Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

US Recession Will Ultimately be More Severe than Current Forecasts

Economics / Recession Jan 10, 2008 - 04:25 AM GMT

By: Bob_Bronson


Best Financial Markets Analysis ArticleDespite permabull hype, as reflected especially by many of Larry Kudlow's guests on CNBC, the second revision in 3Q GDP neither obviated nor postponed the persistently developing -- and very predictable -- recession.  

Our stock market and economic cycle template, or SMECT model   clearly illustrates the "perfect storm" of several business and economic cycles contracting simultaneously and suggesting, well in advance, that the oncoming recession will be more severe than average 

We have also pointed out that GDP, which does not include crucial employment data, is not the best measure of the business cycle.  The 87% of GDP that does reasonably reflect the true business cycle -- that is, Personal Consumption Expenditures plus Fixed Investment from the National Income and Product Accounts (NIPA) data -- adjusted for price inflation and population growth (i.e., per capita), reasonably reflects the true business cycle.  The business cycle portion of the NIPA data has been contracting for the past eight quarters (see the narrow blue line in the first chart below).

One of the best measures of the business cycle is the coincident indicator index produced by the Conference Board, which does include s nonagricultural payrolls as one of its four-component index (see the bold black line in the second chart below).  This index is in the process of topping out, as we have been expecting, especially with further downward revisions. 

The last recession sharply declined at first, then double-dipped, persisting for a full 2.5 years -- not just the eight months designated by the National Bureau of Economic Research (NBER)  -- again see the bold black line, and along with the light and dark grey shaded areas in the second chart below.  In contrast, the current recession has been developing more slowly.  If it continues at this slow pace, then it will likely persist for longer – perhaps much longer – than the last one.  Thus, we fully expect it will be ultimately perceived as severe, if not very severe (i.e., duration times magnitude).


Consistent with our observations concerning employment (which is, again, not part of the NIPA data for GDP), Merrill Lynch economist David Rosenberg says Friday's weak jobs report leads him to believe the recession is already here.  Friday's employment report confirmed his suspicion that the economy was transitioning into an official recession towards the end of last year.  

Here are Rosenberg's observations, with which we agree as slightly modified, plus a confirming chart from Chart of the Day:

At no time in the past 58 years has the unemployment rate risen 60 basis points (50 bps is the actual recession threshold) from the cycle low without the economy slipping into recession, and now have the jobless rate hitting 5% in December versus the March/07 trough of 4.4%.

Aggregate hours worked in the economy contracted at a 0.4% annual rate in 4Q, and this comes on the heels of a 0.6% decline in 3Q. Back- to-back declines in total hours worked have always been associated with recession.

The breadth of the report was also very poor, with the diffusion index for private sector employment slipping below the 50 bps? cutoff mark, just like the Purchasing Manager's ISM index fell to 48.4% from 52.2% in November. A number below 50 indicates that a plurality of industries are now in the process of cutting jobs outright.  Heading into the last recession, this index fell below 50 in February 2001 and the recession began ... exactly one month later.

The level of unemployment is up 13% YoY, again a development that has always been consistent with past recessions. The YoY rate of change in the level of the unemployed who have been idle for at least 15 weeks is particularly ominous - +20%, which is a pace that prevailed in the early stages of prior economic downturns (hitting this trend in April/01 and in Aug/90 when the recessions were one month old).

And Household Employment contracted 49,000 in 4Q and the YoY trend slowed to +0.2% in December from +2.2% a year ago, another classic recession signal. Consider for a second that in March 2001 that trend was running at +0.8%, and in July of 1990 the pace was +1.1% - those two months represented the onset of a technical recession and yet the trend in Household jobs is weaker now than it was then.

In sum, Rosenberg believes last Friday's employment report strongly suggests that an official recession has arrived. The recession dating committee at the NBER will be the final arbiter for him, but since it waits for conclusive evidence, including benchmark revisions, it may be two years before they make that call.  However, according to Bloomberg news, Martin Feldstein, chairman of the NBER, said this morning that, in his opinion, last Friday's jobs data increased the odds that the economy is already in recession to greater than 50%, and he has previously opined that this recession “could be deeper and longer than the recessions of the past.”

By Bob Bronson
Bronson Capital Markets Research

Copyright © 2008 Bob Bronson. All Rights Reserved
Bob Bronson 's 40-year career in the financial services industry has spanned investment research, portfolio management, financial planning, due diligence, syndication, and consulting. At age 23, he and his partner founded an investment research firm for institutional clients and were among the first to use mainframe computers for investment research, especially in the areas of alpha-beta analysis and risk-adjusted relative strength stock selection. Since 1967, he has served as an investment strategist and consultant to various investment advisory firms and is the principal of Bronson Capital Markets Research. If you wish to read more, read his BIO

A note to visitors ~ We do not have a website, but we maintain a private e-mail list. I'm also often asked why we provide research and forecast information for free. Since we are not looking for new business from the internet, I periodically post some of our research and forecasts in exchange for feedback from others. And since we don't publish in academic or industry trade journals, such internet discussion gives us as much peer review as we want and can conveniently assimilate at this time.

Also, the few archiving discussion boards in which I have the time to participate give us new ideas and allow us to establish and maintain intellectual property copyrights for our proprietary research, and to establish a verifiable forecasting record. At the same time, we are able to publicly document our forecasts and help others who otherwise don't have access to our work.

To be added to our private e-mail list, we only ask that you periodically provide feedback: questions, comments and/or constructive criticism to keep our research work and forecasts as error-free, readily comprehensible and topically relevant as possible. If you would like to be added, please explain, at least briefly, what you do, since our e-mailing list is categorized by the backgrounds of the recipients.

Robert E. Bronson, III Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules