Dwaine van Vuuren's Blog

With the disappointing initial GDP releases for Q42012 from Europe out, the “world” as defined by 41 OECD countries across the globe, has plunged into recession. We define “recession” through two alternative definitions for our comparison, either the presence of a single negative quarter-on-quarter growth or the more traditional two consecutive negative quarterly growths.

It is clear when reading various pronouncements made by the NBER Business Cycle Dating Committee that the two broadest measures of economic activity, real Gross Domestic Product (real GDP) and real Gross Domestic Income (real GDI) are very important in their determinations.

Over the last two months we had Real Retail Sales, Industrial Production, Personal Incomes and Non-Farm payrolls all pushing new expansion highs. The only data not in for December now is Real Incomes.

Very few people realise just how close we came to a recession in the past 12 months, purely on an economic indicators perspective and not counting external risks such as the Fiscal Cliff debate.

Industrial Production was slowed by hurricane Sandy and its growth rate is now in recession territory. Bear in mind, for our “NBER Recession Model of last resort” we use a much faster smoothed growth here than the standard 12-month rate of change and therefore many other studies you observe on Industrial production may not be in recession territory yet.

The latest buzz on the internet is a FRED chart published by the Federal Reserve of St. Louis of Jeremy Pigers’ dynamic factor Markov recession probability index. Its currently jumped from less than 1% to 18%.

The Global Economy is on the brink of a recession with 58% of 29 OECD countries experiencing business cycle contractions. The chart below shows OECD defined global contractions (grey shaded areas) together with the percentage of 29 OECD member countries experiencing slowdowns.

In our “NBER Recession Model – Confirmation of last resort” research note we constructed a co-incident U.S economic composite based on the 4 indicators watched by the NBER, namely Industrial production, Personal Incomes, Retail sales and Payroll employment.

In August 2011, ECRI declared a recession was upon us. If you spend enough time examining their initial proclamations it was literally that a recession was imminent, saying “It’s either just begun, or it’s right in front of us.” Subsequently they revised their call, saying the recession would hit “by mid year” 2012. At that time an array of proprietary leading indicators were in contagion.

The National Bureau for Economic Research (NBER) are the final arbiters of recession dating in the U.S. They take forever to proclaim specific starts and ends to expansions so all the revisions can “work their way through” and they can be dead accurate.