Wayne Wile, More Evidence the Real U.S. Economy is in Recession

Unfortunately, most of the information we get on the U.S, economy comes from the federal government. As I have said previously, this data is so messaged by higher mathematics that it has become meaningless or misleading.

Fortunately, the private sector also produces data that does not serve a political agenda. One such source is the monthly Cass Freight Index produced by Cass Information Systems from data provided by America’s 400 largest truck and rail shippers. The most recent monthly report for April was published last Friday. Traditionally, trucking and railroad activity has been a key indicator of the health and direction of the U.S. economy.

You are about to see a chart that is undeniable evidence that we have entered a major economic slowdown.

cass

This is not a seasonally adjusted index so you can clearly see the seasonal variations in shipping activity. The red line shows the level of activity for the first four months of this year. You can also clearly see that the trend is sharply down since 2014. In fact, the first four months of this year are the worst since April of 2010. The reality is that we have now seen the Cass Index decline on a year-over-year basis for 14 consecutive months.
In 2007-2008, there was a similar decline in this Index but the Federal Reserve and other “experts” assured us that there was not going to be a recession. Then we immediately proceeded to plunge into the worst economic downturn since the Great Depression of the 1930s.

Just because stock prices are artificially high right now does not mean that the U.S. economy is in good shape.  In fact, there was a stock rally at this exact time of the year in 2008, even though the underlying economic fundamentals were rapidly deteriorating.  We all remember what happened later that year.

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Wayne Wile, Employment Numbers Do Not Add Up

Finally, the monthly jobs report starts to make a little sense. Today, the much-anticipated April report from the U.S. Bureau of Labor Statistics showed a net gain of 160,000 jobs in the U.S. economy, well less than the 200,000+ expected. Goldman Sachs yesterday upped their estimate for today’s report to 245,000! Nice call.

At last, the employment data is beginning to reflect the rest of the economic data.

The problem I have with the government’s employment data is that it just doesn’t coincide with anything else. If the U.S. economy on average has really been employing an additional 200,000 people, month after month, as the government claims, why have retail sales slumped, household incomes stagnated and GDP trended down? I believe the numbers are so massaged by statistical algorithms that they no longer mean anything. And this is the report that the Fed says it relies on most for setting monetary policy.

Another odd anomaly is that the weekly initial jobless claims do not square with the layoff reports from Challenger Gray & Christmas, the ‘de-hiring’ specialists. You would think that the ongoing lay-offs in the energy and manufacturing industries, which are now on an upward trend, would result in a growing number of new claims for unemployment insurance. They don’t.

Here is the lack of agreement in visual form:

layoffs

One thing is certain: when a company announces it will lay-off thousands of employees, they do so. The economists who suggest that all is well with the U.S. labor market based on falling initial claims reports need to explain the latest report from Challenger according to which the pace of downsizing increased in April, jumping by 35% to 65,141 from the 48,207 lay-offs announced in March.

As the saying goes, if you pay someone not to understand something, they won’t. Our economics profession either works for the Fed or Wall Street so they can’t have negative views.

In the first four months of 2016, employers have announced a total of 250,061 planned job cuts, up 24% from the 201,796 job cuts tracked during the same period a year ago. This represents the highest January-April total since 2009, when the opening four months of the year saw 695,100 job cuts in the aftermath of the biggest financial crisis in modern history.

And it isn’t just energy. John A. Challenger, CEO of Challenger, Gray & Christmas, noted that “we continue to see large scale lay-offs in the energy sector, where low oil prices are driving down profits. However, we are also seeing heavy downsizing activity in other areas, such as computers and retail, where changing consumer trends are creating a lot of volatility.”

High tech, the presumed engine of growth, is cutting jobs? Yep. Computer firms announced 16,923 job cuts during the month, the highest total among all industries. That includes 12,000 from chipmaker Intel, which is shifting away from the traditional desktop and laptop market and toward the mobile market. To date, computer firms have announced 33,925 job cuts, up 262 percent from a year ago, when job cuts in the sector totaled just 9,368 through the first four months of the year.

Another prime example is IBM, where unconfirmed reports estimate as many as 14,000 layoffs in the first quarter (not included in the Challenger reports because it has not been officially announced).

How is it that these laid-off people do not apply for unemployment payments? Do they just disappear? Inquiring minds want to know.