Posts filed under “Cycles”

GDP-Based Recession Indicator Index

GDP-Based Recession Indicator Index
James D. Hamilton*
Federal Reserve Bank of Atlanta, (Updated) August 5, 2013



The GDP-based recession indicator index is a pattern-recognition algorithm that assigns dates to when recessions begin and end based on the observed dynamics of U.S. real GDP growth. To make a reliable inference, it is necessary to wait one quarter for data to be revised and confirm the current trend. With the 2013:Q2 advance GDP numbers released by the Bureau of Economic Analysis on July 31, 2013, we can calculate a value of the recession indicator index describing economic conditions for the first quarter of 2013. To maximize usefulness as a real-time indicator, the index is not subsequently revised. The index ranges from 0 to 100, with a value above 50 indicating the data are more consistent with a recession than expansion.

The benchmark revisions in the national accounts that were released on July 31 suggest even weaker growth for 2012:Q4 and 2013:Q1 than the earlier reports from the BEA implied. U.S. real GDP is now reported to have barely grown in 2012:Q4 and to have grown only at a 1.1 percent annual rate in the first quarter of 2013. This weak growth has led to a sharp increase in the recession indicator index, which now stands at 30.5 percent. One factor in the slow growth of 2012:Q4 and 2013:Q1 was a reduction in government purchases of goods and services.

The recession indicator index provides one objective signal that the recent GDP numbers are even weaker than we’ve become accustomed to seeing since the economy began its disappointing recovery from the Great Recession in 2009:Q3. Note, however, that this does not mean the economy has entered recession territory. The index would have to rise above 67 percent before such a declaration would be warranted, based on the procedure described in a paper by Marcelle Chauvet and James Hamilton (from Nonlinear Time Series Analysis of Business Cycles, 2006, edited by Costas Milas, Philip Rothman, and Dick van Dijk). Using their rules for dating business cycles, the most recent recession was determined to have begun in 2007:Q4 and ended in 2009:Q2. These start and end dates for the recession are the same as were announced separately by the Business Cycle Dating Committee of the National Bureau of Research (NBER), though the NBER did not issue its end-date declaration until September 2010.

GDP-based recession indicator index

The plotted value for each date is based solely on information as it would have been publicly available and reported as of one quarter after the indicated date, with 2013:Q1 the last date shown on the graph. Shaded regions represent dates of NBER recessions, which were not used in any way in constructing the index, and which were sometimes not reported until two years after the date.

For more details about the method, see Chauvet and Hamilton’s paper or the less technical description by Hamilton. You can also download a spreadsheet containing historical values of the index.

*James Hamilton is a professor of economics at the University of California, San Diego.

Category: Cycles, Economy, Think Tank

Bull! Rallies Without 20% Corrections

  click for larger table Source: Merrill Lynch Global Research,   Interesting look at bull markets that have gone on without a 20% correction (note this is within the context of a 20%+ cyclical rally). Merrill Lynch’s Global Research team note that 2 prior cyclical bull markets marked a transition from a secular bear market…Read More

Category: Cycles, Markets, Technical Analysis

The Purgatory of Low Returns

Click to enlarge GMO 7-Year Asset Class Real Return Forecasts: 2007     Have a look at the charts above and below. They are from James Montier’s GMO Quarterly Letter, July 2013, titled The Purgatory of Low Returns; you can download the full PDF here (registration may be req’d). (Note to Josh: This quarter, Ben…Read More

Category: Asset Allocation, Cycles, Investing

Click to enlarge Source: NY Magazine   Kevin Roose: Inspired by Matt Yglesias, I made the above chart to show how wrong all of these doomsayers have been. As you can see, after the Dodd-Frank Act was signed in July of 2010, the biggest investment banks on Wall Street experienced no real setbacks when it…Read More

Category: Cycles, Regulation

Housing Recovery Elusive for U.S. Homebuilders

Click to enlarge Source: Bloomberg     Interesting chart form Dave Wilson showing how elusive the U.S. housing market’s rebound  has been for the Homebuilders. Existing single-family homes sold at about the same pace in May as they did in January 2000, according to data compiled by the National Association of Realtors. New home sales…Read More

Category: Cycles, Real Estate, Valuation

Cyclical Unemployment, Structural Unemployment

Category: Cycles, Employment, Think Tank

How We Can Predict the Next Financial Crisis

Didier Sornette: :

Source: Ted

Category: Cycles, Video

Household Deleveraging: Almost Over?

@TBPInvictus Below I give you two related (and therefore similar) measures of household leverage: Household Debt Service Payments and Household Financial Obligations, each as a Percent of Disposable Personal Income: Each has hit a record or near-record low for the maximum observable period (regrettably only 33 or so years). The question must be asked: Is…Read More

Category: Consumer Spending, Cycles, Data Analysis, Economy

Major Asset Classes: 1850 – Present

Click to enlarge   I do not ever recall seeing all these in one place in one chart: S&P 500, DJIA, Gold, Silver, West Texas Intermediate, Total Debt as a % of GDP and the US 10yr to 1850. Many of these are at or close to all time highs. (Note the exception is the…Read More

Category: Cycles, Data Analysis, Technical Analysis

Income Growth This Cycle Is Unimpressive

Source:  Real Time Economics     As the chart above shows, this is not an especially impressive recovery in terms of Real Disposable Income. As we have discussed, this is not your typical post-recession recovery — it is a post credit-crisis recovery, and thats why metrics such as GDP,  Job creation, wages and even inflation…Read More

Category: Cycles, Wages & Income