David Rosenberg argues recession may already be here because Gross Domestic Income is already recessionary; but the only thing anyone is looking at, he says, is Gross Domestic Product. I’ve argued this point earlier this year, too.
Rosenberg notes that significant difference between the two rarely ever exists, but the difference between the two is wider now than it’s ever been. More importantly, he says that, whenever this divide has existed, it has ALWAYS been GDP that fell to come in line with GDI, never the other way around. So, based on GDI, we are already in a recession. It’s refreshing to hear someone confirming all the same points I’ve been arguing for a good part of the year.
Rosenberg makes another point I’ve been pounding — in solitude so far as I’ve been able to see — that the National Bureau of Economic Research (NBER), which declares recessions, did not declare one …
because people think there is no recession because of this low from non-farm payrolls, and J. Powell, the Fed, the markets, bow down to the holy grail of non-farm payrolls. And what nobody seems to get in the post-Covid environment is that the response rate from the businesses in that survey is down to almost 40%. Pre-Covid 60%.... What veracity do you put in a non-farm payroll report with a 40% response rate? And that’s why we talk about revisions. How do we know what’s going to get revised away in 2023 … on a sample of data that we cannot really fully verify?... It’s a big mistake.
With all deference, the non-farm payrolls have been revised down sequentially 90% of the time this year by a combined total of more than 300,000…. All I hear about is … ‘150,000, that was pretty good.’ Yeah, except the household survey, that was negative 328,000!... There has been no job growth in the past four months in the household survey. [Adam Taggart inserts, “Of the job growth there has been, it has been pretty much all part-time.”] All part-time. Not just that, but you’ve actually had negative employment if not for the fact that you’ve had over 200,000 people over the past four months take on more than one job…. That is a sign of household stress….
On top of that … Half of the employment growth this year from non-farm payrolls has come from the birth-death model. Half! Like 1.3 million! [which is just an imputed number that is not based on real data – an adjustment] So, I think there has been … big question marks.
My repeated opinion all year is that no econometrics have been more confusing and misleading than labor numbers since Covid because the old methodologies do not have any way of accurately seeing through the distortions created by the absolutely gargantuan government-forced layoffs that happened during the Covid lockdowns and the lingering damage created by those layoffs – something I said back in 2021 we’d be wresting with for a very long time after it appeared the economy had more-or-less recovered from the government-mandated lockdowns.
Rosenberg also reiterates this point that I made earlier this year:
At turning points in both directions, GDI leads GDP. GDI is telling the recessionista’s they’re actually not far off the market at all…. It may be here and we just don’t know it.
When you combine what Rosenberg says, which fully validates what I have been saying about the recession this year — GDI v. GDP, the horribly mistaken and always-downwardly-revised jobs numbers, the slight upward turn in unemployment — and you add that to what I just wrote this weekend about the abhorrently deceptive CPI report that just came out, it’s clear we are tumbling right now directly into a stagflationary recession, if not (as Rosenberg says a few times) already in one.
The blatant dishonesty in how CPI was manipulated in the last report, which I laid out in this weekend’s “Deeper Dive,” is so egregious beyond ANYTHING we’ve ever seen the Bureau of Lying Statistics do in the past, that I fully take back my earlier acknowledgement that I was wrong about where inflation was going this month. I was only wrong in not estimating just how extreme the BS from the BLS would become in order to cover over the truth.
I’m not going to lay that out here because there is a lot that I shared in that exposé to make the points solidly and because, at some point I deserve to get paid for the information I try to provide as freely as possible to as many people as possible. So, for that one, you’re going to have to become a paid subscriber to get access to that “Deeper Dive.” Otherwise, you are left to take my word for it — or discount my word on it without evidence — that inflation did, indeed rise in the last month reported, and the coverup for it was enormous and will downwardly distort reported inflation for the full year to come! Maybe I’ll reveal bits and pieces of it, as I need to in later editorials just to substantiate things that I might wind up covering about inflation in those editorials. But what a breathtaking outright lie!
