Indicators Flash Recession Warning

Townhall.com ^ | November 10, 2012 | Political Calculations

[Kaslin]

On 30 October 2012, a recession forecasting model developed by Marcelle Chauvet and Jeremy Piger reached what appears to be a critical threshold for anticipating a recession in the U.S. in the very near future.

 

The Reformed Broker's Joshua Brown comments (HT: Abnormal Returns):

Do you see the percentages on the left side of the chart? 20% is the line in the sand. We've never hit that level and NOT had a recession. In 2006 we got close (18%?) but that particular Great Recession would be a year and half in the making. Note that we're back at that 20% line again. And I can't think of anything that keeps the leading indicators from going through it to the upside - the Fiscal Cliff stuff could only speed its ascent.

One thing we should note is that the data in the chart only covers the period through August 2012 - this is a delayed reaction to a developing situation. The probability of recession in the U.S. suddenly surged to the 20% level from the 2% level recorded a month earlier.

As it happens, we have another indicator which gave a slightly earlier signal that the U.S. economy is trending toward recession: the number of publicly-traded companies that have acted to cut their dividends. Here is what that data showed through the end of September:

We'd like to be able to update the chart through October 2012, however the aftermath of Hurricane Sandy has impacted Standard and Poor's operations, which has delayed the update of S&P's dividend action report [Excel spreadsheet].

As soon as that report has been updated, we'll post an updated version of our chart. In the meantime, we should note that this trend toward recession would seem to be occurring independently of whatever noise is going on in Washington D.C. with respect to the so-called fiscal cliff, which is confirmed by the Chauvet-Piger recession forecasting model, which does not consider that scenario.

We'll close by noting that what we're seeing in dividends now is not a result of the reactions to what we've described as the "dividend cliff". Here, there's really no hurry for companies to announce dividend cuts this year. Instead, the incentives are such that companies would more likely be announcing special dividend payments to beat the clock on the higher taxes for dividend income scheduled to begin in 2013, delaying the announcement of any plans they might be developing to cut dividends until the new year.

Previously on Political Calculations

Our previous posts on the rising likelihood of recession based on the number of U.S. companies acting to cut their dividends, presented in reverse chronological order:

• Dividends: U.S. Continuing Descent Toward Recession
• The Present According to Dividends: U.S. Entering Recession
• Declining Dividends Hinting at Recession

References

Chauvet, M. and J. Piger, "A Comparison of the Real-Time Performance of Business Cycle Dating Methods," Journal of Business and Economic Statistics, 2008, 26, 42-49.

Standard and Poor. Monthly Dividend Action Report. [Excel spreadsheet]. As last updated 28 September 2012.

[himno hero]

how does it recognize and report a intended obama death spiral?

[Cringing Negativism Network]

One week after the election.

How “convenient”.

[null and void]

Since the election:

Layoff numbers

Organization	# Laid off	Running total	Sector	Notes
Abbot Labs	700	700	Med Eq/Dev Mfg
AMD	400	1100	Electronics
American Coal	54	1154	Energy
Ameridose	790	1944	Health
Art Gallery of Windsor	12	1956	Art Gallery	Canada
Associated Milk Producers Inc	130	2086	Agriculture
ATI	172	2258	Education
Bartikowsky Jewelers	25	2283	Retail	Business closure
Boston Scientific	1200	3483	Med Eq/Dev Mfg
Brake Parts LLC	75	3558	Automotive
Bristol-Myers Squibb	479	4037	Health
Career Education Corp	900	4937	Education
Caterpillar	100	5037	Construction Eq
Center for Hospice and Palliative Care	40	5077	Health
Cigna	1300	6377	Health
Community Newspaper Holdings Inc	21	6398	Media
Covidien	595	6993	Health
Crouse Hospital Syracuse	70	7063	Health
CVPH	17	7080	Health
Dana Holding Corp	7	7087	Automotive
DuPont	64	7151	Defense	Kevlar/Nomex plant
Energizer	1500	8651	Energy
Ericsson	1550	10201	Consumer Electronics	Cuts in Sweden
Exide	150	10351	Energy
Gameforge Berlin	20	10371	Online Games	Cuts in Germany
Groupon	600	10971	Consumer
Hawker Beechcraft	410	11381	Aerospace
Hill-Rom	200	11581	Med Eq/Dev Mfg
Husqvarna	600	12181	Tools	Cuts in Sweden
ING	2350	14531	Finacial Services
Kinetic Concepts	427	14958	Health
Lightyear Network Solutions	14	14972	Software/internet
Majestic Star Cassino	80	15052	Entertainment
Medtronic	500	15552	Med Eq/Dev Mfg
Mills Manufacturing	68	15620	Defense
Momentive Performance Materials	150	15770	Chemicals
Murray Energy Corporation	48	15818	Energy
New Energy	40	15858	Energy
OCE	135	15993	Office equip
Penn Refrigeration	40	16033	Commercial Service
PerkinElmer	66	16099
Providence Journal	23	16122	Media
Research in Motion	200	16322	Consumer Electronics
Smith & Nephew	770	17092	Med Eq/Dev Mfg
Southeastern Container	15	17107	Consumer
Space X	100	17207	Defense
SRA International	222	17429	IT Federal contractor
St Jude Medical	300	17729	Health
Stryker	96	17825	Med Eq/Dev Mfg
TE Connectivity	620	18445	Electronics
Teco Coal Corporation	90	18535	Energy
TurboCare	88	18623	Energy
U.S. Cellular	980	19603	Electronics
Umatilla Chemical Depot	34	19637	Defense
UtahAmerican Energy	102	19739	Energy
Vestas	3000	22739	Energy
Welch Allyn	275	23014	Med Eq Mfg
West Ridge Mine	102	23116	Energy
Westinghouse	17	23133	Hi Tech Services
Westinghouse Anniston	50	23183	Defense
Wright-Patterson	115	23298	Defense
Yakima Regional Medical Center	10	23308	Health

