Economy beginning to crack

It had to happen sometime. After all, no one has ever eliminated the business cycle, and this one is long in the tooth.
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In the space of a week the economy got a double-dose of bad news.

An abrupt drop in the Institute for Supply Management’s services gauge on Tuesday to a six-year low is the latest in a string of unexpectedly weak data for August. Other less-than-stellar figures include an ISM factory survey showing a contraction in manufacturing; a cooling of hiring; automobile sales falling short of forecasts; and an index of consumer sentiment at a four-month low.

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This is NOT the same thing as a recession. OTOH, it is an indication that the economists over-estimated the strength of the economy.

“The last two ISM reports have been shockingly weak, and I think the case for the Fed to hike this month becomes increasingly more difficult and unlikely,” said Mazen Issa, a senior foreign-exchange strategist at Toronto-Dominion Bank in New York. That’s being reflected in a falling U.S. dollar, he said.

Now some might say, "Who cares because the labor market is OK."
But is the labor market OK?
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One way or another, even if this is the beginning of a recession, it's too close to the election to be a major factor. There is no way they would declare an official recession until well after November.
Instead what will be part of the conversation is this chart.
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Citizen Of Earth's picture

yet stock prices continue to climb to infinity. Stawk buybacks can't go on forever.
We ain't in Kansas anymore, fer sure.

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Donnie The #ShitHole Douchebag. Fake Friend to the Working Class. Real Asshole.

Dorothy still needs to deliver the Chinese-made Crimson Zircon encrusted footware to the ISDN tribunal! How can she do that when Korean shipping firms are going belly-up?

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Vowing To Oppose Everything Trump Attempts.

We are into the month that is historically the worst for the stock market and that is compounded by the fact that election years when an incumbent is not running tend to be harder on equities. I addition, August is the month with more seasonal adjustments than the other 11. This makes decision making tougher.

The Institute of Supply Managers looks at manufacturing and although there are well paying jobs in this sector, NAFTA, CAFTA and the rest have reduced the USA's manufacturing level to 8% of the workforce.

Inflation is 1.6% which is below the FED's target and the workweek declined more than the small boost in wages covered - workers lost out again in these initial figures.

This should mean that there's no chance of a FED interest rate raise this month so December is the next shot at it. Continued low rates are bad for savers and pension funds and insurance companies but are all right with other big businesses.

As you allude to, the stock market is ultimately driven by earnings and these are slipping. I think this is where the next recession will originate.

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"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"

Dallas

Most economic data show that the US economy is still growing, albeit at a lackluster pace. According to the Bureau of Economic Analysis, US GDP grew at a 0.8% pace in Q2.

However, the big aggregate numbers fail to capture the tone of what’s going on at more localized levels. For some manufacturing and energy driven economies in the US, things look like a recession if not an outright depression.

“Sometime after the election, historical data will show that in 2016 the U.S. was in recession,” said a machinery manufacturer who responded to the Dallas Fed’s latest manufacturing outlook survey.

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by the Dpt of Labor and that's the old (outdated?) definition of a recession of consecutive quarters of negative growth.

I don't dispute for a second that many parts of the country are experiencing depression like conditions. U6 shows way too much pain among wage earners to call this a recovery, particularly now. I am trying to express the establishment's view, a view used by both government and big business. It's not a view I share but then I don't share the view that a country is served by having stock markets, period.

57,000 factories have shut down, not because they were unprofitable but because monopoly capital can squeeze a few points out of the international labor arbitrage and leave its communities to rot and its people to sink into despair. Here's where the capitalist parties have failed the people.

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"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"

Daenerys's picture

it's about time for the other shoe to drop.

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This shit is bananas.

snoopydawg's picture

But since your essay about Syria and AL Quada got
deleted eaten, I read it on Dk and saw a few people there defending Al Quada.
It was a definite wtf moment.
As I have commented before, many of us joined DK because of the Iraq war, but once Obama continued PNAC's goals in the Middle East, it became acceptable, so did citizens united because Hillary needs to be president because Trump is bad, and everything else that was wrong when it was Bush and the republicans doing them.
But defending AQ? Did anyone see that coming? Well I didn't think I would see the US arming and funding them or the military working alongside them after we fought against them in Iraq.
Back on topic, I wish I understood more about your economy essays.
Whoosh.

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Which AIPAC/MIC/pharma/bank bought politician are you going to vote for? Don’t be surprised when nothing changes.

I read it on Dk and saw a few people there defending Al Quada.

