June 7, I reported Target Warns Second Time of Weaker Profit, Bloated Inventories, and Slumping Demand

Target said inventory rose 43% as demand for outdoor furniture, small appliances and some electronics declined faster than expected.

Trucking Crash

https://twitter.com/FreightAlley/status/1538187281634312192https://twitter.com/FreightAlley/status/1538187283635089408

Need to Store Unwanted Inventory 

https://twitter.com/FreightAlley/status/1538187285283459074

Q: What About Oil?
A: Good question. We have never seen an oil spike like this one without it leading to recession.

Q: Can the Fed do anything? 
A: Not this time. 

Not properly taking Fed actions into account is why I have tended to be early on my calls. It also explains my forecast of a recession that did not happen. 

Historically, the Fed has acted on slowdowns. It halted QT on a “Taper Tantrum” then reversed course only to resort to massive QE. 

But, the Fed’s hands are now tied. It is on a mission to do something about 8.6% inflation, the most in 40 years. 

It is not about to reverse course, recession or not. It would reverse course if there is a major credit dislocation, but such a dislocation will not happen outside of recession.

The Fed has penciled in another 50 or 75 basis point hike in July despite obvious economic weakening that it claims not to see. 

Q: Is Powell really that ignorant or is the Fed a bunch of liars? 
A: I don’t know. Given the Fed’s pathetic track record at forecasting, I can go either way. It can also be a combination. 

But bear in mind, the Fed must deny recession is here otherwise it will have a hard time explaining to Team Biden and the progressives that it is hiking into a known recession. 

Politics is very much in play here.

Q: What about jobs? 
A: Curiously, everyone seems to understand jobs are a very lagging indicator. Yet, they seem to forget that fact when it suits their purpose.

It’s certain that Powell understands lagging jobs, yet even he mentions them. 

Form a jobs perspective, I expect this to be a mild recession. 

But from a profits perspective and the Fed inability to do anything about the setup due to inflation fears, this can be a prolonged period of economic weakness, even after recession ends. 

Q: How about a synopsis?
A: Sure 

Recession Synopsis

  • Falling retail sales
  • Major housing slump, new and existing
  • Rising inventories
  • Fed hiking rates
  • Fed QT
  • Wealth impact of declining stock market
  • Global supply chain disruptions
  • Oil price spike
  • War impacting food prices
  • Largest mortgage rates swings in history, nearly doubled
  • Plunging demand for durable goods
  • Trucking recession 
  • Fed’s inability to spur demand dues to inflation pressures

Not to worry, president Biden says a recession is not here, and no one on the Fed sees anything under one percent growth.

O.K. Believe who you want. 

But I have seen enough. A recession has started. 

This post originated at MishTalk.Com.

