Friday, May 15, 2009

The Recession Is Dead: Long Live The Recession!

Here is a link to a chart of the Aruoba-Diebold-Scotti Business Conditions Index (3/1/1960-5/9/2009).

From the Philidelphia Fed:

The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data.

The average value of the ADS index is zero. Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions. The ADS index may be used to compare business conditions at different times. A value of -3.0, for example, would indicate business conditions significantly worse than at any time in either the 1990-91 or the 2001 recession, during which the ADS index never dropped below -2.0.

I looks like things are improving. Looking at the historical relationships between recession and this index indicates that when things recover, they will do so very fast. The index moves almost straight up once the recession is over. My guess is that the variables that are used in this index, and the variables used to call a recession are the same, thus you would expect the two to be related.

It looks like things are almost back to where they were last October. You remember last October, right? This was right before the "official" recession was called in December 2008, leading to a drop off as the obvious was proclaimed, this was right before the presidential elections and right after Lehman Brothers filed for bankrupcy.

So we are right back to where we were before "the panic" set in, fundemental economic weakness and not catastrophic world-is-ending weakness.

But, as everyone else will tell you, it looks like we still have a long way to go. Unless we don't,

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