Real & Private Fixed Investment

A nice pair of charts from the St. Louis Fed explains part of our fears for a contraction in the coming quarters. Note the shaded gray areas are prior recessions.

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Private Fixed Investment

Private_fixed_investment

Note that both of these charts goe negative (as the top one did sometime ago) prior to any recessions.

Real Nonresidential Investment
Real_nonresidential_investment_2

The bright spots? The above chart has not yet slipped into the Red zone.

Also positive (albeit somewhat anecdotal) approach is this academic analysis below:

Recession_stories

Academic studies* have shown that a spike in the number of stories appearing each month in the printed editions of the New York Times and Wall Street Journal that mention "recession" runs somewhat ahead of the actual economic contraction.

The rationale for this indicator is that periods of below-trend growth of sales, production, employment, and profits spur an increased awareness of the possibility of a recession developing. This awareness shows up as recession chatter in the financial press.

There are a few things to notice in the chart: First, “recession” stories seem to exhibit normal business cycle characteristics; the number of stories rises during periods of slow growth and recession and remains low during periods of economic expansion. Second, recession stories seem to peak toward the end of the recession, or shortly after, and then fall sharply—which suggests that this indicator might be useful in helping identify troughs,
though perhaps less so for peaks . . . Finally, despite a noticeable jump in the number of
“recession stories” in the Wall Street Journal in March 2007, both series remain at levels consistent with economic expansion.

Fascinating stuff . . .

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Sources:
Recession Rumblings
Kevin L. Kliesen
Federal Reserve Bank of St. Louis
May 2007
http://research.stlouisfed.org/publications/net/20070501/netpub.pdf

* Academic studies:
“Is a Recession Imminent?”
John Fernald and Bharat Trehan,
Federal Reserve Bank of San Francisco Economic Letter,
Number 2006-32, 11/24/06.

“Identifying Business Cycle Turning Points in Real Time”
Marcelle Chauvet and Jeremy M. Piger,
Federal Reserve Bank of St. Louis Review,
March/April 2003, 85(2), pp. 47-61.

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What's been said:

Discussions found on the web:
  1. jmf commented on May 29

    “read me goldilocks, again, dad. but this time get more growling in the bears part”

  2. V L commented on May 29

    The consensus for Q1 GDP is to be revised down to 0.7%. A trader on Bloomberg just said that the consensus is for the GDP to be revised up secondary to the strong housing numbers.

    I am puzzled about the trader’s statement.
    Does anybody have any idea as to what the guy was talking about? I am puzzled about his statement.

  3. Christopher Laudani commented on May 29

    Barry,

    Larry Kudlow told me that we would never ever ever have another recession because the economy is the greatest story never told. Jeeze, get with the program.

  4. Winston Munn commented on May 29

    “A trader on Bloomberg just said that the consensus is for the GDP to be revised up secondary to the strong housing numbers.

    I am puzzled about the trader’s statement.”

    Gee, me too, V L. Hard to imagine how April housing numbers can improve a quarter that ended in March. A puzzler, for sure. GDP ex-calenders?

    Was he smoking crack? Or maybe he had just taken the “red pill”?

  5. DavidB commented on May 30

    I wonder how ubiquitous those recession stories are? If they are everywhere they actually could be influencing the public’s spending behavior which might actually exacerbate the recession.

    Is it possible that the media’s meddling has a part to play?

  6. Hedge Fund commented on Jan 24

    Looks like these were some signs of upcoming trouble. These past 3 weeks have made the late summer/fall volatility look like small bumps in the road.

    – Richard
    http://richard-wilson.blogspot.com

  7. Hamed Elbarki commented on Apr 16

    Very interesting stuff. Thanks for posting the charts as well, it always helps to see a visual.

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