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Mike Shedlock

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117 Comments
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Portlander2
Portlander2
4 years ago
One thing I’ll give the former President: no way would he let Powell say “I’ll fight inflation even if it leads to a recession” without some very rude jawboning tweets, and if that didn’t work, some rallies ridiculing him mercilessly. I think that often his jawboning worked. By comparison, I see the Democrats are now locked into a political death spiral. No Democrat can be looking forward to running for re-election in five months, in the middle of a recession. Although I’m no fan of Trump, I think he would have negotiated a deal with Putin by now, and he would have said to Powell “don’t you dare raise interest rates and undermine my negotiating position with Russia by weakening me politically.” He would have gotten Powell to hold off on raising interest rates until after the election, damn the economic models. Trump and his advisors, no fans of Ukraine, would definitely have thought twice about draconian sanctions for that insignificant country. That in itself would probably have removed half the inflationary pressure. Instead, we hear from Biden that the American people need to make economic sacrifices for the sake of this heroic battle for freedom and Democracy. Really? Say that to the poor worker who loses his job and has to pay more for sanctions-induced higher food prices. This may have been his most politically fatal gaffe yet. He and Pelosi are now in their twilight, they know it–and as for their fellow Democrats, “apres nous, le deluge.” Biden is the biggest gift to Republicans since Bill and Hillary Clinton. And I’m a Democrat!
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xbizo
xbizo
4 years ago
IMO, the big deal is postponing a big rise in labor costs for a while. Materials are 30% of business costs, and some inflation can be absorbed there, but having both labor and material rising at the same time will cause price increases that kill demand. Plus constraining take-home pay puts downward pressure on spending. A battle of rich v. poor
Housing will be less of an impact because we will not have the defaults of 2008-10 and supply is limited and needs to catch up. 5%-6% rates are normal, and prices will adjust so the deal flow doesn’t die steeply. Lower demand for new appliances and household goods for a while.
So many jobs are going unfilled, and tons of immigrants. Tech will have the same problems as before, but service work will be supplied. Construction/unions will train for what they need.
A pullback in discretionary spending like dining out is not going to be a huge deal because COVID lockdowns already flushed the weak businesses out and they are short of labor. No huge number of business closings.
Tech prices continue to fall and they can absorb higher wages. Boomers still aging out.
Biggest risk is postponing capital spending, which has begun in the businesses that I talk to…
Seems like a mild recession, a rebalancing. Already here, I agree. Inflation under 4% soon, but getting under 3% may take a while because global demand for energy and resources is accelerating. It’s not all about the U.S. anymore.
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Casual_Observer2020
Casual_Observer2020
4 years ago
My employer was set to give out higher raises (to keep up with competitors) but looks like they stopped short once the Fed started hiking and economy went south.
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KidHorn
KidHorn
4 years ago
Layoffs have begun and a lot more are coming. We’re in a recession now. Might not be official until after the mid terms.
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8dots
8dots
4 years ago
FEd hiking interest rates increase European banks unrealized losses. They need recharging. Their battery is dead. Banking crisis might start in
Europe and spread to the shadow banks in US. We might get banking crisis in pulse modulation.
The era of negative rates might be sticky. Nikk225 and Tokyo RE 1989 devaluation might spread in the west. Putin salivate.
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JackWebb
JackWebb
4 years ago
Reply to  8dots
I am very curious about the mechanics of negative interest rates and how they weaken banks. Any explanation would help, especially if it’s aimed at a reasonably intelligent NON-specialist.
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8dots
8dots
4 years ago
Bread/ jobs are plentiful. Job opening are not fulfilled because the rookies demand/expect higher pay than their project mgrs. // Mortgage rates : down from 18.45% to 2.68%, now 5.37% : 17% retracement. A blip on the chart.// Retail sales went vertically in Feb 2021. For
over a year in a trading range in the upper half, hugging the top. A round trip to Feb 2021 or below might be next. // Long Beach and Savanna bottleneck due to infantile demand is over. // Let inflation Chew up RE in the next decade. // Ford and GM sample line isn’t viable in era of high gas prices. Dealers are paying the price. // Higher interest rates are bad for buybacks and executive perks. Small businesses thrive in environment of normal, not negative, interest rates. They INNOVATE.
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Casual_Observer2020
Casual_Observer2020
4 years ago
If Powell has studied Arthur Burns, William Miller and Paul Volcker carefully, he will end up with policy somewhere closer to Volcker to quell inflation. Right now he is somewhere closer to Burns and Miller who tried very small moves that didn’t impact inflation.