Layoffs without exact number specified

Organization	% Laid off		Sector	Notes
Boeing Defense, Space & Security	30		Defense	Executive Staff
Corning	4		Manufacturing	Executive Staff
EMD Millipore	2		Biotech
Plexus Corp			Manufacturing
Saugerties, NY			Government
SCA			Paper products
Slidell, LA			Government	"Will try to spread equally"
Standard Bank Group	10-15		Banking	London
United Blood Services	10		Health	All staff
Wilkes-Barre, PA			Government	Firefighters

Worker Reduction In Scheduled Time (to below ObamaCare threshold)

Organization	% WRIST	# Affected	Sector	Notes
Darden Restaurants			Food service
JANCOA Janitorial Services			Janitorial Service
Kroger			Grocery

[txrefugee]

Duh....when the the first Obama recession end? We never noticed. It was a figment of the Obama media and the crooked Labor Dept. that has been cooking the books since he was inaugurated. But the worst is yet to come.

There were two false “recoveries” during The Great Depression. One lasted over two years, so this should come as no surprise to anyone, especially Helicopter Ben, who claims to be an expert on that era.

[Twinkie]

Poppycock! You forget - ol’ Barack O’Claus is on the throne for another four and he won’t let it happen! It’s cake and circuses and clowns every day!! (Brought to us by the fringe liberal cesspools on the coasts!)

[Bogey78O]

Uhhhh... the first recession was caused by Bush’s first term. This one will be caused by Bush’s second term. If a Dem wins in 2016, then that one will be caused by Bush’s response to Katrina. The one after that will be because Bush messed up the TARP bail-out.

[himno hero]

... the part I love best is he inherited the disaster!

How unexpected!

[TexasFreeper2009]

well... if we’re going down, thank God Obama is at the helm to get the blame he so richly deserves!

And now that the election is over the government can stop lying about the economic numbers and tell us the truth about how bad the economy is.

[all the best]

This can easily be explained. Republicans got in the way of increased theft from the productive class, more spending and stimuli, and increased management of our everyday life and business activity. And oh yeah, we eat too much meat.

[Principled]

There is no chart needed to prove the existence of recession to thinking people.

[Alberta's Child]

It's worth noting that none of this has anything to do with the U.S. election.

I would encourage all Freepers to turn off their Fox News -- and occasionally even Rush Limbaugh -- and get their financial news from resources that include a broad international perspective that doesn't have a political agenda here in the U.S. Bloomberg radio is a good example of this, especially when they have astute guests who can give a good overall picture of things.

One guest on a show last year indicated that his bank's investment decisions (I think he may have been a big shot at the Bundesbank of Germany) are predicated on the assumption that the U.S. is going to be in a de facto recession through most of this decade.

Another similar guest who was weighing in on the U.S. election this year mentioned that nobody in either campaign was talking about the things they knew were problematic but weren't worth talking about because they had no politically viable solutions to them. He predicted that the biggest crisis the U.S. will face in the next four years will be the official bankruptcy of the state of California.

Just a FWIW here ...

[Chuzzlewit]

exactly.. we are going down, and all will be blamed as “those evil Republicans in the house” for the next 2 years until the Press has sufficiently demonized them to the point of getting their 99% in places like Philly to go out and vote in the next mid-terms and give this piece of sh*t prez, what he already had in the 1st 2 years...

talked with the wife this morning, we are preparing for the collapse. Guns, cooking, food....

[warchild9]

As a contrast the elementary school-level economics of Fox and Limbaugh, I recommend people check out the BBC business news. A global perspective is explored there...ah, but the Beeb won’t confirm brainless prejudices and get the peasants all riled up in return for exposure to commercials.

[factoryrat]

Santa bama and the dems own it now, all of it. No more pushing blame off on Bush or anybody else. The destruction of the US economy rests solely on obama’s shoulders, it’s all his fault from now on. Time for the producers to stick it to obamanation and his boot licking RINO toadies.

[NVDave]

I’ve tried to preach exactly this, but folks won’t listen. They prefer simplistic bromides to actual analysis.

As a coincidence, many people voting for Romney/Ryan thought Ryan had an actual plan to balance the budget. He doesn’t. Never did.

The most ironic thing in all of this are the people who continue to think that taking down the banks for fraud is somehow an attack on “the free market,” when in fact the TBTF banks are the primary reason why we no longer have anything remotely resembling a free market.

[unixfox]

Four more years.

To blame Bush.

[NVDave]

That assumes that the Republican Castradi have the wherewithal to actually pin the blame on Obama and the Democrats.

Which they don’t... because, as castradi, they have no balls.

[Logical me]

Idiots, we are still in a recession and it is deepening. Ask suffering Americans. What is coming is a depression worst than the 30’s. We have tanked and it is just a matter of time. Some Countries are still lending us billions in hopes that we go totally communists with a dictator. It has started with King Obama and his communists party. America is finished as we knew it and the Constitution is a worthless piece of paper. I hope not, but reality is setting in.

[Richard Axtell]

Preach if you like, you will notice that Fannie Mae and Freddie Mac are not included in the list of perpetrator banks Obama targets. Well, they are not technically banks, are they? So, and because they are creatures of the Democrat Party, they get a pass, and more bailouts.

Not only does Obama not have a “balanced” plan to tackle the fiscal cliff, he continues to promote exactly the policies that led to the credit/banking meltdown of 2008.

Dodd/Frank enshrine the TBTF banks, and yet talk of “forgiving” student loans and even home mortgages has been floated before. Imagine the result of these “visionary” initiatives. What will be left of the free market after that?