Are We In A Recession?

The Federal Reserve finally admits the truth in a new shocking report that just came out. Yes, we are in a recession.

Let's go over this bombshell chart that was revealed in this report that, quite frankly, I still can't believe was released to the public.

are we in a recession?
Are we in a recession?

This chart goes all the way back from 1979 to today's date. October 2022 is going to be a key moment. More on that in just a moment.

On the left, we go from 0-50. This number represents the number of states that fall into a specific category.

This chart is very clever. When we think about a recession in the United States, we think about it as though the entire United States is in a recession, or the entire United States is not in a recession.

What this report shows is that it's far more nuanced when looking at recession numbers on a state-by-state level.

This report is on the St. Louis Feds website, “Are State Economic Conditions a Harbinger of a National Recession?”

They start by saying,

Economists view recessions as national events. However, past recessions have shown that some states' economies continued to expand during a recession.

I think this is why they wrote the paper, to try to calm people down.

What The Fed inadvertently did was leak the truth to the public. We're most likely already in a recession. And you'll see what I mean when we get into the last paragraph.

Basically, what they do is track how well or poorly each state's economy is performing based on a metric they call SCI or State Coincident Indexes.

State Coincident Indexes (SCI) are economic indicators that measure the current health of a State's economy.

They provide data on the changing performance of State economies at a more granular level than national economic indicators like GDP or unemployment rate.

SCIs combine information from several sources, including payroll employment, average hours worked in manufacturing, the unemployment rate, and wages and salaries.

State Coincident Indexes are used by investors to identify economic trends in State economies, which can be useful for making business decisions.

They also provide insight into regional variations in State economic cycles, as well as the overall performance of State economies relative to each other.

The Past Six Recessions – Because Hindsight Is Always 20-20

What they did in this report was go back and look at the past six recessions. They looked at how many states had negative GDP based on the SCI metric at the start of that respected recession when hindsight was 20-20. Here's what they found.

Number of States That had negative SCI growth at the start of these six recessions:

  • February 1980 – 30 states
  • August 1981 – 30 states
  • August 1990 – 26 states
  • April 2001 – 24 states
  • January 2008 – 9 states.

Why was January 2008 such an extreme outlier?

When they were tracking GDP at the beginning of 2008, all of their numbers were completely off.

So after the fact, when they went and revised the GDP numbers, they revised them from literally a positive 3.7, down to a decline of 1.6.

Even at a state-by-state level, they thought everything was rosy, nothing to see here. But then, after the Lehman Brothers collapse, everything came crashing down with it.

The collapse of Lehman Brothers in 2008 was a defining moment in the global financial crisis. The 158-year-old banking firm, which had $639 billion in assets at its peak, declared bankruptcy on September 15th, 2008, after it failed to find a buyer or secure further financing.

At the time of its failure, Lehman Brothers was the fourth-largest U.S. investment bank, and its collapse caused shockwaves throughout the global financial system. The firm’s bankruptcy filing set off a series of events that would eventually lead to the Great Recession — a prolonged economic downturn that affected countries around the world.

And then, looking back in retrospect, they're like, “oh, yeah, we thought the states were doing well, we thought only nine states were in a recession.”

As it turned out, a lot more states were in trouble. By October 2008, 47 states were in serious, serious economic trouble.

As a result of this obvious error where they were kind of like, “Oops, my bad. Sorry about that. Nothing to see here. Let's go ahead and sweep that one under the rug.”

They omit January 2008 from their report.

And then they look at March 2020, where 35 states were in this negative category based on the SCI index.

The conclusion they come to is that, on average, going into recession, there will be at least 26 states that will be showing these negative SCI numbers.


According to the report. Yes, we are in a recession.

Is the US in a recession right now? A threshold estimate shows that 26 states need to have negative growth in the SCI to have reasonable confidence that the national economy has entered into a recession.

Let me repeat, to have reasonable confidence that the national economy has already entered into a recession.

Where we stand with respect to the SCI report

In October of 2022, 27 states had negative growth in the SCI that would exceed the six recession average of 26 states. It's January 2023 as of this writing, so the number has likely grown worse.

Whenever you hear Jerome Powell or Janet Yellen, or any of the talking heads on CNBC, or any of the Fed officials that are interviewed, they are always trying to paint a rosy picture of the economy, saying, “Oh, well look at the low unemployment rate,” as an example.

What they're doing in this subtle little report on the St. Louis Feds website, is they're saying, “oh, yeah, by the way, based on these other data sets, it seems like we're most likely already in an economic recession.”

So this is why I say, “Finally, they have admitted, what seems to be the truth, we are in a recession.”

Now, let's go over this chart, so you can get a visual as to exactly what that report was talking about.

philidelphia Feds state coincident indexes: number of states with negative growth
Philadelphia Feds state coincident indexes: Number of states with negative growth.

So again, we go back to 1979. And this represents all 50 states on the left. In 1979, or going into, 1980-81, when Volker jacked interest rates almost up to 20%, we went into a recession.

Paul Volker is an American economist who served as the Chairman of the Federal Reserve under Presidents Jimmy Carter and Ronald Reagan from 1979 to 1987. He is best known for his strong commitment to controlling inflation, which he accomplished by implementing tight monetary policies.

Volker was also an expert on State Coincident Indexes, leading economic indicators that measure the current economic conditions in each of the fifty states.

He used State Coincident Indexes to track and analyze national and state-level trends, helping him to make more informed decisions about monetary policy.

Volker's work with State Coincident Indexes helped to provide a better understanding of the US economy during his tenure as Chairman of the Federal Reserve.

Today, State Coincident Indexes remain an important tool for economists and policymakers to gauge the economic health of a region or nation.

This red dotted line in the above chart indicates the 26-state threshold they were talking about in the report.

During the Volker years, we got all the way up to 50 states. All 50 states were very close to it. We were in the negative as far as that SCI report.

And then in 1982, we got it to maybe 47 states.

And in the recession of the early 1990s. Again, we went over this 26-state threshold, maybe up to call it 37. And you can see every single recession that we have been in since 1979, has gotten over that red dotted line.

So where are we today?

Well, at least as of October 2022, we were at 27. And remember, this report came out at the end of December. So I would assume that if they had the real-time data, this 27 number would probably be closer to 30, or maybe even 35. And this is really the key.

How do they come up with this mysterious number that we've been talking about?

Well, a few different components here. First is the state's Non-Farm Payroll, and second, the average hours worked in the manufacturing sector. Third, the unemployment rate. Fourth, wages and salary distribution that's adjusted for the state's local rate of inflation.

The bottom line is that what this metric represents is negative real GDP at a state level, not just a national level, and the truth.

The truth is, that the Fed most likely inadvertently admitted in this new report that the economy isn't as rosy as they would like you to believe and that we are already in a recession.

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