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killben
killben
4 years ago
Reply to  Casual_Observer2020
Yup. You need some gumption for that. Also you should know when to bite the bullet
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lamlawindy
lamlawindy
4 years ago
Reply to  killben
Chairman Powell’s timidity doesn’t give me much confidence that he’ll follow through with all the necessary actions.
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worleyeoe
worleyeoe
4 years ago
Reply to  lamlawindy
And, JPowell has an entire administration fighting him on the core inflationary cause: high oil prices. With the US exporting so much LNG and constraining oil supply, this is not going to get materially better until at least a 7 recession on a 10-point scale hits. Larry Summers’ projections about the necessary unemployment rate over certain periods is most likely spot on.
Over the 5 years from 1979 to 1983, unemployment averaged 8.2%. We’re sitting at 3.6%. It will take at least 12 months for unemployment to tick up to 5%, and I think LS says it may need to stay there for upwards of 5 years. In 1980, inflation raged at 13.55%. Anyone with a 1/2 brain knows that if true housing / rent costs were measured today, we’d have inflation notably above 10%. And over the course of 1980, the FFR fluctuated from 20% down to 9% then back up to 20%. We’re at or above 10% real inflation and the FFR is sitting at 1.5%, the Fed is sitting on nearly $9T in assets and plans to tiptoe into QT over 3 months and all asset prices are still are WAY overvalued.
And finally, there’s almost $2.3T in reverse repo assets being parked with the Fed, up from $1.7T at the start of the year. That’s a lot of liquidity. Just checkout the reverse repo chart maintained by the NY Fed and SELECT THE ALL years option.
The enormity of the problems we face are mind-boggling.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  worleyeoe
Inflation was high before oil and energy in general went up.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  worleyeoe
It will take at least 12 months for unemployment to tick up to 5%, and I think LS says it may need to stay there for upwards of 5 years.
—
I’ll take the under on that. I think we get to 5% easily before 12 months. You have to remember most employment has been driven by tech the last 5 years. A true recession will cause some tech companies to layoff en masse if profits go down the tubes. It took less than 12 months for the UE rate to get to 5% in the 2000/2001 timeframe and same in 2007/2008.
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killben
killben
4 years ago
What is unfolding is a real lesson in Economics…
“In Germany, which gets 35% of its gas imports from Russia, energy-intensive industries such as steelmaking will face a squeeze and limits on production. ” – From The Guardian
So steel price increases, car prices increases (and many things else – add aluminium) -> more inflation -> central bankers screwed (I for one am happy these guys are getting it in spades for the damage they have done with their 2 tools – rates and QE) -> have to increase rates to reduce demand – oh my these guys who anointed themselves as the saviours of the world suddenly find it is not that easy as switching on or off the money spigot tank as and when required.
Imposing sanctions and trying to pose as guardians to the world by UK, US and EU is having some consequences. The music has just started looks like but it is turning the central bankers and politicians into headless chickens. I am enjoying the music.
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PapaDave
PapaDave
4 years ago
Bravo Mish (assuming you are correct).
Now, how long and deep will this recession be?
And how strong will the recovery be? When will it start, and which sectors will lead? Any investment advice? Growth or value? Tech or commodities?
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  PapaDave
I see an L shaped recession just as coming out of Covid it was a backwards L. Everything needs to find a new equilibrium with normal rates. The more money that chases commodity prices upwards, the more likely we slip into recession again and again.
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killben
killben
4 years ago
Reply to  Casual_Observer2020
Is a depression a L-shaped recession?
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  killben
No. Not coming out of the post covid growth in asset prices and economy. I see it as a return to slow growth of the early 2010s after a recession or two.
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Mish
Mish
4 years ago
Reply to  PapaDave
How long and deep is the subject of another planned post.
Deep – not very – at least from a jobs standpoint. But there are two downsides if I am correct.
I am working on charts.
Many people I respect think a lot of job destruction.
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Scooot
Scooot
4 years ago
Reply to  Mish
Two new Covid strains are just getting going over here which might complicate things further in the Autumn?
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killben
killben
4 years ago
Great post Mish! Thanks.
“Form a jobs perspective, I expect this to be a mild recession”
Are you saying there will not be much job losses?
How is this possible with the following:
1) Rate hikes
2) Zombies not dead yet
3) QT just started
4) Housing bust just started
5) Very low unemployment rate
6) Inflation likely to stay high for some time
Also Larry Summers says (rightly IMO) that unemployment has to increase substantially (5% for 5 years) to quell inflation.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  killben
