There’s Something Brewing on the Horizon- A Recession

NEW YORK - March 14, 2014 - PRLog -- While the US economy continues to grow, the rate of growth is slowing. This troubling trend suggests that the US economy is, once again, at risk of slipping into recession.

Full article with charts can be found at:

http://www.stevepicarillo.com/1/post/2014/03/theres-something-brewing-on-the-horizon-a-recession.html

This should not be a surprise given the historic economic patterns of economic cycles, the overall weakness blanketing much of the global economies and the escalating political conflicts abroad. Nevertheless, for those individuals and businesses that have yet to recover from the last recession, this is a dose of unwelcome and discouraging news. On a positive note though, absent an unexpected external (i.e. non-economic) event, any recession is likely not to hit until late 2014 or early 2015.

Since the end of the 2007 recession, the US economy has been on a winding road of potholes, curves and hillsride of high. The recovery has been tepid and at times tottering fraught with starts and fits.

There is significant data suggesting that there are clouds are on the horizon. First, lets look at the growth of consumer spending to income. Consumers continue to spend, but they are spending less in relation to income. This may indicate that consumers are concerned about their security of their jobs and income, the overall economic environment or value of their home- just to name a few.

Another troubling trend is the trajectory and intensity of the downward trend of personal spending to income, after the year-end spike.  While the severe weather that blanketed much of the US was certainly a driver behind this sudden drop, there are likely more deep-rooted economic causes. Moreover, a considerable amount of this spending will not be recouped, as such; this suggests lost dollars that never will flow through the economy. We are closely watching this ratio as it unfolds in the coming months.

Finally, the truck transportation and warehouse portion of employment, provides insight in forecasting impending recessions. Given the need for people to buy food and goods, transportation is a true economic warning indicator, as it moves food and goods before the final retail sale occurs. Slowing employment in this sector suggest less goods are being moved, indicating reduced demand for inventory.

Transportation employment growth remains above the zero growth line, but the growth is decelerating and is approaching negative territory. This measurement of employment provides a six-month warning of an impending recession for the past two recessions, with no false predictions. Given this, the transportation index suggests that any potential recession is more than six months away, but the trajectory suggest a recession may very well be on the horizon.

Over the past year, growth of the “Leading Index” has been within the normal trend of this weak recovery, however more recent data points negative. Importantly however, the weakness in the trend is not significant enough to predict a recession in the near-term. Accordingly, this data point suggests any recession is likely to be more than six month away.

The above are just a few signposts used to opine on and predict economic trends. There are countless others measures and indicators that may tell the same story, the total opposite story or something in between.

There are also numerous external factors such as the economic weakness in the Eurozone, the slowing economy in China, the Russian conflict, the unsettled Middle East and the constant threat of terrorism, all of which can impact the timing of the next recession. By their nature, these events are difficult, if not impossible, to predict and it is extremely difficult to fully estimate the overall impact of any such factor(s) on the economic environment in the US or across the globe.

The most certain prediction that one can make is that the next nine to 12 months will likely be more of the same- anemic economic growth, low levels of employment, highs and lows, and general apprehension.

After all the numbers are crunched, massaged, charted and presented, it may just fall back to historic trends, which tells us that recessions typically transpire every seven to 10 years, so the calendar suggest we are getting close. So time to tell.

About the author: 
Steve Picarillo is an internationally known and respected financial executive, analyst and author. Steve has spent most of his career on “Wall Street” as a lead analyst covering large financial institutions in the US and in Europe. In addition to being an expert on global banking, credit ratings, banking regulations and compliance, Steve are a student of the global economic environment, a motivational speaker and an active philanthropist.

Steve’s recent articles, full biography and CV can be found on www.stevepicarillo.com.