Boom Doom Economy: October 2011

Friday, October 28, 2011

USA Weekly Leading Index Continues Rebounding (Charts, Videos) Achuthan affirms recession prediction

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ECRI Economic Weekly Leading Index and Annualized Growth Rate

* Updated October 28, 2011 for the week ended October 21, 2011 *

USA Weekly Leading Index

Overview The USA Economic Weekly Leading Index (WLI) rose +0.9 to a 5-week high of 121.3 (preliminary) for the week ended October 21, 2011. This reading continues above the 116-week low of 120.0 for the week ending October 7, the lowest reading since the WLI was 118.8 for the week ended July 17, 2009. The previous intermediate-term low had been 120.3 for the weeks ended July 9, 2010 and July 24, 2009. The WLI has decreased 5 of the past 7 weeks and the 9 of the past 12 weeks.

Trend The short-term, intermediate-term, and long-term trends continue downwards.

Cycle History The current 121.3 (preliminary) for the week ended October 21, 2011 is above the recent 116-week low. The recent short-term peak was 131.8 for the week ended April 15, 2011. The Weekly Leading Index reached a Post-Great Recession peak of 134.9 for the week ended April 30, 2010. A Great Recession low of 105.4 was set for the week ended March 6, 2009.

Weekly Leading Index (Chart) Below is a chart of the ECRI Weekly Leading Index, including the post-recession peak of 134.9 for the week ended April 30, 2010 and the prior intermediate-term low of 120.3 for the week ended July 9, 2010, through the latest week reported.

USA Annualized Growth Rate

Overview The WLI Annualized Growth Rate (AGR) rebounded +0.1% to -10.0% (preliminary) for the week ended October 21, 2011. This reading is barely above the 63-week low of -10.1 last week, the week ending October 14. That was the lowest reading since the AGR was -10.5% for the week ended July 30, 2010. The AGR has decreased 11 of the past 12 weeks. The Annualized Growth Rate had been positive for 35 consecutive weeks before turning negative the past 10 weeks. The AGR has decreased or been flat 22 of the past 27 weeks, including decreasing 11 consecutive weeks from April 22 through July 1 and decreasing 11 consecutive weeks from August 11 through October 14.

Trend The short-term trend continues downwards and negative. The intermediate-term trend continues downwards and is now negative. The long-term trend is now level.

Cycle History The recent short-term peak was +8.0% for the week ended April 15, 2011. The recent short-term low was -10.1% last week, the week ended October 14, 2011. The Annualized Growth Rate reached a Post-Great Recession peak of +27.8% for the week ended October 9, 2009. A Great Recession low of -29.8% was set for the week ended December 5, 2008.

Annualized Growth Rate (Chart) Below is a chart of ECRI WLI Annualized Growth Rate, including the post-recession low of -10.9% for the week ended July 23, 2010, through the latest week reported. The AGR became negative in early June 2010 and remained negative for 28 consecutive weeks. The AGR was then positive for 35 weeks (from the week ended December 17, 2010 through the week ended August 12, 2011). The AGR then reversed to negative beginning the week ended August 19, 2011.

Commentary According to Lakshman Achuthan's interpretation of his indicators, a USA Recession is inevitable (see video below). Overall, both the Weekly Leading Index (WLI) and the Annualized Growth Rate (AGR) have decreased beyond 1-year lows. Both the WLI and AGR had diverged downwards from the equity markets, especially the S&P 500, which they tend to positively correlate with. Both the WLI and AGR are near the post-recession lows. The WLI has been below the now distant benchmark 130.0 level for 24 consecutive weeks and the AGR has been below the 0.00% benchmark for 10 consecutive weeks. The Weekly Leading Index and Annualized Growth Rate continue at levels that indicate any future economic growth is questionable. Both the levels and trends are worrisome. Per the ECRI, the Weekly Leading Index projects forward approximately 6 months and the Annualized Growth Rate is relative to the WLI and a 4-week moving average.

U.S. Recession Ahead Co-Founder and Chief Operations Officer of ECRI, Lakshman Achuthan, says an American Recession is ahead. "Contagion in the forward-looking indicators" is the reason for Achuthan's recession announcement and "why it is now inescapable". Further, "it is wildfire in the leading indexes" and this includes at least a dozen indicators. "When you have that kind of contagion, it is going to be pronounced, pervasive, and persistent and you are going to have a vicious cycle down that you cannot escape". He also states this is not a double-dip recession, but a discrete event, a discrete recession. The recovery since the Great Recession has been "underwhelming". Achuthan says it is too early to tell whether this recession will be shallow or deep.

Flashback: Squaring Higher Stocks With Recession Flashback to an April 2008 interview discussing how ECRI's recession call remained intact despite a rise in stock prices and other data.