I think its nearly impossible that unemployment doesn’t go above 5%. I think the Fed will tolerate a little unemployment if it means better control of inflation and flat prices. This is of course kooky talk because there is such a thing as stall speed where things must go down further before recovering. I could see this decade playing out like Japan’s of the 90s where we go in and out of growth around 0% and live with 2% inflation. I know we have different demographics than Japan but no one has played out the scenario where get no growth for a decade.
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killben
killben
4 years ago
Reply to  Casual_Observer2020
“I could see this decade playing out like Japan’s of the 90s where we go in and out of growth around 0% and live with 2% inflation.”
Japan had the tail wind of money printing since Greenspan days. Poof… suddenly gone (in fact worse with QT) and what happens then?
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Mish
Mish
4 years ago
Reply to  killben
Yes I expect minimal job losses.
Instead – open positions will not get filled.
a 1% rise in unemployment would be historically low.
I don’t have a precise call yet, but at the low end of the scale.
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Karlmarx
Karlmarx
4 years ago
Reply to  Mish
In my day 5 percent unemployment wold have been considered full employment. Since when was a 5 percent unemployment rate awful
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Karlmarx
Yes. 5% unemployment was the accepted goal for decades.
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worleyeoe
worleyeoe
4 years ago
Reply to  Lisa_Hooker
And most likely, the enormous stimulus spurred by Congress & the Fed may well lead us back accepting 5% as full employment. All companies are going to accelerate the use of AI & robotics to cut back on the wage spiral and push to unionize. The approaching 6M illegal immigrants JB will let into the US will be competing for jobs while requiring food, housing, gasoline, healthcare, etc. These are not things that reduce inflationary pressures, and it’s hilarious that no one points this out, politics aside.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Mish
The problem for UE will be those no longer in the work force … decide to return to workforce.
I think many retired early due gains in 401K … which will evaporate.
Not to mention the David Portnoys of the world daytrading, instead of getting a job.
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JackWebb
JackWebb
4 years ago
Reply to  Tony Bennett
That’s captured in participation numbers, and in the U-4 through U-6 measures that include various categories of discouraged workers and those working part-time involuntarily. I do wonder if covid resulted in any methodology issues, but I can say this from experience with Bureau of Labor Statistics data: The BLS is honest and usually quite accurate, but there are hiccups every so often.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  JackWebb
No, they are not. To be included in participation force you need to be actively looking for a job.
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JackWebb
JackWebb
4 years ago
Reply to  Mish
As you look at it, I suggest looking at participation. I also suggest screening for any statistical anomalies emanating from covid. I wonder if the BLS surveys have been affected. I am NOT suggesting ANY skullduggery, but only suggesting a deeper than usual look at the methodology. I used to be a professional journalist (when that meant something, as opposed to now), and dealt with BLS as part of the job. I have great respect for BLS, and have often defended them from people who discover U-6 for the first time and allege a plot.
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MPO45
MPO45
4 years ago
UK inflation at 40 year high at 9.1 percent!
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killben
killben
4 years ago
Reply to  MPO45
Canada too.
Can you see BOJ and ECB squirm?
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MPO45
MPO45
4 years ago
Reply to  killben
I wonder if people still don’t think the fed will continue hiking. Expectations are now for another 75 points in July and 50 in September. By my math that makes a whole lot of rate hikes few wanted to believe would happen. With inflation out of control in Mexico, Canada, UK and pretty much all of the top trading partners, I wonder what will contain it.
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killben
killben
4 years ago
Reply to  MPO45
“I wonder what will contain it.” – My guess would be a global recession. I think seeing the structural damage that easy money can do, even the central bankers will have second thoughts about doing it again. The central bankers, if they are around, might well decide that mispricing money has consequences. IMO, taking the bitter pill that you were wrong and changing course as needed would be an appropriate course of action. But then who can tell what these jokers will do
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Mish
Mish
4 years ago
Reply to  killben
A global recession is baked in the cake.
Lots of implications.
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lamlawindy
lamlawindy
4 years ago
Reply to  killben
I think seeing the structural damage that easy money can do, even the central bankers will have second thoughts about doing it again.
I pray that you’re correct, but I have very little confidence in your statement. History has shown us that when times are tough, nation-states quite often resort to the printing press.
