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12 Signs a US Recession Has Arrived

June 22, 2012 | About:

Mike "Mish" Shedlock

I remain amused by the Shadow Weekly Leading Index Project which claims a probability of recession at 31%. I think it is much higher.

When the NBER, the official arbiter of recessions finally backdates it, May or June appear to be likely months. Let's take a look at why.

US Manufacturing PMI

Markit reports PMI signals weakest manufacturing expansion in 11 months

Key points:

  • PMI lowest since July 2011, suggesting slower rate of manufacturing expansion
  • Rate of output growth broadly unchanged
  • New orders rise at weakest pace in four months
  • Input costs fall for first time in three years

Durable Goods Orders Plunge

Those numbers do not look good but they are hardly disastrous. Here are some numbers that are disastrous.

Philly Fed Survey

For the second consecutive the Philly Fed Survey has been solidly in the red.

click on chart for sharper image

Those numbers are nothing short of a disaster.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of ‐5.8 in May to ‐16.6, its second consecutive negative reading. Nearly 40 percent of the firms reported declines in activity this month, exceeding the 22 percent that reported increases in activity.

Indexes for new orders and shipments also showed notable declines, falling 18 and 20 points, respectively. Indexes for current unfilled orders and delivery times both registered negative readings again this month, suggesting lower levels of unfilled orders and faster deliveries.

Firms’ responses suggest steady employment this month but shorter hours. The percentage of firms reporting higher employment (14 percent) edged out the percentage reporting lower employment (12 percent). The current employment index increased 3 points this month. Firms indicated fewer hours worked this month: the average workweek index decreased 14 points and posted its third consecutive negative reading.
Misguided Optimism

click on chart for sharper image

Note the misguided optimism about six months from now. It's not going to happen.


  1. Europe is a disaster.
  2. US manufacturing is cooling rapidly
  3. China is cooling rapidly: China Manufacturing PMI 7-Month Low, Sharpest Decline in New Export Orders Since March 2009
  4. US Monetary policy is at best useless, but more likely net harmful, especially to those on fixed income.
  5. First year presidential politics are frequently recessionary
  6. US still needs fiscal tightening
  7. Unemployment insurance has expired for millions: 200,000 Lose Unemployment Benefits This Week, Nearly Half From California
  8. Self-Employment desperation: 100% of U.S. Jobs Added Since 2010 Have Been Self-Employment, Contractor, or Other Jobs Without Unemployment Insurance Benefits
  9. Last two jobs reports have been dismal: Another Payroll Disaster: Jobs +69,000, Employment Rate +.1 to 8.2%, April Jobs Revised Lower to +77,000; Long-term Unemployment +310,000
  10. The 4-week moving average of weekly unemployment claims is at the highest rate of the year, at 386,250.
  11. New home sales cannot gain significant traction: New Home Sales Hype vs. Reality
  12. Tax Armageddon

Deficit spending has carried this "recovery" further than I thought it would, but the party is now over.

It will be difficult if not impossible to overcome the above set of circumstances regardless of what anyone feels about economic back-tested recession probabilities.


Please consider Taxmageddon

The Tax Foundation reports that because of higher federal income and corporate tax collections, Tax Freedom Day came four days later this year than last. And the bad news is that unless Washington takes action, it will take working Americans 11 more days to meet next year’s tax burden.

That’s all due to Taxmageddon — a slew of expiring tax cuts and new tax increases that will hit Americans on January 1, 2013, amounting to a $494 billion tax hike. Heritage’s Curtis Dubay reports that American households can expect to face an average tax increase of $3,800 and that 70 percent of Taxmageddon’s impact will fall directly on low-income and middle-income families, leaving them with $346 billion less to spend.

Taxes Will Go Through the Roof

PolicyMic reports When the Payroll Tax Holiday Ends in 2013, Taxes Will Go Through the Roof

Without significant tax code changes, in 2013, America is scheduled to get hit with what would be the largest tax increase in our history.

