The unforgettable drama of the past couple of weeks, peaking on Monday's stunning House vote against the $700 billion mortgage-securities bailout, now looks to be followed by recession. This risk is not exaggerated and is based on ongoing change in the most fundamental aspects of the economy.

First, employment is in serious decline, contracting by a total 3.3 million jobs over the last two years with manufacturing losing 775,000 jobs and construction 216,000. Non-farm payrolls of course have declined each month this year, but a look at rates of change offers an even more sober view. Non-farm payrolls posted year-on-year contraction in both August and July as seen in the graph above. Though contraction is very small, at -0.1 percent for August and -0.2 percent for July, it is still a rare move into negative territory -- only the 12th such move going back nearly in 70 years of available records. The 11 prior negative readings correspond exactly with the 11 recessions, so far, of the post-war period. If the economy doesn't fall into recession during the third quarter, it will be the first time that negative year-on-year change has not corresponded with recession.

Given the decline in jobs, it is no surprise that wages are also on the decline. And deepening the decline is the unusually high rate of consumer inflation which is running in the mid 5 percent range -- the worst rate since the '91 recession. The graph below traces inflation-adjusted average hourly earnings over the past two years, now at rates of decline not seen since the oil shock days of the '80 recession.

With the decline in real wages comes, unavoidably, a decline in purchasing power. The purchasing power of the consumer dollar, in the graph below, was down 5.2 percent in both July and August, the worst readings since '91.

The purchasing power of Americans isn't the only thing that's going down, so is the price of their homes which is in the most severe contraction in 39 years of records. Of course, home-price contraction proved to be the hangman for the banking system, which is laden with mortgage derivatives collateralized by underlying home values. Price contraction for existing homes is nearing double digits. The graph below traces two years of deterioration that has dumbfounded financial planners and gutted the financial markets.

And of course Americans aren't turning to their stock or pension portfolios for comfort. Stocks, especially after Monday's plunge following the bailout rejection, are showing their worst year-on-year rates of contraction since the bumpy beginning of the post-2001 recovery. The graph below shows the slide underway in the Dow Jones industrial average.

But it was other news on Monday that triggered a run of downward revisions to early estimates for third-quarter GDP. Personal spending for August, in graph below, was flat and, along with a run of company warnings out of the retail sector during September, have convinced some that third-quarter GDP may very likely fall into the red. The U.S. economy more than ever depends on consumer spending which, at an annualized $10.2 trillion, is making up a record 71 percent of GDP, last at $14.3 trillion for the second quarter.

The proportional rise of consumer activity reflects the decline of the nation's manufacturing sector. The manufacturing of consumer products continues in its relentless offshore exodus to low cost countries. The Federal Reserve's industrial production index, weighed down by its manufacturing component, is turning downward like so many other economic readings.

Bottom line

It is difficult to measure how much a full year of tight credit has hurt the economy. But it appears certain that the risk of even tighter credit ahead points to a run of deepening records -- all negative.