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Jojo
Jojo
4 years ago
Reply to  MPO45
And when that doesn’t work, then Powell will have to do a Volker.
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MPO45
MPO45
4 years ago
Good article from Barron’s on housing markets from Lennar CEO. As I stated in a comment on another post, some markets have very low inventory and others have a bit more.
“He listed 18 markets that continue to perform well. “These include our six Florida markets, New Jersey, Maryland, Charlotte, Indianapolis, Chicago, Dallas, Houston, San Antonio, Phoenix, San Diego, Orange County, and the Inland Empire,” Beckwitt said. “All of these markets are benefiting from extremely low inventory, and many are benefiting from strong local economy and solid growth and in migration.”
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Casual_Observer2020
Casual_Observer2020
4 years ago
Just driving around town the last few days, things seem deader than usual. I travelled by air to the northeast and airports and planes were full mainly due to graduations and father’s day.
If oil/gas decline precipitously this summer, the economy will pickup.
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Rbm
Rbm
4 years ago
Reply to  Casual_Observer2020
Same here. Traffics down not as many people out.
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Jojo
Jojo
4 years ago
Reply to  Casual_Observer2020
I don’t see that anywhere on the SF Peninsula. Traffic is horrendous everywhere. But people here are also driving a lot of electric cars.
I had to go down to Palo Alto on Tuesday,. Took the 101 dowand traffic was dendse at 10:00am time frame. A major part of this is the stupid decision to make the whole highway on the Peninsula a toll road if you want to ride in the fast lane. So of course, most people drive in the other lanes and the left lane stays empty much of the time. Dumb dumb dumb!
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  Jojo
That toll road is worth it if you want to get anywhere in a reasonable amount of time. Of course my commute is 2 minutes so I don’t have much tolerance for traffic.
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worleyeoe
worleyeoe
4 years ago
Reply to  Casual_Observer2020
What % decline are you looking for? Right now, demand destruction is in the low single digits and the Biden administration is pushing for sales tax exemptions which will support demand. There will be no significant decline in oil prices without demand destruction, ala a recession.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Let’s vote Trump back in in 2024. I am sure things will turn out great.
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Jojo
Jojo
4 years ago
Reply to  Casual_Observer2020
If that happened, he would only have one term, so he wouldn’t need to hold back. If WW III hasn’t happened by his election, I wouldn’t put odds on it not happening during his 2nd four years.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Jojo
Stop with the double negatives already. 😉
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Call_Me
Call_Me
4 years ago
Reply to  Casual_Observer2020
Then can everyone agree to stop talking about and referring to said person in before 2029?
Call_Me_Al
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prumbly
prumbly
4 years ago
Once we’ve finished rejigging energy supply chains, inflation will fall rapidly. Russian oil/gas to go to Asia instead of europe. US gas to go to europe. Everyone happy again.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  prumbly
Yeah, sure. The folks in shipping and logistics will stop charging by the mile or start working for free. That’ll make inflation fall rapidly.
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Carl_R
Carl_R
4 years ago
Surely it can’t be a recession. A former poster assured me that recessions only happened under Republican presidents.
I tried on multiple times to tell him that he had cause and effect reversed. During stages of the economy when recessions are already underway, or when the US is fresh off of them, Democrats get elected, and both are times when you usually won’t see a new recession. When the economy has been roaring along for awhile, Republicans get elected, and after it has been roaring for awhile, recessions tend to happen. 2020 was a stage in the economy where it had been rolling along for awhile, so normally a Republican would have been elected, but the party fielded an unelectable candidate, so we get a Democrat, and a recession together. That could could cause more strangeness in 2024 as we may see a Republican elected freshly coming out of a recession, which also usually doesn’t happen.
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Zardoz
Zardoz
4 years ago
Reply to  Carl_R
Like 2008?
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  Carl_R
Did you forget there was a recession in 2020 ? Are we practicing revisionist history ? I think it is too difficult to predict a few months out much less 5 or 6. History has shown us bubbles can deflate quite quickly. I predict we will be out of this by 2023.
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Carl_R
Carl_R
4 years ago
Reply to  Casual_Observer2020
There was a recession in 2020, but not a cyclical one. Had it not been for Covid, it most likely would not have happed yet.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  Carl_R
We haven’t had a cyclical recession since the early 90s. Every recession since has had a reason similar to Covid (millenial bubble, 9/11, global financial crisis due to loose credit). We no longer live in business cycle economy, We live in a credit cycle economy (h/t John Hussman).
