sduuuude, Leading Indicator Charts. Gee, you are an intellectual! You will like this site then. Bear markets begin when growth in real consumer spending (PCE) peaks and begins to slow
“The relationship between economic slowdowns and bear markets is remarkably consistent, though not infallible, over many cycles. Most bear markets begin when the year-over-year rate of growth in consumer spending is peaking, and investor and general business optimism are at their highest! Considerable courage is required to reduce investments at such times.” – Joseph Elliott, Ahead of the Curve
Ed Leamer uses that same chart to make his forecast. Read his quote from the Wall Street Journal Real Estate section
“Ed Leamer: The history of residential investment offers a Hobson’s choice: either a housing-induced recession or a war the magnitude of Vietnam or Korea.
The figure here depicts real residential investment per worker since 1948, with the official recessions shaded. (Residential investment includes new homes and brokerage fees, but doesn’t include housing appreciation.)
This spending on homes varies from recession lows of about $2,500 per worker to expansion peaks near $4,000. During the recession of 2001, we were at that high $4,000 level, but we ploughed right through the recession without noticing it, and in the second quarter of 2005 we achieved the all-time high — $5,233 per worker. Cut that back by $1,000 to get it into “normal high” range and you lose $1,000 times 140 million workers. That’s $140 billion in lower spending. That’s enough to cause a recession, if it occurs rapidly.
Can we get out of this mess? There have been two “false positives” — problems in the housing sector that didn’t precede recessions. One was in 1966-67. Spending on the Vietnam War saved the economy that time. The other was 1950-51. Then it was the Korean War. Pretty dismal news, for sure.
For perspective, Defense Department spending on Iraq and Afghanistan was 4.8% of gross domestic product in 2004 according to the Bureau of Economic Analysis. During the Vietnam and Korean wars it was as high as 10.2% and 15% of GDP, respectively.”
