New Orders Look Recessionary [So Why Is The Financial News Astonishingly Rosy?]

Of Two Minds ^ | 03/09/2015 | Charles Hugh-Smith

[SeekAndFind]

The financial news is astonishingly rosy: record trade surpluses in China, positive surprises in Europe, the best run of new jobs added to the U.S. economy since the go-go 1990s, and the gift that keeps on giving to consumers everywhere, low oil prices.

So if everything is so fantastic, why are new orders cratering? New orders are a snapshot of future demand, as opposed to current retail sales or orders that have been delivered.

Like most other economic data, the series is noisy, meaning there are plenty of spikes up and down. To cut through the clutter, we look for trends and patterns, i.e. what did the series do prior to past recessions?

The answer is of course that new orders declined sharply. Take a look at this chart of new orders for consumer goods:new orders has reached levels below those recorded in the 2000-2002 recession.

New orders have spiked down briefly in non-recessionary periods, for example during the Asian Contagion of 1997 and a spot of weakness in 2006. But the current readings are significantly lower than these weak patches.

New orders for capital goods (excluding defense and aircraft orders) are not quite in recession territory, but the trendline is definitely weakening. Such weakening trends characterize pre-recessionary periods.

If we combine the two data series, we find New Orders are obviously in recessionary territory. Now maybe this is a temporary spike down that will be reversed next month, but if it is not reversed quickly, it is clearly divergent from the happy story of more jobs, global growth is picking up, etc.

New Orders is one side of the story; the other is real (inflation-adjusted) household income. Without more income, households must borrow more to consume more, and debt-dependent consumption eventually leads to households that can no longer borrow more, and an increasing number of households at risk of defaulting on their loans for vehicles, college, homes, credit card debt, etc.

In a period of strong global expansion, we'd expect to see median income rise not just in nominal terms but in real purchasing-power terms. But median income is still below levels reached in 2000. Courtesy of Doug Short:

In nominal terms, median household income is up a third from 2000--a strong showing indeed. But adjusted for official inflation (which understates inflation in key sectors such as healthcare and higher education), income has risen off the bottom (9.6% beneath 2000 levels) and is now only 3.9% below 2000 levels, but this is dismayingly at odds with the happy story of nominal gains.

This broad measure of household income doesn't tell us how much of the gains have been captured by the top 10%; the top layer may have gained much more than the 90% below.

This also doesn't reflect other potentially negative factors such as higher healthcare deductibles that lower actual take-home pay.

While "recovery" cheerleaders are busy predicting strong growth in wages going forward, they conveniently ignore that it will take another 4% of real gains just to get back to the levels of 15 years ago. 

[grania]

It’s because the economy now has very little connection to the economic well-being of about 80% of the population. We’ve become a cash crop through which money is channeled from the government to the elite.

[Wyatt's Torch]

Are Boeing aircraft orders factored out of this? Those have been very choppy.

[MeneMeneTekelUpharsin]

My wife and I are getting into stiff arguments about buying a house. I keep telling her it’s gonna crash. You can’t get gainful employment anywhere and she keeps complaining I’m waiting too long. Meanwhile, somehow, prices keep going up and up and up with no basis for it. Blows my mind. Can someone explain HOW people are buying houses now with the economy like it is?

[proxy_user]

While not everyone has a good job and is making money, many people do. You don’t need everyone in the housing market. If not many new houses are being built, the prices will go up.

[buckalfa]

"Can someone explain HOW people are buying houses now with the economy like it is?"

I have need of some minor finish carpentry work at the homestead, but I can find no one who wants the job. That leaves me to believe the economy is booming and everyone is flush with money! (sarcasm).

[OneWingedShark]

You are being farmed. That is what it boils down to.
So long as you don’t rock the boat, give your vote to the uniparty [thus validating it], and pay taxes they don’t give a crap about you.

[Defiant]

Has anyone gone back to see if FDR had used Obama’s methods for calculating employment, he could have declared the depression over by 1935? Instead of 25 percent unemployment, just declare all those people out of the work force, and magically, unemployment is under 10 percent.

[grania]

Go back to the old assumptions. If you purchase a house, you should be prepared to live there, perhaps for a lifetime, if it can't be sold. If there's a mortgage, have a plan to pay it off. Second mortgages are insane. Another thing....know what's on all four sides. Nothing can destroy value like a money-grabbing construction project that gets by the community.

Another factor is age. I was comfortable buying a house cash (profits from previous house) at age 60. Ten years later, if I were to move, I'd get what I can for this residence and the next residence would be a rental.

[Georgia Girl 2]

Just keep your eye on the BDI (Baltic Dry Index).

[thackney]

I can find no one who wants the job. That leaves me to believe the economy is booming

Or welfare is too easy to get and pays too well...

[jimpick]

Or there are to many illegals collecting government assistance that the price has been driven so low nobody can afford to do the work.

[thackney]

If the illegals are collecting government assistance, why are they competition for jobs?

[jimpick]

They collect assistance and work under the table for cash. Americans don't collect assistance and have to pay fees to work. Things like unemployment insurance, taxes, licenses, workers comp, ect. These extra cost make it unprofitable to do the work for the price illegals charge. Illegals have a subsidy to do the work at your expense.

If you don't know where to hire them you will have a hard time getting work done in some localities.