Still No Consensus on When Recession Will End

The headline of the day is: “Conference Board announces U.S Leading Indicator rose by 0.3% in December.”

This follows a five month drop of 2.8% July through November. They also announced a drop of 0.5% in December for their Coincident Indicator as well as a drop for their Lagging Indicator. Trying to look forward, the Leading Indicator carries the most weight.

This could be taken as reinforcing the recent statement by The Conference Board Chief Economist, Bart van Ark, who has said: “The pace of economic contraction will slow in the first half of 2009.”

However, another statement in a Reuters news release Monday was: "As we move into the new year, the big question is whether conditions will worsen further," said the research group's economist Ken Goldstein in a statement on Monday. "The Conference Board's indicators suggest we'll still be in an intense recession through the Spring."

Ten days ago, The Conference Board announced that CEO confidence hit an all-time low in December, following a modest rise in November. The folks at Agora Financial show an interesting graph showing that CEO confidence has peaked before or early in each of the last four recessions. This would lead us to believe that the end of the recession is far from near.

Others are also negative on the coming quarters. Tom Hansen summarized the current status of the Economic Cycle Research Institute report for last week, quoting Lakshman Achuthan of ECRI:

"With the WLI declining again, it is premature to objectively declare that the worst of the recession will soon be behind us."

The Conference Board indicates that the primary factor in the increase for December was a large increase in the real money supply. It could be asked if the increase in the money supply should have an influence if no one is spending it. It may be that this factor has more of a delay in this recession than in the preceding downturns because of the more severe credit collapse that in previous times.

It is likely that some will be heartened by the December move in the Leading Economic Indicator. However, the collection of opinion, even from representatives of The Conference Board, shows some conflict and not universal consensus. Let’s see what happens to the indicators in January.

Comments

[prudentinvestor]

"there are known unknowns, and unknown unknowns" (I heard this quip from Rumsfeld on the news a few years ago). I think it applies very much in the current environment.

The principal known unknowns are (a) that we don't yet know how bad the credit defaults on mortgages, credit cards, auto loans, securities loans, etc, is really going to be; (b) we don't yet know how the necessary change in consumer behavior is going to impact the economy and corporations; and (c) we don't yet know if the unprecedented scale of government intervention is going to help or make things worse; and (d) we don't yet know if energy and commodities prices will hyperinflate again.

The unknown unknowns, are, well, unknown. But expect them to rear their ugly heads, particularly as the laws of unintended consequences react to the massive government interventions.

2009 Jan 27 08:50 AM

[patio]

"The principal known unknowns are (a) that we don't yet know how bad the credit defaults on mortgages, credit cards, auto loans, securities loans, etc, is really going to be; (b) we don't yet know how the necessary change in consumer behavior is going to impact the economy and corporations; and (c) we don't yet know if the unprecedented scale of government intervention is going to help or make things worse; and (d) we don't yet know if energy and commodities prices will hyperinflate again. "

Agree completely with the unknown unknowns; however, to the above I would submit some IMHO "knowns"
(a) really, really bad. How many trillions exactly bad, that is unknown, but qualitatively...
(b) we already see how the behavior will affect the economy and corps; worst holiday sales in many years, and that was before another few million jobs lost. Complete and utter demand destruction
(c) agree, exact effects unkown, but its the government, if I was a betting man, they'll make things worse
(d) I have yet to hear one cogent argument on inflation, let alone hyper-inflation, other than "the printing presses are running ful time". So what?
Not one person has indicated how the money gets into circulation, what businesses want to borrow ( other than to hoard themselves), what consumer wants more debt, etc. No velocity, no inflation. The stimulus package is minute, in reagrds to wealth destroyed, and more to be destroyed. Wages are decreasing by un- and under-employment.
We all know what Heli Ben wants to do, he just does not have the mechanisms to do it.

2009 Jan 27 09:18 AM

[fatcat]

The gov. can print all it wants,but its all about velocity....that will come someday...the question is when..

2009 Jan 27 01:13 PM

[Dave Wrixon]

The economy has to de-leverage until economic stability emerges and investor and lender confidence returns. The problem is one mans savings are another man's livelihood, so it is a viscous circle. Economic stimulus address some of the symptoms but also becomes part of the problem, so there really is no quick fix. Eventually, sufficient debt will work its way through and the patient can come off life-support. How long does it take? Well, the main indicators are the level of debt that was incurred in the first place and how much wealth destruction results from the collapse. The more people that lose their jobs, the more intractable the problem becomes because Government costs increase, whilst the tax base shrinks. However, creating jobs simply by robbing Peter to pay Paul, will only really make things worse. Only investment in things that are going to improve the productivity of the economy in the future will do more than act as a palliative treatment.

2009 Jan 27 04:24 PM

[Lonestar1]

Slightly positive to flat GDP growth is possible for the 4Q2009 because the bar is set so low by 4Q2008 (-5.5% or worse). We'll see on Friday what the # is.

Velocity of money appears to be close to zero. When a bank takes back the credit lines they previous extended to some companies or individuals, does that mean the velocity is NEGATIVE in that case?

2009 Jan 27 05:35 PM

[Steven Hansen]

good points John. the upward movements of all these indicators are predicated on historical effects of expansion of money supply (which is really the element of the indicator which is causing the upward tick).

i have my doubts the money supply will trigger the economy. things are so uncertain.

2009 Jan 27 07:24 PM

[John Petersen]

The scary thing about recessions is we can only see them in a rear view mirror. The folks at Agora have been predicting disaster for the 10 years I've been reading and had to be right eventually. John Mauldin has been a far sight better at picking directions and timing, but even he was surprised this time around. I suppose the only thing we can learn for sure from the conflicting statistics is that things are still changing and still uncertain.

... so I guess the only choice we have is to get up in the morning, go to work and solve our problems.

2009 Jan 28 01:33 AM

[Guero]

I don't know how contraction will slow if layoffs continue like they have. Demand will continue to drop because many of the ones that are still employed are re-trenching. If CEO confidence is low, that means even they are re-trenching.

2009 Jan 28 10:44 AM

[sieraromero]

I think it is amazing that people are talking like the worst may be over. This ugly monster is just now starting to raise it's head above the water line and begin the process of negative growth,asset deflation and monitary stagflation. Bad, very bad things are heading our way and we still have our heads in the sand.

2009 Jan 28 12:20 PM

[Ricard]

Apologize that this comment may be irrelevant to the article, but here is some more interesting news that people here have been predicting for a while:

online.wsj.com/article...

-- Fed Is Prepared To Buy Treasurys

- Fed officials signaled they're prepared to move forward on a controversial idea to purchase longer-dated Treasury securities, as they kept rates steady. (Statement)

Bad news for people shorting Treasurys, although probably good news for those wanting to refinance. Not sure how this will affect the overall picture.

Keep up the good work Mr. Lounsbury.

2009 Jan 28 03:14 PM

[Conan the Barbarian]

Something to consider, this time around in 2010, earning comparisons should be decidedly better and should stay better through 2010.

Everyone seems to be jumping on the Bad Bank Bandwagon, I personally believe that the scope of the Toxic waste will surprise many. Think in terms of BAC being blindsided by MER.

You won't be able to save everybody. There are hundreds of now undercapitalized insurance companies who have seen the value of their holdings reduced substantially, most will not be holding Toxic waste. This is yet to come. State Guarantee Funds will be unable to cope. This is a shoe waiting to drop.

The worst is yet to come. IMO

2009 Jan 29 12:46 AM