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Tuesday, May 21, 2013

Nominal GDP and recession

The ECRI famously called for the U.S. to enter a recession in Sept. of 2011.  They modified the call in Dec. 2011 to say we would be in recession by mid 2012.  They are still sticking by that call.  Here is a chart they say indicates we could be in a recession now.


They say that the nominal GDP YOY growth has never dropped below 3.7% without the U.S. being in recession.  Here is a longer chart I found that does indeed back up their assertion.


It is safe to say that if we are not in a recession right now it is different this time.  Here is a chart that uses real GDP and is adjusted for population growth.  The author says this chart indicates we are not in a recession.

His assertion is that the current level of GDP is higher then it has been at the onset of all recessions except 1982.  That does seem to be technically true.  But lets look just a little closer.  Notice the red circle I added.  This was the only time GDP got this low and we did not go into a recession within a few quarters.  We are in a danger zone and we are there for the second time in this recovery.  It could be true that we are not in a recession, but it could also be true that one is imminent.  It would also be easy for a downward GDP revision to indicate we really are already in a recession.  I am pretty sure that if it were not for hurricane Sandy we would be there now.  The positive economic affects from Sandy will greatly diminish over time. 

The pundits keep telling me we are not in a recession and the economy is improving.  When looking at all the data it is really impossible to say with any certainty we are not in a recession.  The most recent data is indicating slowing in a lot of areas.  We are so close to being in a recession the economy cannot stand much more slowing without finishing the job.  That would likely have a negative affect on corporate profits.


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