DAILY UPDATE (February 19th to 24th) – Next Postings: Data Release (Feb 26th*), Commentary (Feb 23rd**) // January 2020 Freight Activity Continued Plunging Year-to-Year, As Last Seen at the Great Recession Onset / Indication There Is for Neither a Booming Economy, Nor “Sustainable Moderate Economic Growth” / January PPI Gained 0.5% in the Month, 2.1% Year-to-Year, Dominated as Usual by the Mal-Defined Services Sector / Quarterly Contraction in Fourth-Quarter 2019 “Holiday Season” Real Retail Sales Deepened in Revision / January Mining Activity Rose, but Weaker Manufacturing and Weather-Depressed Utilities Knocked Aggregate Industrial Production Lower by 0.3% (-0.3%) / Capacity Utilization Dropped to Its Lowest Level Since Coming Out of the 2014-2016 Mini-Recession; Down 2.8 Percentage Points from Its November 2018 Peak / January 2020 Unadjusted Annual Consumer Price Inflation Jumped to a 15-Month High of 2.5%, from 2.3% in December 2019, Unaffected by Five Years of Revisions to the Seasonally Adjusted Data / Recession Signals Continued to Intensify for FOMC-Battered GDP Consumer Spending // ON THE PLUS-SIDE: New Residential Construction Activity, (Housing Starts and Building Permits) Has Pushed to Post-Recession Highs, Despite Extreme and Often Nonsensical Monthly Volatility / Both Series Remain 31% (-31%) Below Pre-Recession Peaks, But Are Gaining.

• L A T E S T .. N U M B E R S .. January 2020 CASS Freight Index Plunged Year-to-Year by 9.4% (-9.4%), Following a 7.9% (-7.9%) drop in December 2019, the Steepest Pattern of Annual Downturns Since the Great Recession Onset (February 18th, CASSinfo.com, see the updated reporting at https://www.cassinfo.com/freight-audit-payment/cass-transportation-indexes/january-2020). The deepening annual plunges in the December and January CASS Freight Index activity were the steepest since the early months of the Great Recession.

The collapse in activity here has remained consistent with a “Recession,” not with a purportedly “Booming Economy” and not with the FOMC’s proclaimed “Sustainable Moderate Economic Growth.” The activity here, however, was consistent with the recently reported quarterly declines in Fourth-Quarter 2019 Real Retail Sales and Industrial Production. Separately, the Index’s consecutive monthly year-to-year declines and monthly declines in the 12-month trailing average held in place for the fourteenth straight month. Those year-to-year and 12-month-moving-average metrics neutralize seasonality in this unadjusted series. ShadowStats regularly follows and analyzes the CASS Index as a highest-quality coincident / leading indicator of underlying economic reality. We thank CASS for their permission to graph and to use their numbers in our Commentaries, see Flash Update No. 23.

(February 19) January 2020 Housing Starts and Building Permits Are in a Broad Upswing (Census Bureau, HUD). Despite ongoing extreme and usually nonsensical monthly volatility, Housing Starts and Building Permits are in a noticeable uptrend, with their six-month smoothed measures hitting post-recession highs. That said, Housing Starts and Building Permits respectively held shy of their pre-recession peaks by 31.1% (-31.1%) and by 31.5% (-31.5%), with those deficits narrowing. The pick-up in activity has been most noticeable in the more-volatile multiple-unit as opposed to single-unit housing structures. This circumstance will be reviewed in Special Commentary Bullet No. 19-B. That said, the headline monthly contraction of 3.6% (-3.6%) in aggregate January Housing Starts was not statistically meaningful, but the annual gain of 21.4% was significant.

(February 19) The January 2020 Final Demand Goods Producer Price Index (PPI) Monthly Inflation Eased to 0.09% from 0.26% in December, Gaining Year-to-Year by 1.84%, versus 1.14% in December (Bureau of Labor Statistics). Yet, including the mal-defined, dominant Services Sector, the aggregate January 2020 headline Producer Price Index Final Demand (PPI-FD) jumped by 0.51% in the month and by 2.06% year-to-year, versus respective December gains of 0.17% and 1.28%. Upside margin distortions spiking January Services Inflation reflected post-Holiday Shopping Season price declines in apparel, jewelry, footwear and accessories. Year-to-year January Services Inflation ran 1.95% (versus in 1.28% December), with Construction Inflation of 3.68% (3.63% December). All the seasonally adjusted monthly data were revised minimally for the last five years.