Yep.
First there was the "cutting heads off children isn't terrorism" argument.
Then there was the "They are only terrorists to other people" argument.
And my favorite "They were terrorists, but they got better" argument.

It made the whole effort of posting it to TOP worth it.

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GreatLakeSailor's picture

What a toxic stew those comments.

Earlier today I read this: exposed-natos-sleeper-cells-within-us-anti-war-movement
http://21stcenturywire.com/2016/09/04/exposed-natos-sleeper-cells-within...

And there at GOS were GOSers spewing the very thing the piece calls out. I probably should have guessed.

I looked at my history. Last time at GOS was 06July to check out a BNR.

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Compensated Spokes Model for Big Poor.

gulfgal98's picture

It's funny because my mother has a degree in economics and yet I am clueless. Still, I find gjohnsit's essays always informative even for my tiny little brain. Wink

Back on topic, I wish I understood more about your economy essays.
Whoosh.

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Do I hear the sound of guillotines being constructed?

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

Azazello's picture

The signs are everywhere, Hanjin bankruptcy, idle locomotives, weakness in car sales and bank loans. Sooner or later it comes down to consumers buying things and they can't anymore because THERE WAS NO RECOVERY.

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We wanted decent healthcare, a living wage and free college.
The Democrats gave us Biden and war instead.

gulfgal98's picture

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Do I hear the sound of guillotines being constructed?

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

Galtisalie's picture

And I would add that "recovery" for the working class from capitalist crises is always more or less illusory.

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travelerxxx's picture

Yes, look around.

Listen.

If you live near railroad tracks, note the slowing frequency of trains. I live near tracks, and I'm noticing it. It's not as bad as '08-09, but it's unmistakable. I usually hear at least six trains in twelve hours; I haven't heard one in two days.

Look.

Watch the new car lots. Look in the back. Is it full, in fact so full that they are squeezing them in? If so, they aren't selling new cars ... no matter what they say. Watch the roads for the auto-carrier trucks. Not seeing any? Me either, and I get around.

Here in Houston, you cannot drive anywhere without seeing many huge empty buildings with "for lease" signs. Now, Houston is pretty much in a recession due to the crash in oil prices, but we are far more diversified than we were during the early 80's crash.

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lotlizard's picture

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The Chevy dealer I drive past frequently has half a lot full of shinny new Corvettes. I live in an upper-middle-class area, but there are probably 150 of these cars. Who does the owner expect to buy all of those? If I had that kind of cash, I would buy a Tesla.

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Democrats, we tried to warn you. How is that guilt and shame working out?

vtcc73's picture

are a sign of the abusive relationship between manufacturers and their dealers. The manufacturers are going full tilt boogie and stuffing cars down their dealers throats. The numbers and profits look just fine for the manufacturers but the dealers are stuck with inventory they can only sell, if they can sell at all, at deep discounts and with financing gimmicks. Dealers can't refuse cars without risking being cut back/off on popular models or lose access to programs that bring revenue support from the manufacturers. Many dealers are hurting now but both dealers and manufacturers will really suffer in a full blown recession. Welcome to modern American big business.

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"Ah, but I was so much older then, I'm younger than that now..."

travelerxxx's picture

The "stuffing" of the new car dealerships was something going on hot and heavy at the start of the Great Recession and continued well into it. Here in Houston, a good number of these dealers went bankrupt and/or changed hands. Often the sign above the door stayed the same, but there were different owners.

The Great Recession has never ended for many of us, so we are still adept at judging which way the wind is blowing.

By the way, now in three days, I've now heard only one train passing. I am not home all the time, but still....

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Many of those dealers are solidly Republican and are vehemently against deregulation.

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Democrats, we tried to warn you. How is that guilt and shame working out?

That's pretty much all I need to know because when goods aren't moving that means people aren't buying. And that generally means either they aren't working or working in jobs that don't pay enough to buy stuff.

Edited for grammar and clarity!

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O.k. When is the next meeting for the revolution?
-FuturePassed on Sunday, November 25, 2018 10:22 p.m.

There are basically 3 tiers of government education loans:

Subsidized Direct
Unsubsidized Direct
"PLUS".
The two Direct loan types aren't TOO outrageous, but they are quite limited in the amounts available.

The PLUS loan, on the other hand ... well ... you can borrow as much as you need with these loans, but:
a. There's a 4.25% (ish) loan origination fee (!!!!!!!!)
b. Interest rate at the moment (and fixed for the life of the loan) is over 6%.
c. Interest begins to accrue immediately.

