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Friday, November 30, 2012


Over the last few months I have posted a number of articles showing recession like economic data. Just about all of the manufacturing related data has been clearly worse then it was last year in the recession scare.  Here is an article from the ECRI claiming that we are in a recession.  I recommend reading it. Here is the key chart.


These are the four indicators the NBER uses to define when recessions start and end.  Three of the four turned down simultaneously starting in July.  It is not uncommon for employment to be the last one.  The article states that in the severe 73-75 recession employment continued to grow for 8 months into that recession.

Here is a clip of a discussion between Lakshman Achuthan from the ECRI and Tom Keene from Bloomberg.  http://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-recession-underway/6

This clip actually made me laugh.  If you watch the clip you will see Tom pretty much makes fun of the guy for saying we are in a recession.  The reason it made me laugh is that I saw a clip from April 2008 that was almost identical.  The recession had been on for several months and Tom was picking on the guy for saying we were in one.  Is history repeating?  Maybe Tom never heard of learning from your mistakes.

Here is an interesting chart of capital expenditures from the durable goods report plotted with SPX.

The last few months have seen a considerable negative change in the year over year data.  Unfortunately this is a limited data series starting in 1992.  That means it only covers the last two recessions.  In the twenty years covered by this data, the only readings this negative occurred within recessions.   Notice how the durable goods index went negative in 2007 while SPX was right near its bull market highs.  It did not get this negative until well into the last recession.  In the recession scare last fall, it never went negative at all.  That turned out to be a pretty good clue we were not going into recession at that time.

What I find so fascinating is all the happy talk about the economy on the TV.  Check this out from a Bloomberg poll.

Two-thirds of the 862 surveyed described the global economy as either stable or improving. That’s up from just over half who said that in September and is the most since May 2011. 


The last line cracks me up.  This is the most since May of 2011.  You might remember that SPX hit its 2011 high on May first before eventually plunging 20%.  This poll is for people that have Bloomberg terminals.  Most of the respondents are likely money managers or work at some kind of financial related firm.  I have absolutely no idea what they are looking at that makes them think the global economy is improving.  This is the fourth quarter and things should be humming along showing a big improvement and that is not happening.  What happens when the usual first half of the year slow down comes along next year?

In recent weeks I have been told rather emphatically by two local merchants that we are definitely in a recession.  A Chinese restaurant I go to periodically has been completely empty twice two months.  Nobody eating in or getting take out.  I have been going there since 2005 and the only other times I ever saw it completely empty were in late 2008 and early 2009 during the great recession.  There is simply too much data that indicates we are likely in a recession to ignore.  There is no combination of spending cuts or tax hikes that will not make the economy worse.  The only thing going on in Washington is a discussion of the type and doses of poison about to be administered to the economy.  The stock market will likely rally when the deal is announced.  I expect that bounce to be short lived and a major crash will happen next year.



Anonymous said...

Great points and charts. Thank you for sharing!

Traderbob58 said...

Thank you and you are welcome.



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