This index has done a perfect job of forecasting the last seven recessions when the blue line drops below zero. In that time frame there are no false positives. It is currently saying we are nowhere near a recession at this point in time. Looking at this chart it would certainly make you think the economy is humming along now wouldn't it. Lets take a different look at the data.
I am not sure why the author put the recession indicator where he did. Obviously it is way too low since most recessions did not even get down to that level. This chart covers one more recession then the other chart. There is only one time this indicator got this low and the economy was not already in recession. That was in the late 50s and it took a few more months before the official recession started. This makes the economy look extremely weak and we should already be in a recession or are about to enter one.
I am 100% certain the economy is not as strong as the first chart suggests. However, I cannot say for certain we are in a recession as the second chart suggests. I am convinced we are in a different environment then at any time since WWII. I suspect the economic data isn't going to work exactly the same as it has since then. I think one part of the problem is seasonal adjustments because the last recession was out of the ordinary and yet the data from that time period is used as if it was normal. This clearly distorts the current data from about Sept. to the Feb.-March time frame. That was the worst period of the recession. You may have noticed the data always seems to turn down in the spring and turn back up in the fall. Is that a result of the seasonal adjustments? They use data from the previous five years so that problem will be behind us after one more year.
What is the true state of the economy. To be honest I don't think anybody really knows for sure. I can see the global economy appears to be getting worse. I guess we will see how that affects the U.S. as we go along.
Bob
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