So it's official - The Conference Board reported that the recession is over, but don't be too quick to think everything will be hunky dory, cautions The Gartman Letter:Firstly, however, we shall note that The Conference Board reported its Leaders, Coincidents and Lagging Indicators yesterday, with the former rising 0.7%, almost spot on as had been expected. We note that this was the third month in a row of increases, and historically three consecutive months in a row of advances is the sign that the recession is about to end.
By definition, the “Leaders” lead, and so those reliant solely upon the Board’s Leading Indicators are not prepared to join us in our statement that the recession has ended.
We’re “OK” with that.
More importantly to us, the Board’s Coincident Indicators in June fell modestly, losing 0.2%, while the Laggers fell even more, losing 0.7%. Thus the Ratio of the Coincident to Lagging Indicators rose yet again, not by a material sum, but it rose nonetheless. This is our favourite economic data point, and it has now risen for two months in a row. Historically, it turns “spot on” the turning point of the recession, although it has fired off one or two false signals in the past. However, when the Ratio turns higher coupled with a “spike” downward in weekly jobless claims, the Ratio does a truly spectacular job of telling us that the economy is at its worst levels and that a turn higher is hard upon us.
It has turned higher; that is all we need or wish to know. What we must also remember, however, is that the economic news shall remain horrid for several months yet for we must always remember that the end of the recession means that we are at the nadir of the economy. Things are at their worst at the lows.
More importantly to us, the Board’s Coincident Indicators in June fell modestly, losing 0.2%, while the Laggers fell even more, losing 0.7%. Thus the Ratio of the Coincident to Lagging Indicators rose yet again, not by a material sum, but it rose nonetheless. This is our favourite economic data point, and it has now risen for two months in a row. Historically, it turns “spot on” the turning point of the recession, although it has fired off one or two false signals in the past. However, when the Ratio turns higher coupled with a “spike” downward in weekly jobless claims, the Ratio does a truly spectacular job of telling us that the economy is at its worst levels and that a turn higher is hard upon us.
It has turned higher; that is all we need or wish to know. What we must also remember, however, is that the economic news shall remain horrid for several months yet for we must always remember that the end of the recession means that we are at the nadir of the economy. Things are at their worst at the lows.
Consumer psychology is months, if not a full year, away from turning for the better. Retail sales will look terrible for months; housing sales, although rising from their lows, will still be hundreds of thousands of units in annualised terms below the decent levels of two and three years ago; auto sales will seem horrid in comparison to those of ’05 and ’06 and ’07; unemployment is heading inexorably toward 10% or higher and will continue to rise long into ’10, but the worst is probably upon us now and better numbers lie ahead.
Thus, those who think that just because we have called the recession’s end to be upon us means that we shall see remarkably strong economic data points immediately are naïve and out-of touch historically.
Thanks to Scott Tomenson, Family Wealth Management. You can see more of Scott at http://www.jstomenson.ca/ and also
http://familywealthmanager.blogspot.com/
http://familywealthmanager.blogspot.com/
