Take this article for what it is worth, but it is from ING Investment Management and is also composed by an economic PhD. ING is the seventh largest company in the world, so I would assume their experts are pretty good.
You need to click on the link below and go to the May article entitled “Are we in a recession” to open up the PDF that provides charts and a more in-depth analysis.
Are We In A Recession?At the turn of the year, market participants were split into two camps: Those who thought that the economy was in a recession, and those who believed that the economy was merely going through a mid-cycle weak patch. During January the debate was apparently resolved in favor of the recession camp as the S&P 500 Index fell 6% and defensive sectors of the market such as public utilities, health care, consumer staples, and telecoms outperformed. While there are still a few slow growth holdouts, forecasters and market participants are now mainly split over whether this will be a short and shallow recession, or a prolonged and deep recession.
One reason for the differences of opinion is that the credit crisis that began last summer is unlike any other experienced by the U.S. economy. First, it is widespread – all sectors of the credit markets have been affected. Previous financial crises have usually been concentrated in the banking sector. Second, unlike the banking crisis of the early 1990s, which involved old-fashioned bad loans, many of the current problems originated in new markets, such as that for Collateralized Debt Obligations, which were small 15 years ago. In short, it is hard to assess the extent to which the problems in the financial sector will spill over into the rest of the economy because the problems are spreading through new channels. We are in uncharted territory.
Another reason why analysts and investors are having trouble forecasting the length and depth of the projected downturn is that economic data is mixed. Since late last year we have been looking at 14 economic indicators that in the past have been informative about whether the economy is in a recession (Figure 1). We look at these indicators in the context of our Recession Watch Model, which produces a recession index based on a weighted average of the 14 indicators, with each indicator’s weight proportional to the strength of its signal. The four indicators with the largest weights are the U.S. leading economic indicators, the ISI manufacturing survey index, the leading economic indicators of the Organization of Economic Cooperation and Development (OECD), and U.S. housing starts. The weights on these four indicators add up to 54% of the index.
As of April 11, the model’s recession index stood at 62, which is just above the threshold of 61 at which the model is signaling that the economy is in recession. The recession index first moved into recession territory in January, rose to 72 last month, and has since fallen back because one key indicator – the OECD’s leading economic indicators – reversed course in February (the most recent observation available), suggesting that growth abroad is holding up fairly well. While nine of the model’s 14 indicators are signaling a recession, two of its strongest indicators – the ISI manufacturing survey and the OECD’s leading economic indicators – are just below their recession threshold levels. Our take on this mixed picture is that it is consistent with an economy in recession, but a shallow and
soon-to-be short recession.
http://www.ingim.com/US/NewsandCommentary/InvestmentOutlook/index.htm
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