Posted on 12/07/2012 6:28:58 PM PST by blam
The Tell-Tale Chart
ECRI
December 7, 2012
Following our September 2011 recession call, we clarified its likely timing in December 2011. Based on the historical lead times of ECRI’s leading indexes, we concluded that, if it didn’t start in the first quarter of 2012, it was very likely to begin by mid-year.
But we also made it clear at the time that you wouldn’t know whether or not we were wrong until the end of 2012. And so it’s interesting to note the rush to judgment by a number of analysts, already asserting that we were wrong.
So, with about a month to go before year-end, what do the hard data tell us about where we are in the business cycle? Reviewing the indicators used to officially decide U.S. recession dates, it looks like the recession began around July 2012. This is because, in retrospect, three of those four coincident indicators – the broad measures of production, income, employment and sales – saw their high points in July (vertical red line in chart), with only employment still rising.
But if we’re in recession, and the business cycle peak was in July, how could employment be higher three months later? Actually, this was also true in three of the last seven recessions – and in the severe ’73-’75 recession, job growth stayed positive eight months into the recession. Thus, positive jobs growth isn’t inconsistent with the early months of recession. Of course, all of this data is subject to revision, but, as we’ve noted before, the ultimate revisions to coincident indicator data after business cycle peaks tend to be downward.
If you look at the size of the simultaneous declines in industrial production and personal income since July, that combination has never occurred outside a recessionary context in over half a century – but it’s occurred in every recession. This leads us to conclude that we are most likely already in a recession that began around mid-2012.
Now, please remember that, following our recession call, central banks really ramped up their efforts, and have literally been pumping more money into the economy than at any time in the history of humanity – and this is the upshot. No wonder the Fed is now all in.
So how come hardly anybody recognizes the recession? Perhaps it’s because of real-time data showing positive growth in GDP and jobs, and the lack of a recent salient shock.
Many believe a major negative shock is necessary to start a recession. But think back to the big shocks in the last two recessions. The 9/11 attacks were widely believed to have triggered the 2001 recession that had really started six months earlier. And many thought that the financial turmoil set off by the Lehman Brothers failure caused the 2007-09 recession that had actually begun nine months earlier.
At the time, with seemingly positive – indeed strongly accelerating – GDP growth in the first two quarters of 2008, most didn’t realize that a recession was already in progress when Lehman collapsed. The week after, Chairman Bernanke, pressing Congress to enact the TARP legislation, said to the Senate Banking Committee that if it wasn’t passed, “jobs will be lost … [and] GDP will contract” – namely, a recession would ensue.
Sounding a similar tone last week, he warned that if the fiscal cliff wasn’t avoided, it “would send the economy toppling back into recession.” Once again, he seems unaware that a recession is underway.
So, what does this recession mean for people? The bottom line is that production, income and sales will keep trending down for now, and employment too is likely to turn down.
Nobody likes to be the bearer of bad news, but a recession isn't the end of the world. There have been 47 recessions in the past 222 years and, as before, we’ll see renewed growth after the 48th. Because business cycles are part and parcel of how all market economies operate, that’s about as close to a sure thing as it gets.
The DEPESSION started in 2007. I’m tired of hearing otherwise...
Put the “R” you know where.
Maybe a lot earlier. But I agree. We haven’t been out of a depression or recession. Every time someome on tv says otherwise, I want to bash my set with my cane.
This is a vicious deflation.
"Get off my tv!"
Almost completely fake. The Fed buying bonds (of any large market) brings down all long rates.
There is that.
Yeah, and your point is pretty good that there would be vicious asset deflation were it not for this pumping. The problem is that there was a bubble and the bubble must deflate no matter how long that deflation is delayed. Delay only makes it worse in the end and in the meantime capital is kept from long term uses and used for commodity speculation, carry trading, etc.
I thought we were still in the ‘recovery summer’? Or is that ‘Arab Spring’? Maybe a ‘Presidential Ice Age’?
The DEPESSION started in 2007. I’m tired of hearing otherwise...
Me, too, BreezyDog. Calling it a "recession" is a lie. Just because many people tell a lie doesn't make it the truth.
Like Franklin Roosevelt in the 1930s, President You Didn't Build That and virtually the entire Congress are doing their worst to deepen and prolong the depression, doubtless for the same reasons.
yes, it’s a depression. libmedia cannot bve trusted, and most others eiuther, for being gutless to report the obvious.
What was the the unemployment rate and how was it calculated during the depression?
No safety net back then, just soup lines and charity. Take away welfare and food stamps and people would be saying NOW is worse than back then.
When’s the last time the media has done a story on the homeless?
Everything in America went wrong when the average citizen got easy financing.
The idea that the price of what was bought was not “how much it cost?” it was “how much per month are the payments?”
Worse yet, the price bought with financing was always much more than the cash price....but today’s society says they can’t save money up to buy things....but can pay monthly payments to the loan company.
“Just can’t wait” is the American way of life today. When you save cash for a future purchase you might have to drive that old car a few more years until you have the cash to buy a new one, but at least when it is bought your balance sheet is unaffected.
The only exception to the rule is home financing. However, the mortgage payment should only be factored in by the earnings of the “main breadwinner” and not both Ma and Pa.
Now, during this day and age, when either Ma or Pa lose their jobs financial disaster strikes.
We can also think of the Republicans and Democrats as Ma and Pa too. Financial disaster is one of the best products produced by Congress.
Yup.
I've known people who haven't the slightest idea how much the interest is on their mortgage...and, don't care.
When Republican, George Bush was president. Homelessness disappeared when Obama was elected.
This has all become a nightmarish joke.
Mark for later
Hey! Good point. Wonder when Rush is going to point that one out?
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