90 Years Us Recessions V4
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90 years of US recessions …and what it means to you now!
Overview We look at recessions through durable goods purchases, industrial production and employment… …and explain how graphical data presentations make understanding the business cycle simple.
A durable commitment Purchases of durable goods* require moderate-high consumer sentiment and likely require credit. Evidence of consumer confidence in the future economy. * Durable Goods: items lasting longer than 1 year (car, boat, appliances)
Economic recovery? Durable goods represent a major economic undertaking. A car at $15K represents a major portion of consumers annual diposable income. That spending constitutes a lot of income for workers.
Consumer recession Conversely when DG purchases are delayed, the economy suffers a major spending contraction. Falling DG purchases is a sign of consumer frugailty, low sentiment, and low confidence in the future.
The economy So we focus on the production side of the economy… Commodities
Private Debt
Consumer Spending Interest Rates
Private Wealth
Real Income
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
Business Inventory
Business Investment
Economic charts simplified Annual % Change in DG Spending
Annual % Change in Industrial Production Stock Market Top
Annual % Change in Private Employees
Years
Recession bars
Actual Hours (RHS) in Manufacturing Overtime Stock Market Low Legend
2001 Recession
January 2000 Top: DG spending top with falling production/overtime October 2002 Low: Unusual as economy recovered in Dec 2001
1990/91 Recession
July 1990 Top: DG spending & production peak, declining overtime October 1990 Low: DG spending bottom
1982 Recession
April 1981 Top: DG spending, declining overtime July 1982 Low: Rising overtime and DG spending
1980 Recession
February 1980 Top: Falling DG spending, production & overtime April 1980 Low: Anticipated overtime hours bottom
1974 Recession
January 1973 Top: DG spending peak, declining production November 1974 Low: DG spending bottom
1970 Recession
January 1969 Top: DG spending peak, declining overtime June 1970 Low: DG spending bottom, false overtime low
1966 Non-Recession
?
January 1966 Top: Declining production, interim DG spending peak October 1966 Low: Interim DG spending bottom
1960 Recession
July 1959 Top: Declining spending, production, employment October 1960 Low: Stable DG spending, false overtime/production low
1957 Recession
July 1957 Top: Declining overtime, production, employment December 1957 Low: False overtime low
1953 Recession
January 1953 Top: False top in spending and production? September 1953 Low: ??
1949 Recession
October 1948 Top: Declining spending, production, employment June 1949 Low: False low in production, spending & employment
1937 Recession
March 1937 Top: Declining production March 1938 Low: Rising production
1929/32 Recession
August 1929 Top: Declining production July 1932 Low: Rising production
1927 Recession
No material stock market decline during recession
1923 Recession
March 1923 Top: Production peak September 1923 Low: False production low
1920 Recession
March 1923 Top: ?? (no production data) August 1921 Low: Rising production
Production is critical… … as production occurs to meet consumer demand. Durable goods are a major spending commitment made by confident consumers. Factories respond to consumer demand by increasing production and over-time hours. Watch DG spending, production and overtime!
It’s a Market Economy… … the stock market reflects expectations about the future value of profits companies earn in the real economy. Industrial production is a major component of the real economy. Falling production is negative for profits due to production’s high fixed cost base. Rising production is favourable for share prices.
