Economy Watch: Is There a (Second) Downturn on the Horizon?

We have heard about the so called economic recovery for months now and while it is true that markets are higher we have our doubts that any of this optimism is seeping into the real economy. Because of this we tend to believe that we are headed for a double dip recession, assuming that we ever got out of the first one.

Lately we have started to see renewed signs of a downturn in some of the economic indicators that we follow. All things employment have been bad with the unemployment rate, exhaustion rate, and unemployment 27 weeks or longer rates up. Anyone that is seeing an upturn in employment must be on an acid trip as there are no signs of anything but more unemployment.

Just Wednesday we had housing starts come in lower than expected. One indicator that we follow is the Citi Economic Surprise Index. They have them for all of the G-10 nations and it does a good job of showing if economic numbers are doing better or worse than expected. As you can see in the chart below the index is turning over in both the United States as well as the G-10 indexes. (Click on chart twice to enlarge)

Citi Economic Surprise Index

Author's Disclaimer: The Macro Trader is actually long various indexes but since he’s negative on the economy is looking to lighten up on the first signs of weakness.

Comments

[bob adamson]

The following suggests a different conclusion than that drawn from the current circumstances by The Macro Trader.

Arguably history will show that concerted stimulus action by the G20 governments and central banks after the October of 2008 meltdown barely pulled the world economy back from the precipice of the mother of all deflationary depressions. But pulled back we were. Even so, a lot of collateral damage was done to the global economy by the credit freeze, arising from the threat of banks collapsing, that gripped the economy beginning in the last quarter of 2008 and lifted slowly into early 2009. While the stimulus has brought a precarious stability and some real recovery, the damage of that credit freeze is still echoing through the economy and compounds the economic problems that preceded the crisis of October of 2008.

In short, rather than a deep recession/depression as such, we are currently suffering the aftermath of both the October of 2008 crisis and the economic problems that preceded that crisis. The stimulus measures are lifting us out of this state of affairs and provided that, together with continuation of those measures, resolute additional measures are also seen to be taken by governments and central banks in a timely manner to reform investment banking and consumer credit, now will be seen in historic retrospect to be the recovery phase from a deep but short recession.

This is not to say that the implementation of needed reforms will be quick, painless or easy or that the recovery will be quick or robust; but it will be a recovery.

2009 Nov 20 01:43 AM

[Faisal Humayun]

The stimulus package has helped the economy grow when the private sector is still shrinking or stagnant...Thus, as the effect of the package wanes down, the economy will again start to look weak...

Warren Buffett said few months back that U.S. would need another stimulus package...I think that will surely happen sometime next year...I am not sure how great an idea that would be for the long run...But the Government has not done really great things so far...

2009 Nov 20 01:58 AM

[ciel]

bob adamson wrote
>>>now will be seen in historic retrospect to be the recovery phase from a deep but short recession.

"deep but *SHORT* recession"??

Say what?

2009 Nov 20 02:00 AM

[Moon Kil Woong]

If there is a second downturn like in the Great Depression it will be a doosey. The government and the Fed can do no more than they already have, if not less. You can't go lower than 0 fed funds rate, QE is already in place, the Federal Reserve is backstopping bonds which is just a form of unreported redivatives, and the government is already bushing the barrier on US Treasury bonds they can float.

2009 Nov 20 02:11 AM

[User 353732]

For the great majority of Americans, especially Middle Class Americans , the first downturn is still continuing.
For millions who have no jobs, vanishing savings, negligible income, no credit and cannot afford to even rent a house (and must live with family or friends) the downturn has become a depression.
For such people the Statistical Recovery is a cruel hoax.
To them talk of a second downturn( implying there is a recovery at present) seems both farcically academic and callously remote from the daily reality of still compressing material quality of life and rising fear about providing even the very basics of a lower middle class life.

2009 Nov 20 07:52 AM

[enigmaman]

What would you recommendation be if you looked at the US economy as just another listed security, after doing a complete fundamental & technical analysis, Buy, Sell or Hold? Or would you just day trade it? What would you expect from it in the near and distant future? Would you see light or the train?

On Nov 20 02:11 AM Moon Kil Woong wrote:

> If there is a second downturn like in the Great Depression it will
> be a doosey. The government and the Fed can do no more than they
> already have, if not less. You can't go lower than 0 fed funds rate,
> QE is already in place, the Federal Reserve is backstopping bonds
> which is just a form of unreported redivatives, and the government
> is already bushing the barrier on US Treasury bonds they can float.

2009 Nov 20 08:09 AM

[Tony Petroski]

The title:

"Economy Watch: Is There a (Second) Dowturn on the Horizon?

Yes.

That will be $765, please.

2009 Nov 20 12:00 PM

[JPDX]

I really doubt that will happen, mainly because things are already bad, and trending still to the downside, but just at a slower pace. The reality is we're still in the first recession and the real economy needs time to start moving again. It will, but it will take more time. The permabears just need to chill out, people are really sick of this recession and are not going to take much more of it.

2009 Nov 20 01:38 PM

[untrusting investor]

Hmmmm, the rollover/downturn in your Economic suprise chart already started long ago. If you believe your own data, then why would you want to still be long indexes and waiting for more confirmation yet? Makes little sense, especially when combined with your references to weak economic data.

2009 Nov 20 01:47 PM

[Mr. Big]

It's funny how some people talk about the economic "recovery". They talk as if we can just give the recovery a little more time and all will be fine. Time is the ultimate healer right?.......

Here's the funny thing about stimulus: IT'S NOT FREE. Every day that the stimulus is in place, it's costing the American people.... a lot.

So we have put in place the most unprecedented and largest ever stimulus package in the history of Mankind and after all this time, all we have to show for it is a slower pace of deterioration? That's not enough..... and not worth the significant and negative implications of the massive stimulus. We should be growing at 5 to 7% by now with less stimulus, if history is any indication!

There are indicators out there that are starting to sound alarms, telling us that the current stimulus programs are starting to become unsustainable. The rapid deterioration of the USD is one of them. The increased vocal opposition by creditor nations is another. Commodities at record levels is another. Steepening yield curves, declines in housing market (despite home buying credits), etc..etc...etc...

Many central banks around the world are already talking about removing stimulus. They see bad things on the horizon. Why don't we? Hmmm.....

I'm tired of hearing "deteriorating at a slower pace". Tell you the truth, I'm ready to hear "significant improvement"...and have been waiting for these words for months.....but I'm still waiting. But all I see is a country still on crutches and the rehabilitation hasn't even begun.

We're running out of time. Seriously. If this stimulus is going to do something positive.....it better do it now and do it soon before it becomes unsustainable. "Deteriorating at a slower pace" is not good enough.... we should be past that by now.


On Nov 20 01:38 PM JPDX wrote:

> I really doubt that will happen, mainly because things are already
> bad, and trending still to the downside, but just at a slower pace.
> The reality is we're still in the first recession and the real economy
> needs time to start moving again. It will, but it will take more
> time. The permabears just need to chill out, people are really sick
> of this recession and are not going to take much more of it.

2009 Nov 20 02:46 PM

[bob adamson]

ciel -

You're right. No recession seems short while it is in progress; particularly to those suffering its effect. You are right that the current one is not particularly short; particularly if measured back to the beginning of the mortgage crisis in 2007 or thereabouts. I could have choosen my words more carefully but my intention was simply to say that the recession could be relatively short given what could have been the case in light of the nature and depth of the potential meltdown that threatened in October of 2008 and the months immediately thereafter.

bob adamson


On Nov 20 02:00 AM ciel wrote:

> bob adamson wrote

2009 Nov 20 03:38 PM