Why We’re Flirting With Another Recession

economyHarry Dent: Back in May, we were about to go to the printer with the June issue of Boom & Bust when I put on the brakes.

My team wasn’t happy to hear it since these things take time to put together. But I didn’t have a choice. I had found compelling evidence to suggest that we were not just looking at another recession, but already possibly back in one.

So, we took a close look at how we’d been flirting with recession over the first half of the year, while economists kept spouting that we had reached escape velocity.

Now, after a bit of reprieve during the summer, it looks to be happening again.

We recently got the worst nonfarm payroll jobs report in months as only 142,000 jobs were created last month, with August revised almost 40,000 jobs lower. Plus, labor force participation hit a new low at 62.4%.

Overall, we’ve averaged 198,000 jobs per month in 2015, compared with 260,000 jobs in 2014.

For this reason and others, I have reason to believe we’re once again falling into a recession.

What makes the jobs report so concerning is that it’s a lagging indicator – meaning, it’s following a particular trend that’s already started. It supports the possibility that recession is already here.

But let’s also review some of the indicators I looked at back in June.

The U.S. Macro Surprise Index shows when indicators beat or miss expectations.

Green is when we’re dancing on rooftops because everything’s better than expected. You know what red means.

And you can see that 2015 has been a total miss. It’s been negative all year, with early 2015 being the worst period since early 2009.

It might be up from earlier this year, but after the last couple months, it’s dangerously close to falling again.

US Economic Surprise Index Lowest in Four Years

Another concern is sales in the retail and wholesale sectors. They’ve been declining all year. Wholesale’s actually been declining since the middle of last year.

The troubling bit here is that early 2015 was the worst since late 2008 when we were entering the recession. And sure enough, we usually don’t see trends like these until a recession is on our heels.

These are more coincident indicators, suggesting a recession while it’s going on. Meaning, it might already be here.

Retails and Wholesale Sales Rolling Over

It’s no surprise then that since sales of wholesale goods are dropping, their inventories are building. That means goods are not moving off the wholesale or retail shelves. Consumers aren’t buying as much!

Fewer sales, more inventory… eventually, that means falls in production levels. Just another slowing of the economic engine.

This next chart shows that. Specifically, it’s the ratio of inventories to sales. A higher ratio means a build-up in inventories and sluggish sales.

Coming off the lows of early 2011, we’re clearly in territory we haven’t seen since the last recession and approaching levels near the worst in early 2009.

Wholesaler Inventories Are Spiking

So we’ve got the economic surprise index at its lowest levels in four years… sales that are starting to roll over… inventories that are spiking…

And finally, exports that are sharply declining, partly due to global slowing, and partly due to a stronger dollar.

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