The economy effectively hit bottom in June 2009, followed by a period of somewhat volatile stagnation, and it is beginning to turn down anew. There never was a recovery and no economic data shows the type of recovery that the official gross domestic product (GDP) report is showing. - John Williams, The Illusion of Recovery
Perhaps the most controversial of all of the Government economic reports is the GDP report. Without getting into dissecting the most problematic aspects of how the Government calculates the GDP, I wanted to look at some economic indicators that are signaling the possibility of a serious decline ahead in U.S. economic activity.
I got to thinking about this issue this morning when I saw a report on Zerohedge, which had a bunch of charts showing energy consumption in this country. It makes sense that if the economy is recovering - as the government and Wall Street would have us believe - that gasoline/energy use should be rising or at least stable, right? Here's a chart I borrowed from Zerohedge:
As you can see, gasoline consumption in this country has fallen off of a cliff ever since the housing bubble popped in 2007 (just before the Lehman Failure on the chart). Growth in hybrid cars does not come remotely close to explaining that chart. Since 1999, only 2.6 million total hybrids have been sold thru December 2012 (hybrid cars) vs. a total 254 million passenger cars registered (total passenger cars). Hybrids thus represent about 1% of the total passenger cars in the U.S. The only conclusion that can be made from the extreme decline in retail gasoline cars is that the consumer is getting squeezed hard financially. Historically the consumption has represented about 70% of GDP. If the consumer isn't spending money on gasoline it's a very bad sign for that significant segment of the economy.
In 2012, exports represented approximately 14.6% of GDP. With this in mind, I looked into U.S. exports to Europe. As has been widely reported, several countries in Europe have slipped into significant GDP decline. Overall it is expected that Europe as a whole is slipping into a serious recession. For the first two months of 2013, U.S. exports to just the EU's top 5 trading partners in Europe represented 12.3% of total exports (Export data 2013 YTD). In other words, exports to just the five largest EU importers of U.S. goods represents about 1.6% of U.S. GDP.
Aside from economic weakness in Europe, the U.S. dollar has appreciated about 4.5% vs. the euro since the beginning of February, thereby making U.S. exports to Europe less competitive from a price standpoint. The stronger dollar, combined with strong recessionary forces in Europe have the potential to take a U.S. GDP teetering on no growth into a decline.
For the sake of brevity, I am going to skip auto sales and employment. I just wanted to note that as of the latest jobs report release last Friday, although the unemployment rate dropped supposedly to 7.6%, the underlying data showed that the overall number of people in the labor force declined by 496,000 in March and the number employed declined by 206,000 (Household data).
As for construction, one of the supposed primary drivers of the current economy, while the government-reported data showed a 1.2% annualized increase in February for construction spending, January's number was negative 2.1% and both January and December were revised lower from their originally reported levels.
It's important to look at construction spending on a basis that strips out the effect of the inflation, as this is a better indicator for construction "unit volume," if you will. I borrowed this chart from John Williams' Shadow Statistics report, which shows both the nominal construction spending as reported and the real dollar amount of construction spending adjusted for the Producer Price Index:
As you can see, while there was a small bounce in construction spending since the 2006 collapse in this indicator, if you strip out inflation, construction spending has never gotten back to the base index level of 100 in 2000 AND it appears to be rolling over and heading back down. If construction spending continues lower, the U.S. economy could be in serious trouble.
With the ability of the consumer to spend as represented by retail gasoline sales, the likelihood of a plunge in U.S. exports to Europe and the high probability that the real estate "boomlet" is ending, the U.S. economy could go into a tailspin. Given this, I would recommend that investors tread carefully in playing the stock market. January saw about $77 billion i retail funds go into stock mutual funds - a record for one month. The prior record was $23.7 billion in February 2000 - about two months ahead of the start of stock market collapse that year.
Just one more point to make. If the economy is on its way to recovery, as Ben Bernanke would have us believe based on his recent public statements, why is the Fed pouring money into the financial system at a parabolic rate?
There is no good explanation for this behavior on the part of the Fed - unless the Fed is worried about the same data I just presented and is desperate to use its magic money supply policy to keep the system from falling apart.