Want to learn more? In the next slides we look at BCM’s unique approach to the business cycle based on the production function and employment. We conclude by showcasing how different economic series perform across the 8 stages of the business cycle. More available at www.business-cycle-monitor.com
Employment & Production… … given the volatility in industrial production monthly data, BCM uses private employment data to construct an 8-stage business-cycle. This forms the basis of our economic analysis and data presentation. Here’s how it works…
The Production Function… … shows how inputs (labour, capital, materials, and land) are turned into economic outputs (goods & services) through firm processes and technology. Technology Employment Capital ($) Materials Land
Firm Processes & Management
Economic outputs (Goods & Services)
The Production Function… Output = Productivity x Employment0.7 x Capital0.3 (Productivity is a function of technology, processes, management)
Thus for small changes in productivity and capital, Output is directly related to Employment
Output ~= Employment0.7 Technology Employment Capital ($) Materials Land
Firm Processes & Management
Economic outputs (Goods & Services)
Production & Employment… …as per theory, production growth closely correlates to Employment growth, and it is a smoother curve… Yearly production growth (%)
Yearly employment growth (%)
Production & Employment… …a 2% change in industrial production equates to a 1% change in private employment … Yearly employment growth (%)
Yearly production growth (%)
Employment, actual & growth… …this chart shows employment in actual levels, and in terms of % change on year prior levels Yearly employment growth (%) - LHS
Actual Private Employment (000’s) - RHS
We can define key points on the annual employment % change curve to define 8 points in the business-cycle
3 4
2
3 4
5
5 1 8
6 7 Slowdown
Downturn Recovery
Expansion
Slowdown
Downturn
This gives us the 8-stage business cycle as shown below. Expansion – Slowdown – Downturn – Recovery 3 2
4
Downturn (winter)
1
early
late
early late
(summer)
(spring)
5
early
Expansion
Recovery early
late
1
late
Slowdown (fall/autumn) 8
6 7
We can now relate the 8 stages to our simplified economy.
The business-cycle High consumer sentiment, leads to rising consumer spending, leading to rising industrial production, leading to rising employment.
Consumer Spending
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
The business-cycle With rising employment comes rising incomes and wealth, debt expands, sentiment and spending increase, leading to rising production, employment, commodity prices, inventories and business investment.
Commodities
Private Debt
Consumer Spending Interest Rates
Private Wealth
Real Income
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
Business Inventory
Business Investment
The business-cycle Looking at the major elements in turn.
Consumer Spending
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
The business-cycle via consumer sentiment
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via real private consumption growth
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via industrial production growth
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via industrial production level
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via private employment growth
3 4
2
3 4
5
5 1 8
6 7 Slowdown
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via private employment level
3
Slowdown
Downturn Recovery
Expansion
Downturn
3
4
2
1
5 6
8 7
Dark area indicates recession
Slowdown
4
5
The business-cycle via the unemployment rate
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
understand, monitor & exploit… Commodities
Private Debt
Consumer Spending Interest Rates
Private Wealth
Real Income
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
Business Inventory
Business Investment
…the business-cycle
The business-cycle overview Expansion
Slowdown
Downturn
Recovery
Employment Growth
Positive and increasing
Positive and decreasing
Negative and decreasing
Negative and increasing
Employment Level
Rising strongly
Rising more slowly to peak then initial fall
Falling quickly from peak then more slowly
Falling slowly to bottom then rising slowly
Decreasing steadily
Slow decrease to cycle low then rising
Rapid rise initially, then slower steady rise
Continued slow rise to peak then steady decline
Unemployment Rate Industrial Production
Continues to rise strongly
Rises strongly to peak the Falls to bottom then begins Continues to rise strongly begins to fall rising
Total Capacity Utilisation
Rises at faster pace
Stagnates at high level then begins to fall
Falls away rapidly to cycle low before recovering
Rises slowly
Growth in Real Consumption
Rises at faster pace
Stagnates at high level then begins to fall
Falls away rapidly to cycle low before recovering
Rises slowly
Consumer Sentiment
Rises and stabilises at cycle high
Begins to fall from cycle high to cycle low
Stagnates at low before beginning recovery
Continues rising towards cycle high
Durable Goods New Orders
Slowly rising from strength to cycle peak
Decreasing quickly from cycle peak
Rising from bottom
Rapid rise to near cycle high
Continued fall into cycle low, then late rise
Continued rise from below to above 100
OECD Composite CLI steady (rising perhaps) Falling steadily to below 100 Leading Indicator above 100, with late fall
Key Point Summary Key point #1: Output is proportional to employment Key point #2: GDP growth measures the economy Key point #3: Employment growth follows GDP growth Key point #4: Employment growth is smooth, available monthly, reflects business decisions & has an impact on consumer sentiment Key point #5: Monitor employment growth Key point #6: Understand where in the 8 stage business cycle we are
BCM 8 Stage Economic Cycle
BCM 8 Stage Asset Cycle
BCM 8 Stage Firm Cycle
BCM 8 Stage Personal Cycle
Interested?? Subscribe to our FREE publication, the
BCM Global Monitor. 40+ pages, 100+ series, easy-to-read graphical format, covers major OECD nations, incorporates our unique 8-stage business cycle recommendations. Register for our BCM US Supplement ($0.99/month) or our BCM Australian Supplement ($1.49/month)
www.business-cycle-monitor.com
Useful? Share the knowledge and help everyone Understand, monitor and exploit the business-cycle Email this slideshare presentation to others...