Not only will the $1,000 per year tax holiday for a $50,000 income household disappear, come 2013 all Americans will see the tax on their first $8,700 of income jump from a 10% rate to 15% rate.

That hike will cost the majority of filers an additional $435.

For those eligible for child care tax credits that deduction will drop from $1,000 to $500. The marriage penalty will roar back into effect. The AMT, alternative minimum tax, will finally kick in.

Roll those changes up and a family filing as married with two children making $50,000, will see their taxes increase by basically $2,700.
Regardless of whether or not you feel taxes need to be raised, a big set of tax hikes is scheduled to happen.

To be sure, some of those hikes will be undone in compromises, but many if not most will sneak through.

Who is to blame for Taxmageddon?

Republican are to blame. They accepted this silly deal instead of a far better one that Obama would actually have signed.

But No! Republicans insisted on no tax hikes at all in 2012, putting everything off until after the election, believing Romney would win in a cake-walk.

However, if President Obama wins, certainly not at all an unlikely possibility, he is going to drive a much harder bargain this go around.

Regardless of tax consequences, the US is headed for recession, if not already in one. 2013 rates to be a disaster regardless who wins.


About The Author - Mike Shedlock / Mish is a registered investment advisor representative and he writes at Mish's Global Economic Trend Analysis [i](EconMatters author archive here)

Rating: 3.4/5 (20 votes)


Invest E Gator
Invest E Gator - 1 year ago
If its not here already it sure is a'comin. We have had 40 or something economic downturns over the past 200 years, some of them quite severe. Its been a couple of years since the last one so every day is one day closer to having another, perhaps even a bout of histeria. Everyone should be taking a good look at their company's balance sheets and debt structures to make sure that they can handle freezing credit markets and soaring interest rates, then take a good look at their operations to make sure they can deal with a boatload of inflation and business (perhaps even drastically?) slowing down.

If anyone would like to know who is at fault for this, just take a good look at the federal reserve. They have been holding interest rates at .25% for years already. Our economy should be acting like its on some really good crystal meth with all of that cheap capital, but its barely even sputtering along. Meanwhile, with an economy that is barely growing, or not growing at all, the federal deficit is expanding debt at about 10% GDP per year. This is part of what is building up pressure for what will be the next downturn, the longer this takes to happen the more pressure there is so the worse it is going to be.

Two unanswerable questions-

1. How many days until the market collectively decides that interest rates need to go up, aka, foreign lending sputters?

2. How many dollars are they going to print to make up the difference and bring them back down?

Unless there are some very rapid changes, like serious budget cuts or taxes doubled; we are looking at a whole lot of inflation, very high interest rates, or a combination of both, however, the brunt of it will be the same, these are just matters as to how it gets distributed. Considering, if you look at the federal budget, some very outrageous numbers start to happen to the deficit as interest rates go up, like doubling or tripling what is already 1.3 trillion. This is just a best guess but the better bet seems like its going to be more along the lines of inflation.

Charteroak_2000 premium member - 1 year ago

It's not coming - it never left after arriving in 2008 ... :(
JUDS1234567 - 1 year ago
Perhaps this will be the end of the secular bear?
Fcharlie - 1 year ago
You're forgetting that the price decline in gasoline per gallon has been almost 70 cents.

That alone would put $100 billion annually of disposable cash into the pockets of Americans.

Have we not seen this two years in a row and now the third? Gas prices rise, Europe drama, consumers cut back, businesses slow hiring...... Gas prices fall, Europe muddles through, consumers spend their new found savings, businesses pick up hiring??

Housing is still awfully low at 700K starts annually. Hard to have a recession with housing starts at 700K four years in a row. Hard for an airplane to crash if it only is flying at 500 ft. altitude.

Industrial production is up 5% year over year. When was the last time we had a recession without a downturn in industrial production?? I can't recall ever.

Finally, Philly Fed is always the laggard. Philadelphia just isn't as relevant of a manufacturing region as Chicago and others.

I say no recession. No way.

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