HUSSMAN: NOT OUT OF THE WOODS YET
Courtesy of The Pragmatic Capitalism
There are clear signs that the recovery has started to fade and the debate over a double dip continues to rage. The NBER thinks the recession is over, but John Hussman is concerned that just as the last recession ends the next one is already beginning. Dr. Hussman says we’re not out of the woods yet as the NBER’s own indicators appear to be pointing to another downturn just as they announce the end of the previous one:
“Below, I’ve combined the long-term Stock and Watson data with the ECRI Weekly Leading Index growth rate to give a picture of how fluctuations in these measures have correlated with past recessions (shaded orange) identified by the NBER. Given the upward spike in growth that we observed in mid-2009, the choice of a June 2009 turning point is consistent with historical precedent. The Committee typically dates the beginning of a recovery at the point where the growth rates of underlying measures of economic growth clearly spike from negative to positive. What is of immediate concern though, is the trajectory that growth rates have taken since then.”
“Again, the graph presented here is as of June 30, 2010. While we know the ECRI data has deteriorated further since June, we won’t have GDP figures for a while yet. Given the data in hand, it’s clear that past growth downturns of the same extent have often gone on to become recessions. However, there are a few exceptions where these growth rates dipped below zero and then recovered. If we had good reason to expect positive economic tailwinds, we would be less concerned about the present deterioration. Unfortunately, my impression is that the bulk of the growth that we did observe coming off of the June 2009 economic low was driven by a burst of stimulus spending coupled with a variety of programs to pull economic activity forward. My concern is that these synthetic factors are now trailing off, with little intrinsic economic activity to carry a recovery forward.
Suffice it to say that we’re not yet out of the woods.”
Of course, the NBER (and most economists and most market participants) won’t acknowledge a new recession until long after it has become obvious. According to the NBER’s own indicators it looks like the next recession could very well be in its infancy.
As always, I highly recommend Dr. Hussman’s full weekly letter which can be found here.
Source: Hussman Funds
