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12 Reasons Why The US Recession Has Already Arrived


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I am amused by the Shadow Weekly Leading Index Project which claims the  probability of recession is 31%. I think it is much higher.
When the  NBER, the official arbiter of recessions finally backdates the recession, May or  June of 2012 appear to be likely months. Let’s take a look at  why.
US Manufacturing PMI
Markit  reports PMI signals weakest manufacturing expansion in 11  months
Key points:

  • PMI lowest since July 2011, suggesting slower rate of manufacturing  expansion
  • Rate of output growth broadly unchanged
  • New orders rise at weakest pace in four months
  • Input costs fall for first time in  three years


Durable  Goods Orders Plunge


Those numbers do not look good but  they are hardly disastrous. Here are some numbers that are  disastrous.
Philly Fed Survey
For  the second consecutive the Philly Fed Survey has been solidly in the  red.

Those numbers are nothing short of a disaster.

The survey’s broadest measure of  manufacturing conditions, the diffusion index of current activity, fell from a  reading of ‐5.8 in May to ‐16.6, its second consecutive negative reading. Nearly  40 percent of the firms reported declines in activity this month, exceeding the  22 percent that reported increases in activity.

Indexes for new orders and shipments also showed  notable declines, falling 18 and 20 points, respectively. Indexes for current  unfilled orders and delivery times both registered negative readings again this  month, suggesting lower levels of unfilled orders and faster deliveries.

Firms’ responses suggest steady employment this  month but shorter hours. The percentage of firms reporting higher employment (14  percent) edged out the percentage reporting lower employment (12 percent). The  current employment index increased 3 points this month. Firms indicated fewer  hours worked this month: the average workweek index decreased 14 points and  posted its third consecutive negative reading.

Misguided Optimism

Note the misguided optimism about six months from now. It’s not going  to happen.
Why?

  1. Europe is a disaster.
  2. US manufacturing is cooling rapidly
  3. China is cooling rapidly: China Manufacturing PMI 7-Month Low, Sharpest Decline in New  Export Orders Since March 2009
  4. US Monetary policy is at best useless, but more likely net harmful,  especially to those on fixed income.
  5. First year presidential politics are frequently recessionary
  6. US still needs fiscal tightening
  7. Unemployment insurance has expired for millions: 200,000 Lose Unemployment Benefits This Week, Nearly Half From  California
  8. Self-Employment desperation: 100% of U.S. Jobs Added Since 2010 Have Been Self-Employment,  Contractor, or Other Jobs Without Unemployment Insurance Benefits
  9. Last two jobs reports have been dismal: Another Payroll Disaster: Jobs +69,000, Employment Rate +.1 to  8.2%, April Jobs Revised Lower to +77,000; Long-term Unemployment  +310,000
  10. The 4-week moving average of weekly unemployment claims is at the highest  rate of the year, at 386,250.
  11. New home sales cannot gain significant traction: New Home Sales Hype vs. Reality
  12. Tax Armageddon

Deficit spending has carried this “recovery” further than I thought  it would, but the party is now over.
It will be difficult if  not impossible to overcome the above set of circumstances regardless of what  anyone feels about economic back-tested recession  probabilities.
Taxmageddon
Please  consider Taxmageddon

The Tax Foundation reports that because of higher federal  income and corporate tax collections, Tax Freedom Day came four days later this  year than last. And the bad news is that unless Washington takes action, it will  take working Americans 11 more days to meet next year’s tax  burden.
That’s all due to Taxmageddon — a slew of expiring tax cuts and  new tax increases that will hit Americans on January 1, 2013, amounting to a  $494 billion tax hike. Heritage’s Curtis Dubay reports that American households  can expect to face an average tax increase of $3,800 and that 70 percent of  Taxmageddon’s impact will fall directly on low-income and middle-income  families, leaving them with $346 billion less to spend.

Taxes Will Go Through the Roof
PolicyMic  reports When the Payroll Tax Holiday Ends in 2013, Taxes Will Go Through  the Roof

Without significant tax code changes, in 2013, America is  scheduled to get hit with what would be the largest tax increase in our  history.
Not only will the $1,000 per year tax holiday for a $50,000  income household disappear, come 2013 all Americans will see the tax on their  first $8,700 of income jump from a 10% rate to 15% rate.
That hike will  cost the majority of filers an additional $435.
For those eligible for  child care tax credits that deduction will drop from $1,000 to $500. The  marriage penalty will roar back into effect. The AMT, alternative minimum tax,  will finally kick in.
Roll those changes up and a family filing as  married with two children making $50,000, will see their taxes increase by basically  $2,700.

Regardless of whether or not you feel taxes need to be raised, a big  set of tax hikes is scheduled to happen.
To be sure, some of  those hikes will be undone in compromises,  but many if not most will sneak  through.
Who is to blame for  Taxmageddon?
Republican are to blame. They accepted this  silly deal instead of a far better one that Obama would actually have  signed.
But No! Republicans insisted on no tax hikes at all  in 2012, putting everything off until after the election, believing Romney would  win in a cake-walk.
However, if President Obama wins,  certainly not at all an unlikely possibility, he is going to drive a much harder bargain this go  around.
Regardless of tax consequences, the US is headed for  recession, if not already in one. 2013 rates to be a disaster regardless who  wins.

Source

Ryan Litfin

Ryan Litfin knew what he wanted to achieve for himself and others very early on. While attending college Ryan Litfin took a multitude of finance and economics courses, which gave him the opportunity to study finance across a variety of continents including Europe and Australia. Ryan Litfin also engaged in courses while studying in Chicago at places such as the Chicago Mercantile Exchange and the Chicago Board of Trade before graduating with a degree in Finance & Economics from Gustavus Adolphus College. Prior to co-founding Vincent Asset Management, Ryan Litfin was engaged in the financial services sector for the better part of a decade. He has also been actively involved in various community and investment groups. Ryan Litfin furthered his investment knowledge and expertise while studying under Kevin Baldwin in Chicago and ultimately achieved the status of a Series 3 Licensed Managed Futures & Commodity Advisor.

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