In December of 2007, I wrote in my weekly newsletter that we were “…either in, or about to be in, the worst recession since the ‘Great Depression.'”
At that time, the warning rang hollow as GDP growth was positive, and the markets were still marching higher as the calendar turned to 2008. It was a year later, in December of 2008, that the National Bureau of Economic Research (NBER), stated that the recession did, in fact, begin in December of 2007.
So, here is the question. What economic evidence was available in late 2007 that suggested the U.S. economy was on the brink of recession? Here is a partial list.
With the US economy now more than six years into the economic recovery, the question simply becomes how close are we to the end of the current business cycle. This is critically important to investors since the bulk of capital destruction, due to major market reversions, have historically occurred coincident with the onset of recessions.
Let’s take a look at the same list of indicators that correctly pinpointed the beginning of the last recession to gauge where we reside in the current business cycle.
Real Personal Consumption Expenditures (PCE) (YoY % Change)
Personal consumption expenditures comprise roughly 70% of the GDP calculation and, therefore, is an important consideration in determining the overall strength and status of the current economy. Historically, when the annual growth rate of PCE has fallen below 2%, it has warned of a substantially weak economic environment and acted as a precursor to the onset of a recession.
