Capacity Utilization Figures Starting to Resemble a Recession

Last month I said we have yet to see the spike down in capacity utilization that has accompanied every recent recession.

It remains early, but the latest data is starting to look more recession-like.

click to enlarge

In the minds of many investors, I think the recession has come and gone. It will be interesting to see whether a “recession resurgence” will have any impact.

Comments

[John Pseudonym:]

A generation of investors don't know what a recession is; that's why they think it's over.

History shows that every generation learns what a recession really is sooner or later.

2008 May 18 11:07 PM

[sbenard:]

I agree with John. This is likely a bear market rally. As cap util falls, employment will also. Then, look out below as more credit market worries, especially in consumer debt, start to plunge again. What will the Fed do then, when the Dollar starts a new leg down and inflation starts to heat up even more. The show ain't over... til it's over! This recession show is still far from over!

2008 May 18 11:34 PM

[dshort:]

Investor newbies and others with short memories may view the S&P 500 March 10 low as the market bottom, no recession. But anyone who remembers the 2000-2002 stock market is probably more skeptical:

dshort.com/charts/SP50...

As the chart shows, there can be some dramatic rallies during an extended downturn. Hopefully we won't see anything like the 49.2% decline during the last bear market.

Since 1950, recessionary S&P 500 market bottoms arrived, on average, about 14 months after the previous high. The March '08 low occurred 5.1 months after the October '07 high. That's mighty early for a bottom, although there is a precedent: The 1990 recession, which lasted 8 months, saw the market bottom out a mere 4 months after the preceding high.

On the other hand, two recessions -- '73-'75 and '81-'82 -- were accompanied by a 21 month peak-to-trough timeline. Here's an overview of recession stat since 1950:

dshort.com/docs/recess...

Given the complexities of today's economic conditions and the elapsed time since previous market highs, both extreme optimism and pessimism are probably premature.

2008 May 19 05:34 AM

[Urbane Gori...:]

Tight stops.... Adjusted nightly!! Thx jegan ;-)

2008 May 19 04:06 PM