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First Recession Alarm Rings

By Rick Pendergraft

Image Hosting by Picoodle.comDear Reader,

“Economists have correctly predicted nine of the last five recessions.”
Paul Samuelson, Economist

In a radio interview last Saturday, the hosts asked me if I thought we would head into a recession in 2008. I answered that I didn’t think so; I think we see a slower economy, but not an all-out recession.

I still think this is the case, but there was an alarm that sounded on Thursday that has me concerned.

I have written about the Leading Indicators report in the past. The report is believed to predict whether the economy is heading for a recession.

The predictions are based on two parts. The first part is that the six-month cumulative total reaches -1.0 percent. The November report came in at -0.4 on Thursday, putting the six-month cumulative total at -1.2 percent. This is the first six-month reading below – 1.0 percent since 2001.


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The second part of the recession alarm is to have three straight months of negative readings. From February to September, the readings alternated from positive one month to negative the next. However, we now have two straight negative readings in October and November.

The December report will be released on January 18. Should we get another negative reading, both alarms will be ringing.

This report has correctly predicted every recession over the past 50 years. It has also predicted five other recessions that never developed.

Because it has sounded a false alarm so many times, I don’t think it is time to panic just yet. But you will certainly want to keep an eye on future readings. If you combine this report with the chart of the S&P 500 that I keep showing you every few weeks, you should be well prepared for the coming year.

Good luck and good trading,

Rick

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

 

Sumber: Investors Daily Edge

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