It's my understanding that currently, central banks are loaning money at negative interest; yet, the US department of education is loaning out money to college students at 6+ freaking percent.

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The earth is a multibillion-year-old sphere.
The Nazis killed millions of Jews.
On 9/11/01 a Boeing 757 (AA77) flew into the Pentagon.
AGCC is happening.
If you cannot accept these facts, I cannot fake an interest in any of your opinions.

Hawkfish's picture

Then we can either tear it up or at least give the borrowers the same rates as the big boys. Sounds same to me.

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We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

Alligator Ed's picture

The Fed has run out of corporate debt to buy--so buying student debt would give them another way to expand their quantitative easing, which is easing our country to disaster. So even though eradicating student debt would be a good thing--the Banksters cannot allow anything which improves the lives of the citizenry (99%) to occur.

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Pluto's Republic's picture

… that US money policy causes the world.

...buying student debt would give them another way to expand their quantitative easing, which is easing our country to disaster.

Printing vast sums of money dilutes the money supply and this definitely results in inflation. They pour money into the economy through the banks so they target and create class debt, like school loans, But, because the US dollar is the world's reserve currency, the US can export the ensuing US inflation to the world's emerging nations to suffer the pain for us. It's an abuse of the privilege of reserve currency status. Then, with mind-blowing arrogance, the US gets away with the insulting absurdity of calling a competing nation a "currency manipulator". The American education, by design, does not include the principles of practical economics, and therefore the People cannot analyze the propaganda or see the self-harm.

The people's only role, beside backing the US dollar with the sweat of their indentured toil, is to hate Russia, or China, or Venezuela, or whatever civilization is the next target of US imperial destruction.

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____________________

The political system is what it is because the People are who they are. — Plato

I've read somewhere that the Federal government MAKES billions of dollars in PROFIT off of student loans (about 11 billion a year). It is a net income maker for the federal government. Giving out loans at high interest rates to people who can never get out from under them. Eating our seed corn.

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Democrats, we tried to warn you. How is that guilt and shame working out?

vtcc73's picture

is student loans to the parents of the student. The parents are on the hook while the student has no obligation to repay the loan to the lender. I agree that the origination fee and interest rates (capped at 8% by law for PLUS IIRC) are outrageous considering the overabundance of available cash to the financial sector but not necessarily consumers or businesses, particularly small ones. The connection between interest rate and risk in borrowing has been severed except where it favors the lender or, like PLUS, where legislation designed to favor private lenders interferes with the market. This is just one more example of an Obama administration improvement to a federal law governing a 1950's middle class expanding program that was supposed to fix the problem of predatory lending to college students and their families. It only removed the worst of the private lending abuse (replacing private collections with federal government contracted collections on defaulters) but kept student loans very profitable for the financial sector and the federal government.

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"Ah, but I was so much older then, I'm younger than that now..."

rather than their parents.

And I agree that it's an improvement over what was there 10 years ago -- my comment was directed only at the irritating fact that while the financialists are currently falling over themselves to pump money into the valueless pseudoeconomy of financial speculation, regular folks looking to get their hands on money to pay for something that actually needs paying for are paying (comparatively) handsomely for the privilege. No, it's not the equivalent of payday lending, but the spread between what it costs the federal government to borrow that money and what the federal government charges the downstream borrower, is pretty damned extreme. That's serious brokerage.

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The earth is a multibillion-year-old sphere.
The Nazis killed millions of Jews.
On 9/11/01 a Boeing 757 (AA77) flew into the Pentagon.
AGCC is happening.
If you cannot accept these facts, I cannot fake an interest in any of your opinions.

Raggedy Ann's picture

Things are tight as hell. Earnings should be down - no one has money to spend. We're all just getting by, hoping that big emergency doesn't manifest and bankrupt a person.

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"The “jumpers” reminded us that one day we will all face only one choice and that is how we will die, not how we will live." Chris Hedges on 9/11

Daenerys's picture

and it's gonna wipe out my bank account that I've been saving up for the last 3.5 years. Ugh.

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This shit is bananas.

Steven D's picture

It's so fucking obvious.

I'm betting on a twofer.

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"You can't just leave those who created the problem in charge of the solution."---Tyree Scott

In the 1960's, the U.S. made 92% of its manufactured goods at home. As of 2015, 98% of our goods are manufactured offshore, and only 2% are made here. Another way of viewing this is: the one% exported our wealth, our good jobs, our ability to make things, to low-wage, zero-regulation countries. Thanks Bill Clinton.

