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Original Economic Forecast published 08 September 2010
Econintersect USA Economic Outlook – Updated 08 September 2010
The USA has not returned to the economic levels of December 2007 when the Great Recession was deemed to have begun. Without getting bogged down with se tics using the words “recovery” or “depression“, it is clear that conditions for business and the consumer (Joe Sixpack) are still below (and well below) this December 2007 peak. With hat tip to David A. Rosenberg in his 07 September 2010 Breakfast with Dave, the levels of decline:
- Wages & salaries are still down 3.7% from the prior peak;
- Corporate profits are still down 20% from the peak;
- Real GDP is still down 1.3% from the peak;
- Industrial production is still down 7.2% from the peak;
- Employment is still down 5.5% from the peak;
- Retail sales are still down 4.5% from the peak;
- Manufacturing orders are still down 22.1% from the peak;
- Manufacturing shipments are still down 12.5% from the peak;
- Exports are still down 9.2% from the peak;
- Housing starts are still down 63.5% from the peak;
- New home sales are still down 68.9% from the peak;
- Existing home sales are still down 41.2% from the peak;
- Non-residential construction is still down 35.7% from the peak.
To a significant degree, business and Joe Sixpack understand there has been little recovery but the question is where is the economy headed. Econintersect has developed a forward looking economic indicator which uses non-monetary economic pulse points that have a general – not specific correlation with Gross Domestic Product (GDP). These pulse points are geared to anticipate consumer and industrial income / spending for 30 to 60 days after the indicator is issued. Econintersect uses relative scales in evaluating the economy – zero means tomorrow will be the same as today. The economic flows below retail level are still building, although the rate of growth is slowing. The strength of the growth peaked in February 2010, and the economic speed has dropped off roughly 15% by August 2010. But the economy is stronger than most realize. A 15% change in economic speed is not significant – these kind of changes happen in an economy. And even a three month decline trend is not unusual. Our concern is that we never recovered fully from the Great Recession now approaching three years since the Great Recession began. This type of non-recovery is unprecedented in any “recovery” since WWII – and for that reason, Econintersect cautions of an uncertain future.
The Econintersect Economic Indicator
The EEI is built using non-monetary pulse points below retail sales / personal income receipt. The EEI would have called the Great Recession in August 2007 (NBER date December 2007) and the 2001 recession in February 2001 (versus NBER March 2001). The difference between the NBER and the EEI is that this index is determined within 25 days after period closing. Most likely, the recession call would have been made in November or December 2007 – a full year before the NBER made the recession call. This indicator has several parts – the historical data for the part which is used to call the recession is summarized on the graph below:
Data for several elements of the EEI were not available prior to 2000.
Calling the end of the recession is problematic. The data shows four shifts :
1) indications of economic improvement Mar 2009,
2) evidence of recovery dip September 2009 (sliding back into recession),
3) evidence of full blown recovery underway December 2009, and
4) peak recovery rate of growth Feb 2010.
Econintersect provisionally calls the end of the recession as December 2009 – based on when the economic underlying flows returned to relatively healthy growth. This “provisional” end is subject to revision as the economy’s flows are still below pre-recession peaks, and belief that the stimulus may have masked the true economic trough.
At this point, Econintersect is now concerned that the underlying flows are losing strength before regaining pre-recession peaks. Econintersect’s analysis is not based on money flows which will most likely show the Great Recession ending in mid-2009.