A Quick Primer On Why Everyone Thinks The Economy Is Headed Into The Toilet Again

great depression

Three months ago, everyone was jubilant: The economy was headed for a v-shaped recovery, job growth was kicking in, and consumers were about to start spending, spending, spending again.

But now, suddenly, everyone thinks the economy is headed back into the tank.

Aside from noting the obvious–when it comes to economics, the consensus is usually wrong–it’s worth reviewing why everyone has suddenly become so pessimistic again.

It all starts with unemployment, which is still close to a post-Depression high. (And the recent drop has been helped by people dropping out of the workforce)

Source: Northern Trust

Another huge problem is the number of folks who have been unemployed for more than half a year--it just keeps going up

And the leading indicator for jobs--initial unemployment claims--has stopped improving. It's still too high.

Source: Northern Trust

Just as bad, private-sector hiring (blue bars) appears to be weakening again.

Source: Northern Trust

Add it all together, and we're still stuck in the worst (and longest) jobs decline since the Great Depression

Source: Calculated Risk

And, making matters worse, the government has now cut off benefits to long-term unemployed. By the end of July, 3.5 million people will lose benefits and have even less money to spend

Source: Northern Trust

When you don't have a job, you can't spend, and that's hurting the other big driver of the economy--the housing market

Existing home sales dropped in May.

Source: Calculated Risk

Despite record low mortgage rates...

Existing home sales dropped in May and inventories are rising again

Source: Calculated Risk

This is making houses harder to sell--which will force further price cuts

Source: Calculated Risk

Source: Northern Trust

Car sales have also suffered--declining in June versus May. Despite an uptick in Q2, this bodes poorly for Q3.

Source: Northern Trust

Manufacturing is now weakening again

Source: Northern Trust

So is construction spending

Source: Northern Trust

And even the world's newest economic engine, China, appears to be sputtering

Source: Northern Trust

The ECRI leading index has rolled over

And so has Goldman's leading index

Meanwhile, we haven't even begun to deal with (or even acknowledge) the real problem in the economy--we're pinned down by an absolutely massive mountain of debt

This chart is almost two years out of date. The problem has gotten a lot worse since then.

Given the huge debt load, it's no wonder banks aren't lending (except to the government)--consumers already have debt coming out of their ears

Add all that together, and that's why everyone's suddenly worried about a Depression again

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