No 2011 Recession in Sight

Well, it's amost the end of October, 2011 and so far there's no 2011 recession in sight (at least according to the data provided by the U.S. government using GDP as the determining factor).

It's kind of hard to believe though and if you listen to the media too much you're sure to have heard the word "recession" many times over the last few months.

What is a "recession" though? Definitions vary form source to source and usually consist of multiple characteristics, but if there are multiple characteristics, is satisfying ALL the requirements of a "definition" what should be considered?

Here are some definitions of a "recession" from varying sources:

A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.
Source: Investopedia.com
A period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters. A recession is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. A recession is generally considered less severe than a depression, and if a recession continues long enough it is often then classified as a depression. There is no one obvious cause of a recession, although overall blame generally falls on the federal leadership, often either the President himself, the head of the Federal Reserve, or the entire administration.
Source: Investorwords.com
In a 1975 New York Times article, economic statistician Julius Shiskin suggested several rules of thumb for defining a recession, one of which was "two down consecutive quarters of GDP". In time, the other rules of thumb were forgotten. Some economists prefer a definition of a 1.5% rise in unemployment within 12 months.

In the United States, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions. The NBER defines an economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Almost universally, academics, economists, policy makers, and businesses defer to the determination by the NBER for the precise dating of a recession's onset and end.

In the UK recessions are generally defined as 2 successive quarters of negative growth. (or 6 months)
Source: Wikipedia.com user contributed definition

You can see that most definitions include the requirement of two consecutive quarters of negative growth having been met before a cycle is to be considered a "recession".

If we take some of the charatceristics mentioned by the NBER individually: 1) real GDP: increasing the last 2 quarters; 2) real income: declining the last 2 quarters; 3) unemployment (number of unemployed): the last 5 months have been the highest for 2011 and the last 3 months have all increased from the prior month. 4) industrial production: data shows IP has increased slightly over the last few months and is positive for the most recent quarter and 5) wholesale-retail sales: both have been positive over the most recent months.

So, GDP is positive, the main factor most commonly used but what worries me is that real income is down and unemployment is creeping higher. Still, with 2 months left in 2011, there seems to be no 2011 recession in sight based on overall statistics and, as a trader or investor, there's always opportunities to make some money in both up or down markets.

Here's a chart I put together displaying U.S. GDP along with the S&P500 from January 2007 thru the end of September, 2011 using quarterly data and closing prices. With the most recent positive GDP data released, the S&P500 appears to have the potential to close year end higher than 1131.42 (assuming momentum from the latest GDP report carries thru year end). Then again though, if the 2011 holiday retail sales season fumbles, that may not be the case at all. Retail sales may be the key here in the short term.

No 2011 Recession in Sight
Note: The above commentary and information are based on my opinions only and not to be considered in any way, recommendations to buy, sell or initiate any positions.



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