Four US States Officially in Recession; Data Points to Broader Problems
With four states officially in recession, and economic data continuing to point toward a broader downturn, it’s getting increasingly difficult for officials to sell the illusion of a strong US economy.
Peter Schiff has been saying for weeks that the US may already be in a recession. Recently, Jim Grant appeared on CNBC’s Closing Bell and echoed Peter’s sentiments, saying the US likely went into recession in late December. And while officials at the Federal Reserve keep insisting the US economy remains strong, some mainstream analysts have started sounding recession warning bells as well. In fact, the number of mainstream economists predicting a recession within the next 12 months continues to rise.
So far, people have been able to blow off talk of a looming recession as mere chatter, but in some US states, it’s not just speculation; it’s reality. According to a Bloomberg report, four US states have officially gone into recession, with three more “at risk of prolonged declines.”
The economies in Alaska, North Dakota, West Virginia and Wyoming are all retracting, according to Bloomberg:
Seven of the 50 US states have had downturns in economic activity over the final three months of last year, according to tracking by the Philadelphia Fed. Louisiana, New Mexico and Oklahoma are all at risk of recession, according to Moody’s. Wyoming and North Dakota’s economies have declined for at least the past 10 months, according to the Philadelphia Fed.”
Analysts blame slumping energy prices for the downturn, but Bloomberg notes that manufacturing dependent states are also at risk:
The regions suffering the most are in the flop stage of the energy industry’s boom-to-bust cycle, and manufacturing-dependent areas hurt by a rising dollar are at risk of receding. Whether the weak links break the entire US economy will hinge largely on a group that’s benefited from the energy price collapse: American consumers.”
That’s not good news because there is evidence consumers are starting to feel the squeeze. CBS Money reported late last week that there are signs of price inflation despite falling energy prices:
The Labor Department says that prices have risen 1.4% over the past 12 months, compared to a year ago when annual inflation was close to zero. Falling energy costs have mainly dampened inflationary pressures. Gasoline prices tumbled 4.8% between January and December. Outside of oil, prices are beginning to climb.”
Janet Yellen and other Federal Reserve officials keep pointing to jobs numbers to justify their rosy view of the American economy. This ignores the fact that employment data is a lagging indicator. And there are signs of trouble hidden in the jobs numbers as well. Federal revenue and tax withholding provide the best real-time snapshot of what’s going on in the jobs market and the news isn’t good, as reported by ZeroHedge:
Revenue inflows to the Treasury Department steadily slowed through the fall, bringing the annual growth rate down to just below 4% by the start of 2016. That’s when growth seemingly collapsed — to just 1.8% over the past five-plus weeks, from Jan. 11 through Feb. 16…The official Treasury tax-receipt data — which don’t come with a margin of error and aren’t subject to revision — are obviously at odds with the much more upbeat numbers reported by the Labor Department. January’s year-over-year payroll increase of 2.665 million, or 1.9%, along with a 2.5% gain in average hourly earnings should yield something in the neighborhood of 4.5% year-over-year growth in tax withholdings — or more than double the actual growth rate in recent weeks. And yet over the past 10 full weeks, starting Dec. 7, tax withholdings have grown just 3.1% from a year ago.
Layoff announcements take even more shine off of the employment picture. According to Challenger, Gray, and Christmas, January job cuts surged more than 200%:
US-based employers reported 75,114 planned job cuts to kick off 2016. That is a 218% increase from a 15-year low of 23,622 in December. January was 42% higher than the same month a year ago, when employers announced 53,041 job cuts.”
So, while Yellen and other keep saying, “Look, jobs, jobs, jobs, everything is good!” there is every indication that there are some big problems when it comes to employment in the US.
More general economic numbers don’t look so great either. According to the Business Trade Association, the Leading Economic Index declined 0.2 percent in January to 123.2. It was the second straight month of decline in the LEI, and the first back-to-back drop since Aug./Sept. 2011.
Meanwhile, the Philadelphia Fed Index showed a sixth straight month of decline in manufacturing, according to a report in MarketWactch:
Details of the report were ‘grim,’ according to Omair Sharif, economist at Societe Generale. The index for new orders sank to negative 5.0 from negative 1.9, the lowest level since November 2013. Shipments remained positive but slid to 2.5 from 9.6 in the prior month.”
The US Manufacturing PMI for January came in at 51.0, missing expectations of 52.4. It was the lowest number since October 2012 when Ben Bernanke started hinting at QE3.
The actual economic data is making it more and more difficult for government and Federal Reserve officials to keep selling the illusion that the US economy is trucking along nicely. The facts betray their rhetoric. It seems increasingly clear we are hurtling toward the cliff at breakneck speed.
This post is part of our ongoing series Data Dependent: Reading Between the Lines, where we examine the real economic data not reported in the financial media. Click here to read all our articles in this series.
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