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December 2018
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Great leap backward

How the Great Recession and European debt crisis have turned back the growth “clock” of most advanced economies, sometimes more than ten years.  Looks like Ken Rogoff was right:  this is not Great Recession; it’s Great Contraction.

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Source: Economist Mag.

The US is still under recession watch

In the last summer, David Rosenberg made the recession call – he’s 99% sure the US will slip into recession. Despite a very volatile second half of 2011, the recent data on unemployment, consumer confidence and housing sales all seemed to indicate the US economy is getting better.

But according to the leading economic indicator, shown below, the US economy is still pretty much under recession-watch territory.  Since late 1960s, the indicator only missed once in predicting the onset of recession — the second half of 2010.  In other words, at the current level of the index, there is a very high risk that the economy is likely to head down, not up. So will the indicator miss the target again, or we are indeed heading into another recession in 2012?

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In the following video interview, the author of ECRI leading indicator explains to Bloomberg’s Tom Keen why he thinks the US is still not out of woods yet.


 

EU entered recession, likely a long one

According to Paul Kasriel at Northerntrust, most likely the EU entered recession this quarter.

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“The Greek tragedy morphed into an Italian comedy. Now, it has become a French farce”. Bank credit is set to slow down or contract.

Of course, the European Central Bank (ECB) could step in to create some of the credit that EU MFIs otherwise would be creating under normal circumstances. But the ECB fears that quantitative easing would somehow sully its Bundesbankian reputation. How ironic that the ECB, a central bank ostensibly sympathetic to an Austrian approach to monetary policy, would not try to maintain a normal amount of credit creation when MFIs were unable to do so. Europeans, get ready to join your Japanese brethren for a lost decade. It did not have to happen for the Japanese and it does not have to happen for the Europeans. But given the intransigence of Japanese and European central bankers (with the exception of British central bankers), it will.

How recession in debt deleveraging cycle different?

We’re in a time of unusual economic uncertainties.

David Rosenberg thinks, in the following video discussion, that this recession is fundamentally different from post-war recessions. The difference is this severe recession is coupled within a secular cycle of credit contraction.

While others think the US is in a subdued period of economic growth. Once unemployment starts getting better, and household gradually improves their balance sheets, with huge corporate cash piled up waiting to be invested, it’s a matter time that American economy will be back on track.

A lively discussion – don’t miss this one:


Business cycle indicator says double-dip is likely

ECRI WLI index says there is a fair chance that double-dip is coming.  Here is an analysis I borrowed from dshort.com.

(click to enlarge; graph courtesy of dshort.com)

According to dshort:

A significant decline in the WLI has been a leading indicator for six of the seven recessions since the 1960s. It lagged one recession (1981-1982) by nine weeks. The WLI did turned negative 17 times when no recession followed, but 14 of those declines were only slightly negative (-0.1 to -2.4) and most of them reversed after relatively brief periods.

Three of the false negatives were deeper declines. The Crash of 1987 took the Index negative for 68 weeks with a trough of -6.8. The Financial Crisis of 1998, which included the collapse of Long Term Capital Management, took the Index negative for 23 weeks with a trough of -4.5.  The third significant false negative came near the bottom of the bear market of 2000-2002, about nine months after the brief recession of 2001. At the time, the WLI seemed to be signaling a double-dip recession, but the economy and market accelerated in tandem in the spring of 2003, and a recession was avoided.

The question, of course, is whether the latest WLI decline is a leading indicator of a recession or a false negative. The index has never dropped to the current level without the onset of a recession. The deepest decline without a near-term recession was in the Crash of 1987, when the index slipped to -6.8.

Deeper recession, slower recovery

Friday’s GDP growth in 2Q came out as 2.4%, showing the recovery is losing momentum.

(click to enlarge; source: WSJ)

Once again confirming this is not your average-Joe recession (see chart below):

Fear of double dip – How real is it?

A very nice debate from CNBC’s Kudlow:


Also read my previous post on the argument for the potential of businesses driving this recovery, “Can Corporate America Carry the Spending Torch?“.

Mishkin: economy so far so good

But the recovery is weaker than the strong recoveries that usually happened after a severe downturn, such as 1981 recession.   It’s a more U-shaped recovery than V-shaped.

Now all the focus will be on the jobs.

Recession is definitely over…

Jim Hamilton says the recession is definitely over after the recent GDP data. My guess was that the recession ended sometime between June and September in 2009.

What US needs

Frugality…Frugality… Frugality.

(click to enlarge; graph courtesy of Paul Kedrosky)