Recession Watch: The 5 Big Signals To Look For

swimming, butterfly stroke

As just noted, there’s a pretty wide gap between economic sentiment and the economy itself.

People are very nervous, but the economic data hasn’t been that bad.

In a new note, Deutsche Bank identifies the 5 key things to watch for to see if the economy is going into a double-dip recession.

Initial jobless claims

Jobless claims were around 355K when the economy went into recession in December 2007, and claims are currently at 395K, below the 478K peak in April.

Claims have been moving lower in July, and if they stay around 400K they would reflect continued economic growth. A 50,000 - 75,000 rise from current levels could however signal another downturn.

If the four-week moving average stayed at current 405K the economy would be in the clear, but a move to about 450K would be a sign that the economy is contracting.

Source: Deutsche Bank

Consumer confidence

The Bloomberg consumer comfort index has been in recession territory for a few years. It ranged from -54 in November 2008, to -42 in May 2009, and while not in those lows, for the week ending August 6, it went from -47.6 to -49.1.

A meaningful break below -54 would be cause to think a recession has begun.

Source: Deutsche Bank

Consumer spending

Consumer spending has held up fairly well and the chart above shows that retail sales were up 4.8% for the week ending August 6th, from a year ago. What's critical to watch is the 2% threshold, a drop below that figure could signal the onset of a recession.

In fact, retail sales came in strong this morning.

Source: Deutsche Bank


Consumer inflation is a lagging indicator of economic activity, and given that trend, it is expected to continue to rise corresponding to higher growth earlier in the cycle, till it reaches a 2% or 2.5% peak at the end of this year.

In the light of high unemployment, inflation hurts consumer confidence and spending, and could slowdown the economy.

Source: Deutsche Bank

The Fed's gloomy economic assessment

Now here's a wrap-up of what's going on in global markets...

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