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Thursday, August 18, 2011

It’s Beginning to Look a Lot Like Recession

Given today’s numerous bits of lousy economic data, I thought now might be as good a time as any to recap all the most recent data points that are beginning to tilt strongly in favor of recession.

First, housing seriously disappointed this year with sales remaining weak while prices clearly double-dipped making the government housing tax gimmicks of 2009 and 2010 look as ridiculous as “cash for clunkers”.

Although housing’s decline packs less of a negative punch to GDP (through declining residential investment) as it did during the worst years of the housing bust, its slow maturing unwind appears to be keeping homeowners under serious pressure thereby depressing consumption and leading to an overall loss of confidence as witnessed by the recent dramatic plunge to the University of Michigan’s Consumer Sentiment Index.

On that note, Real “Discretionary” Retail Sales looks terrible with consumers purchasing at a level first seen in 1993.

The Philadelphia Fed Business Outlook Survey, the Empire State Manufacturing Survey and the Richmond Fed Manufacturing Survey all are clearly singling contraction for regional manufacturing activity with the Philly Feds numbers plunging to a level that has historically been associated with the start of recession.

The latest installment of the Chicago Fed National Activity Index appears to be picking up this weakness with the 3-month moving average sitting ever so slightly above the level that the Fed considers to be the start (or continuation) of recession while the underlying index spent it’s third month in contraction territory.

The most recent GDP report dramatically revised the data for all quarters from 2007 on leaving the current estimate of real GDP significantly below the peak level seen prior to the Great Recession, a notable change in the perception of the “recovery” as well as the outlook going forward.

Finally, all of the above was, more or less, confirmed by the latest outlook issued by the Federal Reserve leading the FOMC to promise to hold rates at the zero bound for at least another two years, a clear sign that there is widespread agreement that the economy has weakened notably.

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