It is interesting to see the recent re-appearance of articles relating to flashing warning signals of recession (see here and here and here) It is true that some genuinely troubling signals are starting to make themselves known. Let’s look at some of them. Heavy Duty Truck sales, a reliable long-leading indicator for US recession, has recently tanked: Growth in Total Freight Shipments and Revenues has been negative since early 2015:: The Inventory-to-Sales ratio was one of the first trouble spots […]
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Unemployment more widespread than thought
The Total Non-farm Payrolls data made another solid print for the month of July 2016, leading to the assumption that all is good with employment in the U.S: Similarly, if we examine the countrywide Civilian Unemployment Rate, we also get reassuring signs: However, if we dig deeper and examine the per-state unemployment rates for 52 U.S states from the Bureau of Labor Statistics, a very different picture emerges: The average state unemployment rate seems to be putting in a bottom, […]
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NBER’s Big-4 Indicators had a narrow miss
Reading through all the positive press about jobs numbers and so forth, its hard to comprehend that the 4 main indicators used by the National Buro of Economic Research (NBER) to determine US recessions, had a narrow miss recently. If you recall from our popular 2012 article, the NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting […]
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Number of countries with back-to-back negative quarterly GDP prints is rising
The percentage of 41 OECD countries around the globe that have just posted a negative 1Q2016 on the back of a negative 4Q2015 (old fashion technical recession) has started to rise. Its nothing to be concerned about just yet but the rise itself, although shallow, is something worth watching as 2Q2016 numbers start coming out.
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U.S Economy most vulnerable to any shock since 2008
The #Brexit vote caught the consensus view off-guard and stock markets, currencies and commodity prices have made large responses. This may be bringing up thoughts if Brexit could be the external shock that marks the decent of the U.S economy. Whilst we will not entertain making predictions on this complex matter, we can however state that the U.S economy is the most vulnerable it has ever been since the 2008 financial crises. This is at least according to our composite […]
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Recession Probability Roundup : Elevated levels
NOTE : This is a subscriber-only article that was made open for public viewership on 20 May 2016. A few subscribers have been concerned by the recent jump in recession odds of the Headwinds Index model to 60% A probability of recession of 60% most certainly also implies probability of no recession of 40% and of course this is related directly to any false positives that may (and have) occurred in the past (see March 2003 in above chart.) You […]
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Over 30% of States with rising unemployment
The March 2016 figures are in for state-wide unemployment and the percentage of states with growing unemployment has risen to over 30% now: The useful thing with this breadth metric is that deterioration in unemployment is made visible long before it shows up in the average national unemployment rate. Whereas the national unemployment rate is at best a co-incident indicator for recession, the percentage of states with increasing employment acts as a reliable leading indicator – reliable enough to be […]
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Labor market not as strong as you think
The strength of the labor market is constantly being trotted out in defense of the robust status of the US economy, but broad sets of labor data show this not to be the case. First, let us examine a very broad US labor market growth metric: This indicator needs to fall below -10 before the odds of recession skyrocket to a near certainty and so whilst there is no cause for immediate alarm, it is clear the indicator is not […]
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Animation : The incredible US employment recovery
Below is an animation of the annual average unemployment rate per U.S state from 2011 onward. It’s quite incredible to see how unemployment was erased state-by-state over the years: However statewide improvements in employment have probably peaked-out as shown in the chart below, which depicts the aggregate (equal weighted) inverse 6-month unemployment rate growth for each of the 52 U.S States together with a diffusion showing the percentage of 52 U.S states with increasing unemployment. You can see that recently […]
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How can we forecast 30% upside for 2016 with RAVI?
