How Strong a Recovery?

A graph you’ve no doubt seen before but still worth revisiting. It traces the ISM Index over the past 60 years or so.

A couple things pop out at me.

One, historically, once the index starts moving up it tends to continue on that slope for a reasonable period of time. You don’t see moves up that suddenly reverse themselves. The 1980 - 1982 double dip recession seems to have had the shortest and weakest growth span before it cratered once more.

Two, and this is a thought that’s been around for some time, is that the greater the depth of the recession, the larger the rebound. Here’s a graph from the Atlanta Fed that depicts it in a different manner.

The data points in the red circle represent GDP growth rates after a recession and validate the idea that stronger growth follows bigger downturns. The blue dots represent the forecast growth rates from the Blue Chip economist survey. Notice how far off the chart they are when compared to the historical norm.

There would appear to be enough anchors weighing on the economy to support the pessimism surrounding any recovery. At the same time, it would be historically unprecedented.

Comments

[TinyTim:]

Nice observation of an apparent paradox.

In this recession and the Tech Bust, the Fed played dominant roles, mildly speaking. To the extent of any confidence, this would indicate a faster / bigger recovery (or another bubble somewhere).

Re the chart- It sure feels like this recession is deeper than the ones in 80 & 75.

Aug 06 12:21 AM

[Nick36:]

Many people keep saying that you have to go back all the way to the Great Depression of 1930s to find another financial crisis of similar magnitude to the present one.

Your charts don't go back that far in history. And that might be why you can't find any historical precedent in your charts.

Aug 06 12:29 AM