Thanks to the Fed's excursion into Zero Interest Rate Policy (aka "ZIRP"), we can't use our dedicated tool that reckons the odds of a recession up to a year in the future.
But we can do the next best thing and listen to what the stock market is trying to tell us:
Here, we find that the private sector of the U.S. economy is set to slow down in a big way going into the second quarter of 2012, which we see as the decrease in that quarter's expected dividends per share.
Keep in mind the extremely slow growth of just once cent per share from the second to third quarters of 2011 directly coincided with what we've described as a microrecession in the United States, which we've since confirmed using international trade data.
But what does that mean for jobs? After all, as we've seen previously, the big job losses following the beginning of a recession often occur quite a bit after it has begun.
Fortunately, we have another tool we can use to predict how the U.S. unemployment rate will change, up to two years in the future! The relationship between inflation-adjusted motor gasoline prices and the unemployment rate in the U.S.!
Here, we've shifted the red curve indicating the level of real motor gasoline prices in the U.S. some two years into the future. Here, we see that the recently announced unemployment rate of 8.6% for the U.S. is right about exactly where the gas prices of two years ago would predict they would be.
(Technically, they had been higher than anticipated until the most recent employment situation report, but then, remember the U.S. went through that whole microrecession thing!)
Looking into the future, we see that the unemployment rate through 2012 is likely to fall into the range between 8.5% and 9.0%. But very early in 2013, it would seem set to skyrocket back up over the 10% mark, after beginning to rise sharply toward the end of 2012.
That won't be any microrecession. And now, you can't say you weren't warned about what now looks like is coming this way!
Elsewhere on the Web
Doug Short compares the track record of two leading economic indicators and notes that the two have diverged in recent months, with one signalling recession and the other chirping along merrily - only one can be right!...
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
Political Calculations' U.S. GDP Temperature Gauge provides a means to quickly evaluate the growth rate of the U.S. economy against the backdrop of how the economy has performed since 1980, with the "temperature" color spectrum ranging from a recessionary "cold" (purple) through an expansionary "hot" (red).
The GDP Temperature Gauge presents both the annualized GDP growth rate as reported by the U.S. Bureau of Economic Analysis reports for a one-quarter period and also as averaged over a two quarter period, which smooths out the volatility seen in the one-quarter data and provides a better indication of the relative strength of the U.S. economy over time.
Recession Probability Track
Political Calculations' Recession Probability Track shows the probability that the U.S. economy will be in recession 12 months from the indicated date (shown in red) while revealing the probability trend over the past four years.
Previously, the probability of recession peaked at 50% on 4 April 2007, which means that March-April 2008 was the most likely period in which the NBER would have found the U.S. to be in recession.
As it happens, they almost did. The NBER instead chose December 2007 as the beginning month of the most recent recession (we had found a 46% probability for a recession beginning in that month!)
The Recession Probability Track ceased to be a leading indicator of recession in the U.S. following the Federal Reserve's adoption of its current Zero Interest Rate Policy, where the Fed artificially constrains short term U.S. Treasury yields near zero percent.
We continue to post the Recession Probability Track to monitor the yield on the 10 Year Constant Maturity Treasury, where a falling value provides a leading indication of a worsening economy.
On the Moneyed Midways
Political Calculations is also the online home of On the Moneyed Midways (aka OMM), a review of the best posts contributed to the week's best business and money-related blog carnivals, which we ran as a regular weekly feature for the five years from 2006 through 2010.
The link below will take you to the running index containing our most recent back issues (you can easily navigate the index to find older editions.)
The tools on this site are built using JavaScript. If you would like to learn more, one of the best
free resources on the web is available at W3Schools.com.
Other Cool Resources
ZunZun - Exceptional regression analysis tool. Wolfram Integrator - Solve integrals. Do calculus! Create a Graph - Easy-to-use basic graph-making tool. Many Eyes - Data visualization extraordinaire!
Wolfram Alpha - Computational knowledge engine. Khan Academy - Math & science video mini-lectures! Picasion - Animate images.
