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TRENDLines Recession Indicator - Jan/2011 USA update

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TRI infers USA Q2 GDP 2.8%

May 16th delayed FreeVenue public release of Jan 28th guidance @ our MemberVenue ~ The Trendlines Recession Indicator continues to infer stability in the economic recovery gauging January's GDP growth rate at a 3.1% pace, up from 3.0% in December. The TRI projects 3.0% Real GDP in Q1 & 2.8% in Q2. Data released by BEA today announced Q4's Real GDP annualized growth rate as 3.2% (TRI = 3.0).

TRI has a fuzzy horizon of 8 quarters that's subject to and guided by current/future mitigation activity by the Fed & Treasury Secretary via monetary/fiscal policy, geopolitical and weather related events. TRI was the first mainstream analysis to provide alerts twelve months ago that the Recovery under way was facing potential median term deterioration. By February 23rd 2010, the Indicator signaled the first alert of a potential double-dip. In a gross misstep, attempting to deflect attention from itself, Wall Street began to spotlight a host of countries with flaky sovereign fundamentals: Argentina, Iceland, Dubai-UAE, Ireland, Greece, Spain, Portugal, Hungary & Italy. Unfortunately, upon running out of nations, the same scrutiny by media and bond vigilantes on Deficit & Nat'l Debt to GDP ratios began to be assessed on the USA itself.

TrendLines welcomes this development as it builds on an awareness campaign we have been engaged in for over a decade (see our Debt Meter). As more stakeholders became educated, TRI sensed an accelerated date for impending USDollar debasement, moving the prospect of a double-dip into the short term window. Then in late Summer, Congress & the White House seemed to have gauged international events as a clear message advising them to avoid renewing the Bush tax cuts set to expire at year-end. Extending them would act as an indirect fiscal stimulus measure; but also exacerbates the Deficit/Debt Wall concerns.

The good prospect of ending the Bush Tax cuts resulted in a shifting of the double-dip event back to the 2011Q3 time frame in our July update. Adding in fiscal/monetary mitigation by Congress & the Fed seemed to have provided a sea change of better economic news to the extent that prospects of a double-dip completely evaporated. With national median price having corrected in January 2009, the absence of a Housing Bubble has laid foundation for rebuilding homeowner equity, wealth effect and ultimately consumer/commerce confidence. This will be needed to offset the decision by Congress to go for a two-year extension of the Tax Cuts.

The TRI projects a rise in GDP to 4.0% by 2012Q4. However, this target is in jeopardy due to the ramifications surrounding rising crude oil prices this Winter. Should long-term trends prevail, the current business cycle should ultimately revisit its 6% crest norms. Monetary actions by the Fed & the Treasury Secretary's guidance to Congress with respect to Fiscal Policy will determine whether the current cycle's contraction bottom in 2017Q3 will be a hard or soft landing.