Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: bobby beara who wrote (45665)	4/11/2000 10:27:00 PM
From: John Madarasz	Read Replies (1) \| Respond to of 99985

Let's go surfin now... everybodys learnin now... come on a safari with meeeee<ggg> Coping With the Problem of False or Premature Signals of Recession When the goal is prevention, or damage control, one really needs some better ways to identify recessions in close proximity to their occurrence. One of the more useful ways to identify some false, or very premature signals, with regard to an impending recession is to pay close attention to the behavior of short term interest rates. In the post 1947 period the US economy has never experienced a recessionary peak in business activity until at least eight months after a seventy percent increase in the average discount rate on new issues of 91 day Treasury bills. See Table 21.3. Investment decisions, however, are probably more constrained by changes in the prime rate charged by banks than by changes in the T-bill rate. Since 1947 the US economy has never experienced an official NBER type of recession until at least three months after the average prime rate charged by banks increased by a third or more from its cyclical low. Once the prime rate has increased by this percentage recession watchers should carefully monitor changes in leading economic indicators and other variables that might be seriously impacted by higher interest rates. In the post 1947 period the US economy has never experienced a recession until at least one month after a cumulative decline of 20 percent or more for both the index of new private housing units authorized by local building permits and the number of new private housing units actually started. Residential building permits is the only component of the Conference Board's composite index of leading economic indicators that has consistently declined a lot before each of the last nine business peaks. Another variable that recession watchers should keep a close eye on is the 12 month inflation rate for the all item consumer price index. Since 1945 the US economy has (so far) never experienced a recessionary peak in economic activity until this measure of the inflation rate has accelerated by at least 1.1 percentage points from its cyclical low. In the same period of time the US economy has (so far) never experienced a recessionary peak in economic activity until all six of the cyclical indicators in Table 21.3 have exceeded the thresholds enumerated in the footnotes to this table. The good news to be gleaned from these thresholds is that two of the six indicators (residential building permits and the CPI inflation rate) had failed to signal a future recession as of January 1997. albany.edu