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Mish
Mish
4 years ago
Reply to  Carl_R
Disagree – I penciled in a 2020 recession. Yield curve had already inverted.
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Karlmarx
Karlmarx
4 years ago
Reply to  Mish
Stillborn recession in 2016 as well
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Karlmarx
Good pull.
US teetered a bit, but China came to the rescue with massive credit pulse to save the day.
The whole world sliding down now, and I don’t see anyone saving anyone else.
Every country for itself.
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RonJ
RonJ
4 years ago
Reply to  Mish
Powell had been raising rates and Trump was screaming for him to cut rates even before Covid hit. The economy was headed in a recessionary direction.
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RonJ
RonJ
4 years ago
Reply to  Carl_R
In 2000, Greenspan had raised the rate to 6.5%. Whoever won in 2000, was going to have a recession. An intentional housing bubble was then built, (fog a mirror, buy a house) which resulted in a recession in 2008, after the FED raised to 5.5%. Timing is everything. If the housing bubble era had been stretched out for a few more years, the next president would have had the recession and with the economy doing better in 2008, McCain could have been the next president, just as Bush Sr. was, after Reagan, since the economy was fine in 1988. McCain would then have been stuck with the next recession. If Obama had run and won in that scenario, he would have been stuck with it.
Generally speaking, the best time for a president to have a recession, is early in their first term, as Reagan did, as the economy tends to be doing well by the time a second term comes around. Timing is everything.
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Pancho
Pancho
4 years ago
You have four or five bubbles….the bond, crypto, real estate and equity markets (I would also say first world international bond market is the fifth). The only time in modern history multiply, bubbles have deflated was Japan 1989. They are STILL dealing with it. Our recession will be ala 2008 minimum, if the .gov types just let it all deflate. We will be stronger on the other side….if they panic, we will be Japan 2.0 but with inflation, not deflation.
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Carl_R
Carl_R
4 years ago
Reply to  Pancho
You really can’t compare anything to the Japan experience, they had a unique demographic situation that was anything but normal. They had a baby boom during WWII as they were producing a generation to control all the conquered territory. Then, when Japan lost, they had a massive baby bust, creating a huge cliff. That complicated the economic issues that they have faced over the last 25 years.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  Carl_R
BoJ and Fed have made similar moves at different times. Bond buying, QE and “expanding the balance sheet” aren’t new ideas.
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Pancho
Pancho
4 years ago
Reply to  Casual_Observer2020
If the the recession is 2008 like. We will be just like Japan at the policy level. The fiscal side will be muted since the Rs will probably be elected in the congress. Hence, there will massive QE (MBS, T, ETFs…fudge, they will be buying anything, everything), ZIRP then NIRP, bail in’s, maybe even direct payments to people. Why? An addict will progressively need more of crack.
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killben
killben
4 years ago
Reply to  Pancho
“An addict will progressively need more of crack.”
But then when the administrator feels his very existence is at stake he might balk from administering the drug.
The central bankers’ feet (all central banks – but then the Goliath is the Fed) have been held to the fire. So they for once can smell the burning as their always at hand medicines (rate cuts and QE forever) are presently unavailable.
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KidHorn
KidHorn
4 years ago
Reply to  Carl_R
The difference is Japanese feel dishonor if they don’t pay back debts. So, they spent decades paying off mortgages instead of buying stuff. In the US, people have no problem defaulting when underwater.
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killben
killben
4 years ago
Reply to  Pancho
Just imagine where Nikkei would have been today (35% down after 30+ years) without our serial bubble blowers – Greenspan, Bernanke, Yellen and Powell and you will get an idea where S&P will be in 30+years.
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Jojo
Jojo
4 years ago
Reply to  Pancho
And yet despite all the talk of Japan becoming economically decimated since 1989, they still have managed to keep the lights on and not become a Sri Lanka.
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Karlmarx
Karlmarx
4 years ago
Reply to  Jojo
Japan’s population is shrinking so per capita gdp is rising
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Mish
Mish
4 years ago
Reply to  Pancho
Nowhere near as deep as 2008
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Mish
Put me down for at least as bad.
Since there is no way I see world avoids another financial crisis, which will exacerbate current recession.
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shamrock
shamrock
4 years ago
And then? So what does it mean if we are in a recession as opposed to very low growth? At this point real GDP is so close to 0 that it doesn’t make that much difference, with nominal GDP running 7 to 8%.
