You won’t hear any talk about a Recession 2013 from the president, or from whoever happens to be the next Fed Head, or from anyone of either party in Congress. You won’t hear about it on the news, either.
Listen to them and you’ll hear that the economy’s turning a corner. “Growth has returned… unemployment is falling… the markets are at all-time highs… things are looking up all over.”
What a relief, right?
It might be… if any of it was actually true.
Our economy expanded by just 2.5% last quarter, and that’s taking into account the “adjustments” that the Bureau of Economic Analysis performed in July – adjustments that just so happen to make the gross domestic product (GDP) look bigger than it really is, all the way back to 1929.
The official unemployment rate was 7.3% last month. That doesn’t count people who have given up looking for work, or the millions who desire full-time work but can only get part-time work. And it doesn’t account for the computer errors in two states that drove the official numbers down. The actual number of Americans who are unemployed or underemployed is 14%.
All these indicators point to a Recession 2013.
And it’s about to get even worse.
Recession 2013 Is Nearly Here
You see, there’s an obscure macroeconomic rule of thumb that goes something like this:
When the annual growth rate of certain key indicators falls below 2%, a recession follows within 12 months.
And as it stands now, alarm bells should be ringing, red lights should be flashing, and little hairs should be standing up on the back of the nation’s collective neck.
There are some signs that we’re already in a recession – a “stealth” recession in which we don’t necessarily see what is usually the most visible facet, which is unemployment. But unemployment is already so bad that we may have stopped paying attention.
The Real (Raw) Deal
Real disposable incomes stand at 0.8%, and real consumer spending has fallen to 1.7%. Again, obviously, that’s less than 2%. That has a cascade effect right on down through the rest of the economy, because in the United States, consumer spending accounts for an incredible 70% of the $15.6 trillion GDP.
Granted, a great deal of thatconsumer spending includes necessities like healthcare – consumers spend about $1.5 trillion altogether on food, clothes, and housing, but with median incomes flat this year, there’s less and less for those consumers to spend.
Our society, and our economy, has arrived at the point where it needs to spend money right and left to keep economic growth up and to avoid a Recession 2013. If we’re not spending, the economy can’t grow.
And it isn’t growing much at all. It’s shrinking, or… receding, if you will.
The real GDP has actually been falling for the last three quarters, from 3.15% in Q3 2012, to 2% in Q4 2012, all the way down to 1.6% in Q2 2013. That’s not healthy growth by any stretch of the imagination. Obviously, it represents a contraction of growth – the textbook definition of recession.
And yes, it gets worse.
Nearly every meaningful indicator pertaining to consumer spending is slowing, dropping beneath that 2% threshold that signals a recession.
The real final sales of domestic product is a great indication of the amount of demand out there in the United States. It’s a snapshot of the amount of stuffproduced by the economy that is actually sold, as opposed to shelved. It’s on track to keep a 12-month pace of 1.6%.
One of the few indicators actually advancing – and this is not necessarily a good thing – is the total amount of consumer credit.
That segment grew by 4.4%, annualized, in July. Car loans, some of them actually subprime auto loans, and student loans drove this growth. At the same time, individual revolving credit, like credit cards, for instance, shrank by an annualized 2.6% in July, behind a 5.2% decline in June. Year on year, revolving credit is flat. It’s grown by just 0.8%, exactly as it has since 2012.
And yes, it gets worse.
Retail sales across many different measures are moving at a veritable crawl. Adjusted for inflation, the real rate of retail sales is 2.3%, all amidst wide discounting and promotions.
Retail sales not including vehicles and their parts fell 0.3% from August 2012.
With wages and incomes flat, Recession 2013 is beginning to look more and more inevitable. Unless Americans start earning again, and right soon, periods of anemic economic growth followed by recessions that knock off the survivors will be the “new normal.”
That light at the end of the tunnel? It’s the 10:15 out of Washington, D.C., headed straight for us.
Note: A Recession 2013 would be awful, but there’s no good reason why it should ravage your portfolio. Check out these simple steps to building a “fortress portfolio” that can withstand the toughest financial blows.
- Bureau of Economic Analysis:
- Federal Reserve Bank of the United States: