Economist Online

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?

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.

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

“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.

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:

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.

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):

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?“.

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.

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.

Frugality…Frugality… Frugality.

(click to enlarge; graph courtesy of Paul Kedrosky)

Interview of Roger Lowenstein,  author of “When Genius Failed: The Rise and Fall of Long-Term Capital Management” and “Buffett: The Making of an American Capitalist.”

Link to the interview, about 45 mins.  A good history review of what went wrong.

David Wessel discusses how to label the recent recession – In what sense, this was a GREAT Recession; and in what sense, it may not have been so different from other recessions, say the 1980-82 recession.

I think this recession ‘deserves’ to be called the Great Recession, or Great Develeraging, because of the following:

1. The first nationwide sharp housing price decline;

2. The Wall Street was totally reshaped: Bear Stearns, Lehman, Merrill and Wachovia were all gone, for example.

3. Worst labor market slump since the Great Depression in 1930s, and the employment will take long time to recover to the pre-crisis trend level;

4. Its contagion effect worldwide.

Federal Reserve Chairman Ben Bernanke calls it “the worst financial crisis in modern history.” His predecessor, Alan Greenspan, says it was “the most virulent global financial crisis ever.” The resulting recession was longer and deeper than any the U.S. has suffered since World War II.

But does it deserve the heavy mantle of “The Great Recession” that it seems to be acquiring? “Great” is a big word, a mark of enormous historical significance. World War I was the Great War until the second world war came along.

Herbert Hoover was an early adopter of “Great Depression,” using the phrase in 1931 because he thought it less alarming than “panic” or “crisis.” The Great Depression surely deserves the name. Industrial production fell 45% between 1929 and 1932. Unemployment went from 3% to 25%.

Economists often refer to the Great Inflation of the 1970s, the only time the U.S. saw sustained inflation above 5% in peacetime in the 20th century. For a time, they talked about the Great Moderation, the unusually calm economic seas that stretched from the mid-1980s to the early 2000s that some saw as a permanent change. Recent events suggest that it might be better described as the Great Mirage.

The recent recession began in December 2007 and probably ended in June or July 2009. (The end to recession isn’t the victorious end to a football game. The date marks only the moment where things stop getting worse.) It lasted about 18 months, longer than any post-war recession. Industrial production fell 16%, far more than any recession since the Depression. Payrolls fell 6%, unrivaled by recessions of the past half century. Unemployment went from 4.4% to 10.1%, an increase bigger than the five-percentage-point climb in the early 1980s—though the jobless rate didn’t hit the 10.8% peak hit in 1982.

“It’s pretty clear this is the most severe post-war recession,” says Mark Watson, a Princeton economist. But “greatness,” he adds, implies something more than “severe.”

…

read full text here

and watch this recessions Yardstick

US labor market has started to add jobs at a pace not seen since 2007 (see chart below, graph courtesy of Northern Trust).  This is positive.

Highlights of job losses/gains in March:

Construction: +15,000 vs. -59,000 in February
Manufacturing: +17,000 vs. +6,000 in February
Private sector service employment: +82,000 vs. +15,000 in February
Retail employment: +14,900 vs. +8,000 in February
Professional and business services: +11,000 vs. +40,000 in February
Temporary help: +40,200 vs. +36,700 in February
Financial activities: -21,000 vs. -15,000 in February
Health care employment: +26,800 vs. +14,100 in February

But still (pretty much) this will be a jobless recovery (see the scary chart below), following the last two recessions (1990-91, and 2001).

(click to enlarge; graph courtesy of calculatedrisk)

Tough road ahead…