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Six000mileyear
Six000mileyear
4 years ago
Oil dropped sharply from last week’s highs. High oil and gas prices are now in the rear view mirror. I’m paying 10-15 cents less per gallon this week at the pump.
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JackWebb
JackWebb
4 years ago
Reply to  Six000mileyear
Where I live, diesel hit a new high: $6.50
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Fish1
Fish1
4 years ago
Went to downtown SF and all the ritzy department stores. Sales people complaining there is no foot traffic. One guy thought it was due to office space being vacated, others just thought consumers were on the run. Proceeded to the coast highway and all the cutesy towns were boarded up. No restaurants open, no employees, gas too high so everyone is in the bunker. Combination of demand destruction and wealth destruction at the root of it.
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honestcreditguy
honestcreditguy
4 years ago
Reply to  Fish1
The city has been dead for 27 months…Going downtown is risky now unless Warriors are passing out alcohol during parade or something…
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Zardoz
Zardoz
4 years ago
Reply to  honestcreditguy
Sad. It was an awesome place to go carousing 2012-2015.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Zardoz
’67 to ’72
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JackWebb
JackWebb
4 years ago
Reply to  Fish1
If I lived there, I’d avoid downtown like the plague that it is.
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honestcreditguy
honestcreditguy
4 years ago
Reply to  JackWebb
we do avoid and I can see it out of my hopefully sold window….
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JackWebb
JackWebb
4 years ago
Reply to  honestcreditguy
Utterly tragic about S.F.! I don’t live there, but I contributed to both recall campaigns.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  Fish1
The opposite of the wealth effect.
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KidHorn
KidHorn
4 years ago
Reply to  Fish1
When you can buy looted goods for 75% off, why buy new from a store?
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Curious-Cat
Curious-Cat
4 years ago
Mish – I know what Jay says seems like nonsense but he can not say anything else without risking a self fulfilling prophecy. If he said we are heading for a crash, the crash in this country and around the world would be catastrophic (more catastrophic?). Instead we as thinking and prudent investors are left to decide for ourselves based on available evidence what we think will happen. We can not rely on the word of the Fed or really any government associated organization for a realistic prediction. We are all in this alone.
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Bohm-Bawerk
Bohm-Bawerk
4 years ago
Sounds about right to me. I like the Q and A format. It’s easy for my simple brain to comprehend.
I do think the jobs may dry up though as well which could make this recession worse.
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SAKMAN1
SAKMAN1
4 years ago
FYI – A cedars sinai ad is making this article unreadble on my S21 chrome.
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Curious-Cat
Curious-Cat
4 years ago
Reply to  SAKMAN1
I’m having a similar problem. It’s take 6 attempts to get to the article and comments section. Mine have been google ads of various stripes. Mish, I really like you blog, I hope there is some fix for the intrusiveness of the ads. I don’t mind ads, but this is excessive.
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JackWebb
JackWebb
4 years ago
Reply to  Curious-Cat
I have never seen a website as chaotic as Mishtalk. Not talking about the comments, but about the mechanics.
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Jojo
Jojo
4 years ago
OK, so put on your FED/government hat and tell us what you propose to do about it?
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Shrp-Blond
Shrp-Blond
4 years ago
Reply to  Jojo
As my Dad would say, “You are going 70 MPH down the grapevine (a steep major pass in Northern LA County) in a fully loaded semi-truck with no brakes. The mistakes were already made a while ago. Now are you going to crash.”
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honestcreditguy
honestcreditguy
4 years ago
Reply to  Shrp-Blond
I hope I make it to the runaway truck ramp, damn its pretty far down there….
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Zardoz
Zardoz
4 years ago
Reply to  Shrp-Blond
Welcome to downtown Pagosa Springs!
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Christoball
Christoball
4 years ago
Reply to  Shrp-Blond
“You are going 70 MPH down the grapevine (a steep major pass in Northern
LA County) in a fully loaded semi-truck with no brakes. The mistakes
were already made a while ago. Now are you going to crash.”
If only he would have stopped at Gorman for a chocolate soda out of the vending machine at the one gas station town. He might have noticed his brakes not working.
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Scooot
Scooot
4 years ago
Reply to  Jojo
The Government could put someone else in charge at the Fed to fix it, and as the CPI subsides from its highs in a few months, claim credit for it just in time for the mid-terms? Not that I suppose it would do much good. 🙂
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KidHorn
KidHorn
4 years ago
Reply to  Jojo
