Are We Already in Recession?

08-12-2011 • Ritholtz.com

Bloomberg reported today that “Consumer Sentiment Plunged to Three-Decade Low.” That sent me scurrying to find some charts, and I ended up liking the two from UBS strategist Andy Lees, at bottom. The first one is an overlay the University of Michigan consumer confidence index vs the Conference Board’s data. The second chart shows the long term history of the Conference Board data. At an implied level of 43.37 we would be in recession now; not only that but a deep recession. As the charts show, the ABC index has diverged from the Conference Board data for some time now. The correlation between consumer confidence and recession might not hold this time — although that would be the first split for 40 plus years. There is also an implication from this data series that we are already in recession. Given yesterday’s data showing both imports and exports falling, we may have an implied Q2 GDP revised lower by 0.8% to 0.5% annualized growth — putting Q2 into the negative category. Hence, it is not unfeasible that we could be the verge of recession.