Recession Watch Indicator for week ended September 14, 2012

Here's my own personal cut at a recession watch indicator, for week ended September 14, 2012. I have made a change, to include the ECRI recession call itself as one of the indicators. I also revised the M2 money growth assessment to assess the raw growth rather than trying to judge how much impact it may have, which is already moderated in the other indicators. So, for this past week we have:

 

• ECRI Weekly Leading Index Growth Rate: modestly positive (+2.1) – pale green flag (+1)
• ECRI recession call: yes, a real negative - bright yellow (-2)
• Weekly Employment Insurance Initial Claims moving average: elevated but reasonably below 400K (375K) – pale green flag (+1)
• Recent M2 Money Stock: rising – green flag (+2)
• Macroeconomic Advisers GDP outlook for Q3: modest growth (lowered to +1.7%) – pale green flag (+1)
• Recent Employment Growth: modest (96K) – pale green flag (+1)
• Recent ISM Manufacturing Reports: slightly negative (49.6) for third month – pale yellow flag (-1)
• Recent ISM Services Reports: modestly positive (rose to 53.7) – pale green flag (+1)
• Average: +0.50 – pale green – recession not likely although still remotely possible

No real change in the overall outlook since last week.

 

ECRI still insists that we are already in what could be called an "invisible" recession (my words), but I would assert that the ongoing strength of the service sector of the economy overwhelms the weaker manufacturing sector. I suspect that ECRI's long-term data series history is biased by a manufacturing sector that has increasingly become less relevant as the decades and years have gone by.

 

I'll make a separate post on the prospects for a recession when the U.S. government hits the so-called "fiscal cliff" in 2013. In short, I believe that we will sidestep a full-blown recession, even if we do have a very weak or even negative quarter or two. Call it a weak recession of semi-recession if you want, but not a full, deep recession.

 

-- Jack Krupansky