The RecessionALERT Valuation Index (RAVI) is currently forecasting 30% growth for 2016 for the SP500 with its 1-year forecast model. “How the heck is this possible given current overvaluation of the market?” we can hear you say. Let us show you how this is calculated so we can put the forecast into context: Firstly, we know we have a very accurate 10-year forecast model with the RAVI: We can see that 10-year forecasts for the SP500 Total Return Index (including […]
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Bear market rules still in force
Our first bear market signal was issued on 1 September 2015 when the Composite Market Health Index (CMHI) dipped below zero. Since then we had a sustained deterioration of the CMHI components to reinforce the signal, coupled with high stock market volatility. Although market breadth features prominently in the CMHI, there is another way to identify the onset of bear markets for stocks by observing the behavior of the percentage of SP500 stocks trading above their 200-day moving average. In […]
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Risk of U.S Economic Recession
A raft of analysts, perma-bears and bloggers are playing fast and loose with the R-word again. This is likely to reach a crescendo with the release today of the unexpected large drop in the ISM non-manufacturing survey. We recall a time in late 2011 when the mainstream perception was that we were headed for recession and we posted a widely read article that went against the mainstream, and attracted attention of some respected names: Given the amount of attention looming […]
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Yellen Labor Dashboard reaches target
“Full Employment” target reached Shortly after taking up office, Federal Reserve Chair Janet Yellen used her “jobs data dashboard” to justify the Fed’s easy money policies and to argue there’s still considerable slack in the labor market five years after the recession’s end. Seven of the nine gauges on this dashboard had not recovered to levels reached before the last recession, reinforcing her belief that the economy would need “extraordinary support” from the Federal Reserve for “some time to come.” It […]
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Things that go bump in the night
The U.S economy appears unstoppable right now. Just about every leading and co-incident indicator you can think of is pointing to positive growth. Among the hundreds of indicators we follow for our models on a daily basis, we have discovered a few that are displaying worrying trends and flagging a future recession. It should be pointed out that a handful of indicators flagging recession should not mean we have to push the panic button. A large raft of indicators all concurring […]
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SP-500 Returns Forecast, 4Q2014
The RecessionALERT Valuation Index (RAVI) is a multifactor valuation model that examines cyclically adjusted trailing SP-500 earnings (various multi-decade horizons), the SP-500 total-return index level, total stock market capitalization, Gross Domestic Product, non-financial corporate equities and liabilities, non-financial corporate business net-worth and percentage of investors’ allocation to stocks versus cash and bonds to determine 10, 5, 3, 2 and 1 year forecasts for the SP-500 Total Return Index (dividends re-invested). The in-sample accuracy of the various forecast horizons since 1970 […]
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Stresses are building up in the system
Despite a steady rise in the SP-500 Index, clear and persistent financial stresses are starting to build up in the system. We construct a composite of the St. Louis Fed Financial Stress Index, the Cleveland Financial Stress Index, the Kansas City Financial Stress Index and the Chicago Fed National Financial Conditions Index as shown below: The average value of the composite, which begins in 1973, is designed to be zero. Thus, zero is viewed as representing normal financial market conditions. […]
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Valuation estimate of SP500 2015 returns : 2,246 target
The RecessionALERT Valuation Index (RAVI) is a multifactor valuation model that examines cyclically adjusted trailing SP-500 earnings (various multi-decade horizons), the SP-500 total-return index level, total stock market capitalization, Gross Domestic Product, non-financial corporate equities and liabilities, non-financial corporate business net-worth and percentage of investors’ allocation to stocks versus cash and bonds to determine 10, 5, 3, 2 and 1 year forecasts for the SP-500 Total Return Index (dividends re-invested). The in-sample accuracy of the various forecast horizons since 1970 are […]
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Valuations not at nose-bleed levels yet
The recent run in the major U.S stock indices has resulted in Shiller-PE charts being trotted out showing how far we are off the historical mean, implying a nasty pullback is in the works. The problem with a historical mean is that it is a single horizontal value on a chart that fails to take cognisance of any long-term trending the underlying valuation series may be experiencing. The static mean implies there is no valid reason stock market participants would be […]
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“Baby” correction belies verocity of breadth sell-off
The current stock market correction is diminutive in relative terms – hardly anything to sit up and take notice of. However an examination of underlying breadth deterioration reveals an astonishing plunge of the net new quarterly highs (the percentage of new quarterly highs less the percentage of new quarterly lows). This percentage has been languishing below 10 for 6 days now. Below is a historical chart showing periods where this breadth index was below 10% and for how many days […]
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New improvements
We have introduced three new improvements to the web site to enhance the user-experience; 1.Progress Loader Some of our pages, particularly the CHARTS page, can take some time to load due to the amount of historical data we allow you to view in the charts. If web site usage is heavy and/or the internet is very busy, this can sometimes lead to up to 10 second delays (US) or even 20 second delays (Asia) before pages are displayed on your screen. […]
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