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Saturday, July 14, 2012

Already in a Recession? Not So Fast.

Recession special at Gray's Papaya shop
Recession special at Gray's Papaya shop (Photo credit: Ed Yourdon)
By Robert Johnson, CFA | Morningstar



A couple of notable economists, including Lakshman Achuthan of ECRI, have recently indicated that they believe the economy may have already drifted back into yet another recession, and it will just be a matter of months before we realize it. The data we have today (although I caution these figures could be revised again) do not support that conclusion.
While many commentators define a recession as two negative quarters of GDP growth, the official statisticians look at four metrics: industrial production, retail sales adjusted for inflation, personal income less transfer payments (unemployment, disability, Social Security) adjusted for inflation, and employment. Most of the metrics are currently improving after hitting lower growth rates earlier in 2012. Only retail sales are in a clear downward trend, and that is largely because of falling gasoline prices, which is actually a good thing for the economy.
I have posted the year-over-year growth rates for these metrics for December 2007, the last time we went into a recession. In every case, current readings are ahead of the December 2007 readings. Some of those 2007 indicators had been in a freefall for some time before the official December 2007 recession start date. That doesn't seem to be the case just yet this time. ... Continue to read.

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