Home > Off Blog > Consumer Metric Institute: Current contraction is now deeper than the 2008 recession

Consumer Metric Institute: Current contraction is now deeper than the 2008 recession

Chart provided by dshort.com (Click for more charts)

So much for the announcement by the National Bureau of Economic Research that the recession ended in June of 2009.

By calling the recession after only 18 months, the NBER neatly avoided embarrassing questions about its lack of a definition for a depression; which, we remind our readers, is commonly (albeit incorrectly) thought to be a recession lasting at least two years with unemployment reaching ten percent or more.

Consumer Metrics Institute’s Growth Index is now registering a year over year contraction of the economy deeper than the initial leg down in 2008. With GDP now falling at a 6.05 percent clip, the economy has shrugged off the nearly $900 billion in Obama stimulus PLUS zero interest rates AND $2.3 trillion in quantitative easing provided by the Federal Reserve Bank.

Which probably explains the rather abrupt announced exit of most of the Messiah’s failed economic policy team from Washington – to be followed, in short order, by the collapse of the Democratic Party’s super-majorities in both the House and Senate.

According to the Institute:

The trailing 91-Day, 183-Day and 365-Day Growth Indexes (or sometimes shown as Growth %) are simply 91, 183 and 365 day (respectively) moving averages for the year-over-year net growth/contraction of the ‘Weighted Composite Index’. These are essentially the ‘areas under the curve’ that are ultimately used to calculate the corresponding ‘trailing percentiles’ through the statistical comparison of these values with one, two and four quarter GDP growth histories respectively in the U.S. Department of Commerce’s Bureau of Economic Analysis GDP Growth Tables. These ‘Growth Indexes’ are the year-over-year actual growth from which the ‘Trailing Percentiles’ are drawn.

The 91-Day and 183-Day Growth Indexes are closely followed as ‘demand side’ proxies for major economic statistics. The 91-Day trailing ‘quarter’ can serve as a real-time Consumer demand analog for the GDP annualized growth numbers that are used to measure the ‘supply side’ production growth. Our trailing ‘quarter’ is a number of months upstream from the factory production figures, and was leading the GDP by about 17 weeks at the end of 2009.

Similarly the 183-Day Growth Index is our demand side measure of whether or not the Consumer stimuli to the economy are in a ‘recession’. Traditional economists use the ‘two consecutive quarters’ of growth or contraction as a signal for the economy dropping into or recovering from a recession. Our 183-Day trailing ‘two quarters’ does exactly the same for Consumer activities on the demand side of the economy. If the number is positive, the average reading of our ‘Weighted Composite Index’ over the preceding sliding ‘two quarters’ is signaling growth and no ‘recession’. If, on the other hand, the 183-Day Growth Index is negative, then the trailing ‘two quarters’ were in net contraction, signaling a demand side ‘recession’.

The GDP numbers for the third quarter (July, August and September) will not be reported until just before the November elections and will likely be negative. The 3rd quarter trickle, however, will become a tsunami of contraction around Christmas. You will probably notice it much sooner via a pink slip from your employer.

All we got out of the economic shock and awe of February 2009 was a budding Tea Party “rebellion” and a bunch of impotent whining progressives who thought they had reelected FDR, rather than the Wall Street shill who now occupies the West Wing of the White House.

We’re definitely gonna need a bigger boat … (or a much shorter work week.)

UPDATE: dshort.com has added this commentary to their website:

Perhaps the most astonishing chart is the one below, which compares the contraction that began in 2008 with the one that began in January of this year. I’ve reproduced a chart on the Institute’s website and added annotations for the elapsed time and the relationship of the contractions to major market milestones.

Among other things, this chart illustrates the more subtle and pernicious nature of the current decline in consumption. The 2010 decline had already exceeded the length of the complete 2008 contraction cycle — the combined contraction and recovery. Now it has exceeded the depth of the contraction as well.

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