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Real & Private Fixed Investment

Tuesday, May 29, 2007 | 07:09 AM

in Data Analysis | Economy | Federal Reserve

A nice pair of charts from the St. Louis Fed explains part of our fears for a contraction in the coming quarters. Note the shaded gray areas are prior recessions.

Private Fixed Investment

Note that both of these charts goe negative (as the top one did sometime ago) prior to any recessions.

Real Nonresidential Investment

The bright spots? The above chart has not yet slipped into the Red zone.

Also positive (albeit somewhat anecdotal) approach is this academic analysis below:

Academic studies* have shown that a spike in the number of stories appearing each month in the printed editions of the New York Times and Wall Street Journal that mention "recession" runs somewhat ahead of the actual economic contraction.

The rationale for this indicator is that periods of below-trend growth of sales, production, employment, and profits spur an increased awareness of the possibility of a recession developing. This awareness shows up as recession chatter in the financial press.

There are a few things to notice in the chart: First, “recession” stories seem to exhibit normal business cycle characteristics; the number of stories rises during periods of slow growth and recession and remains low during periods of economic expansion. Second, recession stories seem to peak toward the end of the recession, or shortly after, and then fall sharply—which suggests that this indicator might be useful in helping identify troughs,
though perhaps less so for peaks . . . Finally, despite a noticeable jump in the number of
“recession stories” in the Wall Street Journal in March 2007, both series remain at levels consistent with economic expansion.

Fascinating stuff . . .

Sources:
Recession Rumblings
Kevin L. Kliesen
Federal Reserve Bank of St. Louis
May 2007
http://research.stlouisfed.org/publications/net/20070501/netpub.pdf

* Academic studies:
“Is a Recession Imminent?”
John Fernald and Bharat Trehan,
Federal Reserve Bank of San Francisco Economic Letter,
Number 2006-32, 11/24/06.

“Identifying Business Cycle Turning Points in Real Time”
Marcelle Chauvet and Jeremy M. Piger,
Federal Reserve Bank of St. Louis Review,
March/April 2003, 85(2), pp. 47-61.