For some strange reason a number of economists and strategists seen on TV and quoted in the press maintain that the exceedingly weak recovery we are now undergoing is really a "normal" or "average" recovery. Nothing could be further from the truth. This is not our opinion, but is based on fact. We have taken eight major economic indicators and compared them to where we are now as compared to the economic peak 33 months ago. We did the same for the equivalent time periods for the prior two business cycles, using dates designated by the National Bureau of Economic Research. We did not use surveys, opinions or diffusion indexes, but relied on basic economic indicators related to employment, income, consumption, production, housing and capital expenditures.
The results are very clear that the current recovery is far weaker than the prior two expansionary periods, which themselves were below the average for post-war recoveries. The results are outlined as follows. Remember, for each indicator we are showing the change over 31-to-33 months after the cyclical peak for the economy.
- GDP was up 5.3% and 5.7% at this point in the last two cycles, and is now down 1.3%
- New home sales were down 8% and up 31%; now down 42%.
- Industrial production was up 3% and 1%; now down 7%.
- Retail sales were up 9% and 12%; now down 4%.
- Payroll employment was flat and down 2%; now down 5%.
- Personal income was up 11% and 7%; now up 2%.
- New orders for durable goods were up 5% and 6%; now down 22%.
- Initial weekly unemployment claims were down 5% and 9%; now up 34%.
The facts speak for themselves. The current recovery is far weaker than the prior two, which themselves were weaker than the average for post-war expansions. Moreover, as we discussed in previous comments, even this sub-par recovery has been losing steam in recent months. That is why six months ago the discussion centered on when and how the\ economic stimulus would be removed, whereas now all of the talk is about another round of quantitative easing (QE2). Does anyone really think that the probability of QE2 a full 33 months after the economy peaked and 15 months after it bottomed is really saying anything positive for the economy or the stock market? The current market seems based on the same delusionary views that prevailed at the tops of early 2000 and late 2007. In our view the economy will continue to disappoint for some time to come. That is not being discounted at current market levels.