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karl pearson's picture

Although this PBS Frontline program is 2004, it explains a little about why our goods are manufactured offshore and not here. All this was the not the result of aggressive Asian export policies, but U.S. Corporations demanding low purchase prices. Interesting that the low cost of offshore manufacturing is not passed on to the U.S. consumer. Even Walmart has raised their prices and is no longer inexpensive.

"Instead, the experts tell us, these are self-inflicted wounds. American companies played a central role in the rise of China and the Asian Tigers. The seismic shifts in the global economy, they say, have been largely driven by American companies -- not just by multi-national manufacturers like GE or Hewlett Packard moving production overseas, but by giant American retailers like Wal-Mart, Target, Kmart, Toys "R" Us and Home Depot, and brands like Nike or Liz Claiborne galvanizing Asians to export to the U.S."

"The Americans, they say, have gone well beyond merely hunting for bargains already being produced in Asia. In fact, both academics and business executives report, American retailers have actively driven outsourcing -- teaching East Asians how to design and manufacture products for American consumers, creating their own house brands in league with Chinese and Asian producers, and then bluntly warning beleaguered U.S. manufacturers that they'd better move their American plants to China and Asia if they want to survive."
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/secrets/shots.html

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Alligator Ed's picture

Tariffs and taxes anyone. Forced repatriation of of jobs and offshore cash hoards might (but probably won't) get the Corps who have made the American Consumer complicit, perhaps involuntarily, in the decay of our economic system. Tariffs in the short term will hurt us 99ers but it might make it more profitable in the long run for manufacturers to move stuff back here if their overseas manufactured stuff is surcharged enough. Then maybe we get some manufacturing jobs back.

From the little I know about Modern Monetary Theory (which admittedly is very, very little), it seems that the geniuses who invented negative interest rates should be put to work in West Virginia coal mines--after all, it's "clean coal", cough, cough.

gjohnsit, another fine (but depressing) lesson in economics. One question. Anybody that looks around and converses with their neighbors know the Great Recession never resolved and it's back on its merry way for more harm. So why don't you think this will NOT be a tremendous boost to Herr Drumpf? After all, it's the economy....

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Galtisalie's picture

The thing that sticks out to me is that the financial bubble that burst in 2008 still lies burst on Main Street. There has been a lot of remodeling in recent years and sucking up of excess real estate inventories at relatively good prices, but the building of new subdivisions and high rise condominiums is generally slow and going nowhere, and the financial sector try as it might can't figure out where to create a new bubble. They'd been hoping for years that the privatization of social security would happen.

Somewhere the next Big Short play is being written, but this one is not based on the financial sector but all the Main Street-related sectors that either didn't get bailed out or also need a new bubble.

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thanatokephaloides's picture

WARNING: offensive "gangsta" language

[video:https://youtu.be/HpVU6w_7fBk width:560 height:315]

The economy's not "beginning to" crack, it's on crack!

Bad Bomb

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"US govt/military = bad. Russian govt/military = bad. Any politician wanting power = bad. Anyone wielding power = bad." --Shahryar

"All power corrupts absolutely!" -- thanatokephaloides

Roger Fox's picture

If the Fed tries to raise rates without any underlying improvements, they will create a recession.

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FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

Steven D's picture

Income has been in a recession since 2007. Actually much longer to be honest. Those in the 90% or above are one step away from a recession. The 1% are the only ones not worried right now though they should be.

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"You can't just leave those who created the problem in charge of the solution."---Tyree Scott

Another great diary! So happy that I didn't have to go to TOP to read it.

For me, It seems like the recession has never ended. My wife and I both work. Yet It always feels like we are one bad car repair away from having no cushion left.

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ggersh's picture

is what's needed. Trickle up doesn't work for the 99%.

Here's a good video of David Simon my daughter sent me, it's well worth
the half hour it takes to watch. I hope you watch and enjoy.

[video:https://www.youtube.com/watch?v=ZYXNdELqCe4]

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I never knew that the term "Never Again" only pertained to
those born Jewish

"Antisemite used to be someone who didn't like Jews
now it's someone who Jews don't like"

Heard from Margaret Kimberley

divineorder's picture

for us recently And now TX leg issued warning they don't have to keep paying for our retiree health benefit. Premiums and deducts going up.

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A truth of the nuclear age/climate change: we can no longer have endless war and survive on this planet. Oh sh*t.