Tags: recession | economy | us | growth

The Recession Really Started in June

By    |   Wednesday, 11 July 2012 07:36 AM

Experts at the National Bureau of Economic Research will meet one day to decide the official start date of the next recession.

This meeting will probably take place about two years from now because they always meet well after the recession has started. The NBER is the official historian on economic growth and they move slowly to avoid mistakes.

When they finally meet, the data they rely on will point to the fact that a slowdown started in June. From here, we can expect that the economy will get worse before it gets better.

Warren Buffett’s desert island economic indicator, the one he would want to guide his forecasts if he could only have access to a single number every month, is negative and pointing towards a decline. Buffett follows railroad and truck traffic, indicators that measure how many goods are moving between factories and stores.

There is another economic indicator that forecasts the trends in truck and rail traffic. New orders by purchasing managers in the nation’s factories must be placed before there is a need for transportation.

In June, the Institute of Supply Management’s new orders index fell more than 20 percent from the previous month. This is only the fourth time since 1960 that the index fell that much in a single month. The other three times were during a recession.

The new orders index confirms the dismal jobs report and other economic data reported in the past month indicates the economy is not doing well. The reality is that the recession has most likely already begun. That means unemployment will rise, interest rates will fall, and stocks will fall as well.

Investors should prepare for this before reports of the recession become widespread.

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Wednesday, 11 July 2012 07:36 AM
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