Is Recession Around The Corner?

This post originally started as an email that I sent out to my friends and family. I’ve been seeing some disturbing trends in the economic data recently (who hasn’t), but the desperation in the reporting that I’ve been reading makes me worry even more. I’d love it if you added your opinion in the comments at the bottom.


Retail Sales – Something’s Not Right

All week I’ve been reading good news about how retail sales went up 0.8% in July and they were expected to go down 0.6%. However, the overall trend is still very down and retail sales data is known to be extremely volatile. I understand the need for reporters to throw in some economic good news in with all the gloom, but what I’ve read sounds more like desperation.

I remember retail sales slowing in 2008 because that is when my employer started discussing layoffs. I was laid off in December 2008 and remained unemployed for all of 2009. We were very much effected by the retail sales market; a lot of jobs are.

retail sales growth

This graph is from the US Census Bureau. It shows the decline is retail sales growth compared to recent history.

I remember in 2008 how first the banks started failing, then there was a slowdown in the manufacturing industries, and finally it hit the consumer market (retail sales). That’s when unemployment started to spike. So far this year, I’ve been reading the same thing. First banks, then manufacturing, now retail sales.

The recession hit during November 2008 to January 2009 (as I remember it), and lasted pretty much all of 2009. You can see this reflected in the graph above.


Inflation: Rising Food and Gas Prices

Given the fact that the BRIC (Brazil, Russion, India, China) countries as well as the EU have reported slowdown in their economies, it’s going to be hard for the US to continue to swim against the current. In addition to this economic recession, there is pretty much no doubt that we’re going to experience some inflation over the next few months due to rising gas prices (Chevron refinery just went down) and rising food prices (global drought). Inflation and recession at the same time is known as stagflation. Which way do you think the squiggly little representing retail sales is going to go?

worldwide economic slowdown

This infographic comes from the Wall Street Journal. It shows the slowdown in several US markets as well as the slowdown in the economies of several other countries.

Although the recent refinery shutdowns may represent temperary price spikes in gas, the oil market has its own long term problems. However, I don’t think I’ve read any articles that seriously try to put the present global drought into a proper perspective. I did run across this great Wikipedia article on the 2008 food price spike though and I highly recommend it!

Understanding the price spike in 2008 should help you get a better grasp of what we can see in regards to a price spike in the next year. The big takeaway that I got from the Wikipedia article was that the US stockpiles were messed up in 2008 and are virtually non-existent today. So the problems they experienced in 2008, like:

Between 2006 and 2008 average world prices for rice rose by 217%, wheat by 136%, corn by 125% and soybeans by 107%. In late April 2008 rice prices hit 24 cents (U.S.) per U.S. pound, more than doubling the price in just seven months.

Can be expected to be even more exaggerated this time around.

Cost of food makes up a relatively small slice of the US monthly household budget for middle class families, which is good, but I think expecting your food bill to double in the next year or two is a fairly conservative guess based on this historical data. If you are retired or your household income is near the poverty line, then rising food prices will be much more difficult to absorb.


Hold on Tight: Recession Is Around The Corner

This is all a long winded way of saying that all signs point to recession. I am amazed at how similar the economic data of 2012 is to the data of 2008. I am completely flabbergasted that this similarity has escaped the attention of main stream media.

I’d love to see some data that gives reason for hope. I thought that the recent reports on the retail sales data was it, but after a little digging, I only have more reason to worry.

I hope that I turn out to be wrong, but I feel that the historical and present data paints a pretty clear picture. What do you think? Most importantly, why do you think that way? If you agree or disagree with any of the conclusions I’ve come to, please share your thoughts.

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Comments
2 Responses to “Is Recession Around The Corner?”
  1. I haven’t analyzed the data as you have so my opinion is based just on what I’m seeing myself and my own feelings about things. I think part of the problem is that we are measuring economic growth now the same way we always have: retail sales, housing ‘starts’ (I mean, how many new houses do we need to build?) , auto sales, new jobs, etc. The problem is that people are developing different habits in spending money during the lean times. It feels to me that the same kind of reasoning that caused the housing bubble is reflected in the overall slow economic recovery: buying more than you need, at higher prices than you can afford, only to see the bubble burst later and be left with nothing. I think people are realizing this. I’m sure it’s more complicated than that if one is an economist, but I don’t see things ever going back to how they used to be, because that way of life is simply unsustainable in the long term. I believe the people who will be the most successful in the future are the creative spirits who grow their own food and create their own jobs. It’s going to be back to the ‘pioneer’ days in some ways.

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