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Thursday, July 12, 2012

Recession like data

Economists sometimes talk about stall speed in the economy where the growth is slow enough that it becomes easy to slip into recession.  I think this GDP chart shows that concept pretty well.

This is a percent change chart based on yearly GDP data instead of quarterly.  We can easily see the severity of the last recession.  We can also see how tepid the recovery has been.  The 2.5% threshold seems to be the stall speed level.  Every time we got below that level we went into recession.  Notice the double dip in 1980 and 1982.  The economy barely got above the stall speed and slipped right back below it and into recession again.  In the latest recovery, we can see we got a bit stronger then we did after the 1980 recession.  However, think about all the stimulus that has been applied.  On top of the FED printing money like crazy, the government has been over spending by more then $1 trillion.  In spite of all that stimulus we have the second weakest recovery in the last 60 years.  Now we have slipped back under stall speed.  Is it really possible it is different this time and we won't go into recession?

I have heard the ECRI economist talk about real final says data indicating the likelihood of recession.  Here is a current chart.

The majority of the time when we get to levels like we have now a recession is imminent or already here.  There was an instance in the 50s where a recession did not happen right away.  The GDP chart above  showed a bit more strength after the latest recession then the 1980 recession.  However, this chart does not.  The recent peak was below the post 1980 recession peak.  Clearly recession risk is high.

Both these charts show how weak this recovery has been in spite of trillions of stimulus dollars spent.  The only similar example was 1981.  That period was followed by a worse recession then in 1980.  History may not repeat in the same manner, but I don't think we can rule it out either.

The ECRI economist was on TV saying he thinks we are in recession.  You can view it here.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.