click to see larger chart

Source: Bloomberg Briefs




A set of broad economic indices with a good track record say we are not in imminent danger of lapsing into a recession:

“Two economic indexes with impressive records of tracking the business cycle’s major downturns since the early 1970s indicate recession risk is low, based on a broad reading of economic data through December. While January’s profile has yet to be fully determined, the early numbers so far look encouraging.

The economic Trend index (eTi) remains well above the critical 50 percent mark, having risen above 90 percent at 2012’s close. The economic Momentum index (eMi) settled at 6 percent in December, a comfortable margin above the danger zone of zero and below.”

Jim Picerno advocates  a statistical approach of analyzing a broad set of financial and economic data. (Think Nate Silver aggregating all of the state and local polls).

As the chart above shows, the economy peaked in December 2007. Many months later, economists and analysts were still debating if another downturn was near. Even in in mid-to-late 2008 the economists as a whole were still in denial about the downturn.

On the other hand, the eTi/eMi aggregate had signaled a contraction as early as April 2008.


Bloomberg Briefs
February 11, 2013

Category: Data Analysis, Digital Media, Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Probability of Recession? Economic Indexes Say . . .”

  1. tradeking13 says:

    Have you talked to your buddy Lakshman Achuthan lately? Does he still think we’re currently in a recession?

  2. Lugnut says:

    I’ll go let Faber know….

  3. gloeschi says:

    I think Lakshman will have to de-trend his indicators (or adjust them for population growth). A lot of time series move higher over time, so you have to de-trend them in order to give meaningful signals.
    Anybody with excel and an internet connection can build his own recession probability indicator (as I have done here: Gave recession warning in January 2008.

  4. GeorgeBurnsWasRight says:

    Given the ECRU’s experience with predictions using economic indicators the past year or so, I don’t find this article that reassuring.

  5. AHodge says:

    near term recession–never say never–maybe is 5% probability
    however this the other way
    Upcoming event information:
    2/14/13: Mark Zandi, Moody’s Analytics: “5 Reasons for Optimism: The U.S. economy is on the cusp of much stronger growth”

    A former competitor who i respect
    mark may give us the run for daylight –finally–talk

  6. Pantmaker says:

    The prices that equity “buyers” are willing to pay here would suggest that many market participants are not “expecting” a recession. If we do or have in fact tip into recession from these levels, I can’t imagine why the decline would be any less severe than the declines experienced in 2000 and 2007. We will know in the fullness of time.