Sunday, March 08, 2015

New Orders Look Recessionary

New Orders are in recessionary territory.

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. 

Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)
go to Kindle edition
Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.  And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube) 

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Yazad L. ($50), for your superbly generous contribution to this site-- I am greatly honored by your longstanding support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted
on my site.

  © Blogger templates Newspaper III by 2008

Back to TOP