Rosenberg also notes historically how the “soft landing” mantra was used by nearly all of his economist colleagues for almost two years before the Great Recession was finally declared. It wasn’t until Lehman Bros. collapsed in September, 2008, that the economists around him finally woke up to see the recession that had long been forming around them and that he had been calling the full time. The recession started in December of ’07, he says, which was when I started telling real-estate agents a big housing bust was about to come and told my wife’s family to sell their very small estate as quickly as possible before the recession hit and tore down housing prices, which they did. (They had been holding onto it because prices were rising so quickly.) He’s right in claiming that almost NO economists saw that enormous recession coming, even when they had been standing in it for the better part of a year! At least, nearly none of the ones that get all the attention as supposedly knowing more than they clearly do. (And this is what they get paid the big bucks for.)
I think David Stockman was another economist who might have called it; but, seriously, one of the biggest reasons I started writing on economics back then was that no economists that I could find saw the recession coming that was so abundantly apparent to me, and my mind was gobsmacked – in a very negative way -- as to how all economists could be that dumb in the area of their supposed expertise! They should have all resigned in deep humiliation. I won’t even say “blind.” Just plain DUMB! Because what was coming was that obvious to me and should have been to them. However, I couldn’t scream it loud enough to even get their attention because, hey, they have the pedigree, and I didn’t. Or the real-estate agents were the experts, and I was just a resort-property manager. What did I know about real-estate?
To me, it was screamingly obvious what was in the process of forming back then, even in the eternal glory land of Hawaiian real estate where I was working, and I mean even obvious prior to Lehman and prior even to Bear Stearns as to how severe it was going to become. So, I started writing in order to smash over the head as hard as I possibly could every numbskull economist who spoke out and uttered florid nonsense back then about the strong economy, every central banstker and their corrupt clandestine plans for making big banks bigger still, and every pocket politician the banksters had inside their vest. (Those incensed articles (but funny because I like to lampoon idiots when they are in charge of things they should never be allowed to breathe on) eventually became the primary content of my little book Downtime: Why We Fail to Recover from Rinse and Repeat Recession Cycles.)
The mantra throughout that time, just as now, was that the bank problems were all contained and that the worst we’d see was (same words used back then) a “soft landing.”
If you want to be part of the group-thinking throng that believes those who are always wrong about these things just because they have a pedigree or a big job position to speak from, then believe them now while you still have the opportunity to be dead wrong along with them. Believe it while they outright lie to you about CPI or they miss the lie that others are telling and while they grossly misunderstand the brokenness of the labor market, thinking it proves we cannot be in a recession because labor is strong when it is, in fact, DYING. Believe them when they ignore what GDI is forecasting ahead of GDP, even though GDI is always first to show a recession coming and even though GDP always corrects to match GDI whenever the two are grossly out of synch as they are right now.
(Believe them, or pay $10 a month to someone with no economic pedigree ouside of personal study and objectivity who will give you the unvarnished truth as it happens and before it gets revealed by after-the-fact major media. Find out what REALLY happened in CPI last month!)
As Rosenberg says,
I’ve been doing this for forty years. Everybody lives in the here and now. They can’t seem to see past the tip of their nose…. I’m saying that they are not really looking at the fact that we do have a lot of non-confirmation out there [against the soft-landing/no-recession perspective]…. If you are looking at the US economy from a real income perspective, it’s already flattening, BUT people look at real GDP, and they look at non-farm payrolls because J. Powell has trained everybody ‘non-farm payrolls!’ It is a flawed statistics with a 40% response rate. So, the household survey is telling you something totally different. At turning points in the cycle, like I said, you want to focus on the household survey, not the non-farm survey. At turning points in the cycle you want to focus on GDI, not GDP.
And these, of course, are the exact metrics I have been focusing repeatedly on like a laser all year, and I have been laying out the problems with the metrics during distorted times like this and during historic downturns. The government wants you to focus on the distortions. As my last “Deeper Dive” revealed, it even goes way out of its way to create them! When they cannot find enough data to make the government look good, they concoct blatant lies with far greater distortions, as the Bureau of Lying Statistics just did on our president’s behalf.