(February 14) Weakness in Real Retail Sales and Consumer Spending Intensified in January 2020, with Fourth-Quarter 2019 Activity Revising Into a Deeper Quarterly Contraction (Census Bureau). In context of downside revisions to December and November 2019 activity, January’s headline monthly gain of 0.27% in nominal Retail Sales effectively was flat, at 0.03%, net of prior month’s sales revisions. In combination with the just-benchmarked CPI-U inflation, January’s inflation-adjusted real gain of 0.12% was a monthly decline of 0.09% (-0.09%) net of revisions.

The annualized quarterly real contraction in Fourth-Quarter 2019 Retail Sales deepened from initial reporting of 0.40% (-0.40%) to 0.60% (-0.60%), the first quarterly decline since the 2014-2016 Mini-Recession. It also confirmed the second consecutive failed Holiday Shopping Season.

The headline January numbers were in advance of what should be major downside revisions to historical Retail Sales activity, come annual benchmarking to the series on April 27th, as discussed in Flash Update No. 21 and Flash Update No. 22.

(February 14) Industrial Production Capacity Utilization Showed a Deepening Recession (Federal Reserve Board). Updated readings of Industrial Production Capacity, a basic indicator of broad economic health and a traditional tool in timing recessions, fell to 76.78% in January 2020, its lowest reading since its 79.57% November 2018 peak, which likely was the peak in economic activity of the current business cycle.

That said, headline January 2020 Industrial Production suggested that the Mining Sector had begun to bottom. With the decline in Oil and Gas exploration leveling out, and with gains in Oil and Gas Production, the Mining Sector increased by 1.16% in the month, hitting a new monthly high. Yet, a small decline in Manufacturing and a drop in Utility usage, from unseasonably warm weather, still knocked headline January Industrial Production Lower by 0.31% (-0.31%), see Flash Update No. 22.

• S Y S T E M I C .. R I S K – January FOMC - No Surprises - No Rate Change, Continued Balance Sheet Expansion. (January 29th) The Fed maintained its existing policies, continuing to provide new and expanded liquidity (at least into 2q2020) to prop a still-unstable Banking System, Stock Market and other Financial Markets, while continuing not to help the struggling U.S. Consumer with a rate cut. It was the Fed’s overly aggressive interest rate hikes in 2018 that helped to strangle Consumer Liquidity and broad economic growth. Where Consumer activity drives and dominates the U.S. economy, the Fed’s rate hikes triggered a still unfolding economic downturn (see extended detail in Flash Update No. 19).

Befuddled FOMC: Deepening Risk of Major Financial Crisis, With the Fed Continuing to Hold Back on an Honest Assessment of Out-of-Control Systemic Liquidity and Economic Woes. The FOMC effectively has lost control of the system. Its Spiel of “Sustainable Moderate Economic Growth” in place remains nonsense, as seen in economic reporting of the last month. A rate cut continues to be needed, to help the Consumer and the broad economy. The more a rate cut is delayed, the less effective it will be than if it had been done earlier.

Separately, the Fed’s continued “Non-Quantitative-Easing” Balance Sheet expansion is beginning to look like a tacit acceptance of “Modern Monetary Theory” (MMT), just printing money as needed “without consequence.” Yet, there is and already has been consequence -- an accelerating loss of actual U.S. dollar purchasing power and movement towards domestic hyperinflation, as discussed and demonstrated in Special Commentary Bullet Edition No. 19-A and pending 19-B.

• A L E R T –- (January 27th) ShadowStats’ Recession Forecast Remains in Place, With U.S. Economic Reporting in a Deepening Downturn, Complicated and Intensified by Unusual and Unstable Domestic and Global Political Circumstances: Watch for Accelerating Flight from the Dollar and Stocks into Gold. Beyond intensified near-term financial-market risks from negative economic, liquidity and political issues, the ShadowStats broad outlook in the weeks and months ahead remains in place for: (1) a continued intensifying U.S. economic downturn in meaningful underlying series such as production and retail sales, reflected in (2) mounting selling pressure on the U.S. dollar, against currencies such as the Swiss Franc, (3) continued flight to safety in precious metals, with upside pressures on gold and silver prices, and (4) increasingly high risk of extraordinarily heavy stock-market selling.

• P O S T I N G .. S C H E D U L E S .. *SHADOWSTATS CONCURRENT ANALYSES OF NEW DATA: January 2020 New-Home Sales will be released Wednesday, February 26th at 10:00 a.m. ET. ShadowStats’ initial analysis should post by 1:00 p.m. ET.

**SHADOWSTATS COMMENTARIES (Dates Are Subject to Change) – Special Commentary Bullet No. 19-B should follow over this weekend, reviewing unfolding economic and financial-system conditions and monetary-system instabilities in hand and likely in the year ahead (see earlier Special Commentary Bullet No. 19-A and Flash Updates No. 21 to 23.

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