About Lakshman Achuthan Co-Founder and Chief Operations Officer of ECRI, Achuthan is the managing editor of ECRI's forecasting publications. He is also a member of Time magazine's board of economists and the Levy Institute's Board of Governors, and serves as a trustee on the boards of several foundations. He received an undergraduate degree from Fairleigh Dickenson University in 1989 and a graduate degree from Long Island University in 1991. Achuthan joined Geoffrey H. Moore at Columbia University's Center for International Business Cycle Research in 1991. In 2004, he co-authored Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy.

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USA Consumer Sentiment Rebounds to 3-Month High (Charts) "Widespread distrust of President & Congress"

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Thomson Reuters/University of Michigan

USA Consumer Sentiment

Index of Consumer Sentiment, University of Michigan, Ann Arbor (October 28, 2011) Consumer confidence improved in October due to slightly more favorable prospects for the national economy. There was no improvement in how consumers viewed their financial prospects, however. This repeats a familiar pattern in recent years: improved prospects for the national economy support gains in overall confidence, but when those gains were not translated into an improved personal financial outlook, a subsequent retreat in confidence occurred. Much greater gains in confidence are required before another false start can be ruled out. Widespread distrust of the President and Congress will make a sustained and cumulative improvement more difficult to reach in the months ahead.

Commenting on the Survey Surveys of Consumers Chief Economist, Richard Curtin: "Consumers have always trusted the government to initiate policies that would foster renewed growth in jobs and incomes. The widespread distrust of the President, Congress, and the Federal Reserve is now an important cause of pessimism. The upcoming debates about spending cuts and tax hikes surrounding the budget resolution will increase uncertainty and cause consumers to become even more prudent spenders. Although a renewed downturn in the economy has a 50-50 chance of starting around the start of 2012, it is even more likely that growth will not be robust enough to restore consumer optimism about their job and income prospects."

Trend The Index of Consumer Sentiment increased +1.5 to a 3-month high. The short-term, intermediate-term, and the long-term trends continue downwards.

Cycle History The current October 2011 Index of Consumer Sentiment of 60.9 (final) and above the recent August 2011 low of 55.7. The Great Recession low was 55.3 in November 2008. Consumer sentiment reached a Post-Great Recession peak of 77.5 in February 2011, just before oil prices spiked up. February 2011 was also the peak of several other economic indicators for the USA. A Pre-Great Recession peak of 96.9 was reached in January 2007. In 2004 the index was greater than 100.

Consumer Sentiment Index by Month Below is a multi-year chart of the Reuters/University of Michigan Index of Consumer Sentiment by Month through the latest month reported.

Consumer Sentiment Index by Year Below is a multi-year chart of the Reuters/University of Michigan Index of Consumer Sentiment by Year adjusted through the latest month reported. The previous chart above, the Index of Consumer Sentiment, is rather like following the bouncing ball when charting human sentiment, confidence, mood, and outlook regarding the USA economy and their own individual prospects. Therefore, the chart below smooths out these short-term ups and downs and provides an intermediate-term perspective by averaging the months in each year. The Pre-Great Recession peak was in 2007 at 85.6. The Great Recession low was 2008 at 63.8, which illustrates the sustained, lower sentiment. The Post-Great Recession peak has been 2010 at 71.8. The 2011 average of 67.5 is through the latest month reported.

Commentary The Reuters/University of Michigan Index of Consumer Sentiment at 60.9 (final) in October 2011 is a 3-month high and above the recent August low of 55.7, which was the lowest since the Great Recession low of 55.3 in November 2008 and was also at 1980 recession levels. The current reading is at recession level, gloomy sentiment and continues at historically low levels. The index averaged 89 in the five years leading up to the Great Recession, that began Q3 2008 and ended in Q2 2009. Not only the short-term trend is decreasing, but even the intermediate-term, long-term, and ultra long-term trends are decreasing.

Stagnant Finances Expected Of note in the October 2011 report, "Three-quarters of all consumers expected stagnating finances in the October 2011 survey. Only one-in-five consumers expected their finances to improve during the year ahead. Just 38% expected income increases during the year ahead, the smallest proportion ever recorded in the long history of the surveys. Even with relatively low inflation, the majority of households expected declines in their inflation-adjusted incomes."

Confidence in Economic Policies at Record Lows Of note in the October 2011 report, "When asked to evaluate the economic policies of the government, 57% of all consumers judged current policies unfavorably, the highest proportion ever recorded. Just 7% of consumers judged current economic policies favorably in October. An additional question asked consumers about their confidence in the Federal Reserve. Less confidence in the Federal Reserve was reported by 61% in October, above the 49% reported in 2010 and 2009."

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