Rosenberg says the Fed is going to double down on a different mistake from what it did when it stayed too easy for too long. It is now going to stay too tight for too long, something I have been predicting relentlessly they will do from the moment they first uttered the word “transitory” because their grossly wrong belief that inflation was transitory would certainly set them up in a tough situation where they had to tighten at a steeper-than-ever-before rate to get out-of-control inflation back under control, leading them to tighten longer than they should to make sure they have fully wrestled the monster born from their past mistake back to the ground. A classic case of overcorrection/overcompensation.
They did bungle it, and so it’s a matter of hubris and shame and embarrassment and J. Powell heading into his last term being compared to Arthur Burns, not a good look. [The Fedhead who gave us the roaring inferno of inflation back in the 70s.]
So, they are going to overcorrect deep into a time that is already in recession until more stuff breaks badly.
Rosenberg notes that what the Fed clearly wants to see in order to feel comfortable that it has wrested its FrankenFed monster back to the ground is a clear loosening up of the labor market. I have been stating all along that is the gauge they are most relying on, and it is the most broken gauge of all (as Rosenberg says in the video below); so, it will be their downfall. Pilot Powell is going to take his 747 economy into a deeper dive than we’ve ever experienced before.
What did J. Powell say last week? His biggest concern is cutting rates, and then inflation still comes back…. That has me concerned; and, so, we paid in one way for a period of time with high and rising inflation … and I think we’re going to pay another price for the extreme degree of monetary restraint.
Bingo!
Rosenberg, unlike me, believes this is going to create the conditions for deflation down the road, but we agree that it will also create “a recession that is difficult to climb out of.” My stated belief is that everyone so misunderstand labor that they do not foresee the production shortages this recession is likely to also create, which may actually be INFLATIONARY, even in a time of deep recession, if the drop in supply is greater than the recessionary drop in demand. In a world just recently reeling from universal shortages (still happening in many places) a drop in production will likely exacerbate those shortages.
If the Federal government, then, does what Biden likes to do and leaps in with support programs so that people have money to buy things in times of such shortage, inflation will go sky high. So, it depends on those two things: 1) Does production fall even more than demand and 2) Does the government jump in with money for the unemployed (who will certainly need it) to shore up demand while supply continues to fall – locking in the classic situation of too much money chasing too few goods. It will depend on those two things, which I’ll be watching for in my “Deeper Dives.”
That normal fiscal stimulus response to recessions MAY not happen this time, though, because the government is so poorly able to navigate its current debt that it is going to be very hard to get agreement to create even larger fiscal deficits than the ones that have just resulted to a cut in the nation’s credit rating by Fitch and a another cut by by Moody’s to their outlook for the nation’s credit rating. The days of easy debt piling are over. Without that stimulus, however, the recession will be a depression.
Says Rosenberg,
Can you imagine what’s going to happen when GDP looks like GDI? Can you imagine what’s going to happen when the payroll numbers start to look like the household numbers? And THAT is when you are going to see the Fed start to cut rates…. What concerns me the most is the level of complacency…. It concerns me that the investment community is not prepared…. A lot of investors are going to be caught offsides just as they were in 2001 … just as they were in 2008.
Of course, that is when the Fed’s action will be far too late because the damage, due to all the lags Rosenberg talks about in Taggart’s interview below will keep playing through as they always do to take us deep into recession, and Rosenberg notes with a graph how recessions actually always officially begin after the Fed starts its return to interest-rate cuts. So, we have the whole recession to go through after the cuts have begun. I think, however, this time recession has the jump on them, and Rosenberg is inclined to thing it may well have begun already, too.
We never learn!
(And those are just excerpts from the first half of Taggart’s stellar interview with Rosenberg. The rest is just as good. And today everyone can read all the headlines in The Daily Doom for free in order to find that interview.)
Since the Fed was created to prevent recession cycles, we couldn’t have a worse organization with more big fails than we have consistently had with the Federal Reserve System. But that’s why they get all the big money (and manufacture all the money) because no one could possibly do it worse!
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Doomer Humor
Happy Thanksgiving from Joe Biden, whose campaign promise for ’24 is a turkey in every government office. Cartoon brought to the table by Counterpoint: A cornycopia of humor.
Thank you for the update. I've been wading through the opposing opinions, trying to understand why they don't see the problems with both labor and inflation numbers. Such a breath of fresh air to read someone who gets it.