Three months ago, everyone was jubilant: The economy was headed for a v-shaped recovery, job growth was kicking in, and consumers were about to start spending, spending, spending again.
But now, suddenly, everyone thinks the economy is headed back into the tank.
Aside from noting the obvious--when it comes to economics, the consensus is usually wrong--it's worth reviewing why everyone has suddenly become so pessimistic again.
It all starts with unemployment, which is still close to a post-Depression high. (And the recent drop has been helped by people dropping out of the workforce)
Another huge problem with unemployment is the number of folks who have been unemployed for more than half a year--it just keeps going up
And the leading indicator for jobs--initial unemployment claims--has stopped improving. It's still too high.
Just as bad, private-sector hiring (blue bars) appears to be weakening again.
Add it all together, and we're still stuck in the worst (and longest) jobs decline since the Great Depression
And, making matters worse on the spending front, the government has now cut off benefits to long-term unemployed. By the end of July, 3.5 million people will lose benefits
When you don't have a job, you can't spend, and that's hurting the other big driver of the economy--the housing market
Image: Calculated Risk
Existing home sales dropped in May.
Source: Calculated Risk
Despite record low mortgage rates...
Existing home sales dropped in May and inventories are rising again
This is making houses harder to sell--which will force further price cuts
"Pending home sales" fell off a cliff in May. This bodes poorly for sales in June and July.
Car sales have also suffered--declining in June versus May. Despite an uptick in Q2, this bodes poorly for Q3.
Manufacturing is now weakening again
So is construction spending
And even the world's newest economic engine, China, appears to be sputtering
The ECRI leading index has rolled over
And so has Goldman's leading index
Meanwhile, we haven't even begun to deal with (or even acknowledge) the real problem in the economy--we're pinned down by an absolutely massive mountain of debt
This chart is almost two years out of date. The problem has gotten a lot worse since then.
Add all that together, and that's why everyone's suddenly worried about a Depression again