Raise rates and keep them up. Time to reward savers and punish gamblers. Best long term solution.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  KidHorn
What is a “saver?”
Asking for a friend.
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ColoradoAccountant
ColoradoAccountant
4 years ago
Reply to  Lisa_Hooker
LOL!
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caradoc-again
caradoc-again
4 years ago
Hard end of the commodity complex has been weakening, sure sign of a slow down when combined with transports. A long dark winter looks likely.
Questions:
Will there be a capitulation event or just a slow drift down.
What happens if there are substantial Republican gains in the mid-terms?
Might it stoke a bit of a rally just on the basis of a change in politics?
When will it be obvious in EPS’s?
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honestcreditguy
honestcreditguy
4 years ago
Reply to  caradoc-again
Kaliningrad heat will pretty much end a lot
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prumbly
prumbly
4 years ago
Reply to  honestcreditguy
Whatever happened to “Don’t poke the bear”?
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TexasTim65
TexasTim65
4 years ago
Biden will never be able to say there is a recession because if he did, his party would be swept away in the mid terms.
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MPO45
MPO45
4 years ago
Reply to  TexasTim65
I want to see the fall out, if any, of the SCOTUS abortion ruling. Been reading that women will abandon red states if it happens but we’ll see.
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TexasTim65
TexasTim65
4 years ago
Reply to  MPO45
Nothing is going to happen from that.
The media framed it as if abortion was suddenly going to become illegal everywhere in the US. Nothing could be further from the truth. All that is happening is that each state is going to decide whether or not to allow abortions and how many weeks. In a lot of red states it’s much ado about nothing because while scaling back a few weeks is annoying, it’s not like it’s going to be illegal (an analogy is that the media is portraying this as a 2nd coming of prohibition when in reality all that’s happening is that bars are closing at 1 am instead of 3 am).
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Zardoz
Zardoz
4 years ago
Reply to  TexasTim65
The federal government never had any business getting involved with this to begin with.
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JackWebb
JackWebb
4 years ago
Reply to  Zardoz
I’m basically pro-choice until viability, for the same reason Margaret Sanger was pro-contraception: eugenics. Leaving aside incest, rape, mother’s health, and in-vitro “selective reduction,” I think abortion is now an I.Q. test given that cheap, effective contraception is everywhere. Only a really stupid woman gets an abortion, and given that 70% of intelligence is heritable, I’d just as soon that she get it. If I ran the show, that abortion would be free of charge on the condition that she also gets her tubes tied.
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JRM
JRM
4 years ago
Reply to  MPO45
All the same blabber mouths who stated that they were leaving the USA if Trump became president!!!!
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JackWebb
JackWebb
4 years ago
Reply to  MPO45
If you look at who gets abortions, the answer would be “no.”
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bobcalderone
bobcalderone
4 years ago
Reply to  TexasTim65
Dems are gonna take a thumping in November. This could be as bad as the 1994 wipeout in Clinton’s 1st term.
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JackWebb
JackWebb
4 years ago
Reply to  bobcalderone
Ideally, it would be a repeat of the 1894 mid-terms. Look it up.
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honestcreditguy
honestcreditguy
4 years ago
Reply to  TexasTim65
they are toast in midterms, SF DA recall very telling
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Zardoz
Zardoz
4 years ago
Reply to  TexasTim65
They’re toast anyway. Would be smart to get people used to it before the presidential elections, but, you know, democrat thinking….
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Christoball
Christoball
4 years ago
Yep!
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MPO45
MPO45
4 years ago
But there are still a few more questions…
Q: Now that the recession is here, when will an economic expansion be called?
Q: How do we profit from the recession? Short oil? tech? Go long basic consumer staples?
Q: How do we position ourselves to profit from the upcoming economic expansion? Seems now is a good time to pick up bargains one small bite at a time.
Inquiring minds want to know…
Bonus Question: When will gold move up?
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TexasTim65
TexasTim65
4 years ago
Reply to  MPO45
Gold is moving up, just not in US dollars. But if you are Japanese the price is rising rapidly (because the Yen is sinking).
So don’t expect Gold to move up unless the US Dollar craters.
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honestcreditguy
honestcreditguy
4 years ago
Reply to  TexasTim65
it will move up after dollar hits 132 and begins final move down
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  MPO45
Silly questions are the easiest.
#1 Expansion will be called two weeks from next Tuesday.
#2 Profit by buying low and selling high.
#3 Buy The Next Big Thing now, don’t wait.
Bonus answer: After it moves down 5%.
You’re welcome.
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goldguy
goldguy
4 years ago
Agreed!
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