Chart of the Day – The Recession, On Paper, In Color
Connect on Facebook | Follow on Twitter The first reason is just to have an excuse to add in a chart of the S&P 500 during all the recessions since 1970, and co-plot it with unemployment, the discount rate, inflation, and capacity utilization. Period. As far as helpfulness to investors goes though, I think it’s a pretty meaningless definition (not to mention that data doesn’t come out until months after it’s collection). My understanding is though they technically take a poll of its members to determine a recession’s existence, there are actually some pretty clear critieria they mull. Inflation might – and I stress might – be on the rise again. Essentially, we’re looking for those four indicators to simultaneously move on the other direction. The advantage to mine is that it’s pretty much in real-time. I’ve developed my own defintion of what a recession is. I know there are no surprises, but you can almost immediately see how they all shifted or tipped simultaneously right at the beginning of a contraction – no waiting until it was too late. two consecutive quarters of a shrinking GDP. The economic recessions are the periods highlighted in yellow on the chart. I suspect it’s much like the NBER’s. The reason I bring it up today is two-fold. That said, the National Bureau of Economic Research (or NBER) seems to be the final arbiter of when recessions begin and end…. As you can tell, capacity utilization is already on the rise, and unemployment’s rise is at least slowing. (Give it a second…. it’s kind of a big file.)
FreeTradePicks.com | Login | Get all our email updates here! (The chatter that Bernanke may raise rates soon is getting louder.)
To check out a bigger version of the chart, click here. And, the Fed Funds ratee may not be headed higher, but is sure can’t move any lower. The only problem is, they don’t decide a recession has begun or ended until months after it;s begun or ended. My definition of a recession is a simultaneous increase in unemployment, decrease in the Fed Funds discount rate, peaked or plateaud inflation rates, and sinking capacity utilization. There are other potential factors out there, but none as consistent and reliable as the combination of those four. Though the term recession has been tossed around rather loosely as a description of things when times are ‘bad’, there’s actually a pretty distinct definition of what a recession is….. Again, that’s useless to investors. though nobody specifcally appointed them to the task. Fantastic. Recession Sequence, Indications
The second reason I bring it up is just to we know what to look for as proof that we’re coming out of the recession.