A recession in the US is likely according to
indicators used by John Hussman of Hussmann Funds and the WLI (Weekly Leading Indicator) growth by the ECRI.
John Hussman created a chart (below) corresponding to the average of standardized
values (mean zero, unit variance) of the following variables:
- 6 month
change in S&P 500
- 6 month change in nonfarm payrolls
- 12 month
change in nonfarm payrolls
- 6 month change in average weekly hours
worked
- ISM Purchasing Managers Index
- ISM New Orders Index
- OECD
Leading Indicator - total world,
- OECD Leading Indicator - US,
- ECRI
Weekly Leading Index growth
- Chicago Fed National Activity Index
- 3 month average, credit spreads (Baa vs 10-year Treasury),
- Industrial
commodity prices - 12 month and 6 month change
- New building
permits 6 month change.
Here's the chart between 1952 and 2011.
The level we currently get (-0.5) has always been associated with recessions, except with the false positive in 2003, right after the 2001/2002 recession. It correctly predicted or coincided with 10 recessions, never missed one and gave one incorrect signal as previously mentioned.
The WLIG currently stands at -8.4 (6 Jan 2012), a level usually associated with recession. ECRI insists however they use other leading indicator to make a recession call. That's why they did not make a recession call in 2010, but did make one for 2012.
There is now a fair amount of optimism in AAII survey (~50% bullish), although its' not extreme yet, and lagging indicators give a positive outlook for the US economy, so those recession calls still have many critics, but I believe they will eventually be proven right this year.
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