Overview We look at recessions through durable goods purchases, industrial production and employment… …and explain how graphical data presentations make understanding the business cycle simple.
A durable commitment Purchases of durable goods* require moderate-high consumer sentiment and likely require credit. Evidence of consumer confidence in the future economy. * Durable Goods: items lasting longer than 1 year (car, boat, appliances)
Economic recovery? Durable goods represent a major economic undertaking. A car at $15K represents a major portion of consumers annual diposable income. That spending constitutes a lot of income for workers.
Consumer recession Conversely when DG purchases are delayed, the economy suffers a major spending contraction. Falling DG purchases is a sign of consumer frugailty, low sentiment, and low confidence in the future.
The economy So we focus on the production side of the economy… Commodities
Private Debt
Consumer Spending Interest Rates
Private Wealth
Real Income
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
Business Inventory
Business Investment
Economic charts simplified Annual % Change in DG Spending
Annual % Change in Industrial Production Stock Market Top
Annual % Change in Private Employees
Years
Recession bars
Actual Hours (RHS) in Manufacturing Overtime Stock Market Low Legend
2001 Recession
January 2000 Top: DG spending top with falling production/overtime October 2002 Low: Unusual as economy recovered in Dec 2001
1990/91 Recession
July 1990 Top: DG spending & production peak, declining overtime October 1990 Low: DG spending bottom
1982 Recession
April 1981 Top: DG spending, declining overtime July 1982 Low: Rising overtime and DG spending
1980 Recession
February 1980 Top: Falling DG spending, production & overtime April 1980 Low: Anticipated overtime hours bottom
1974 Recession
January 1973 Top: DG spending peak, declining production November 1974 Low: DG spending bottom
1970 Recession
January 1969 Top: DG spending peak, declining overtime June 1970 Low: DG spending bottom, false overtime low
1966 Non-Recession
?
January 1966 Top: Declining production, interim DG spending peak October 1966 Low: Interim DG spending bottom
1960 Recession
July 1959 Top: Declining spending, production, employment October 1960 Low: Stable DG spending, false overtime/production low
1957 Recession
July 1957 Top: Declining overtime, production, employment December 1957 Low: False overtime low
1953 Recession
January 1953 Top: False top in spending and production? September 1953 Low: ??
1949 Recession
October 1948 Top: Declining spending, production, employment June 1949 Low: False low in production, spending & employment
1937 Recession
March 1937 Top: Declining production March 1938 Low: Rising production
1929/32 Recession
August 1929 Top: Declining production July 1932 Low: Rising production
1927 Recession
No material stock market decline during recession
1923 Recession
March 1923 Top: Production peak September 1923 Low: False production low
1920 Recession
March 1923 Top: ?? (no production data) August 1921 Low: Rising production
Production is critical… … as production occurs to meet consumer demand. Durable goods are a major spending commitment made by confident consumers. Factories respond to consumer demand by increasing production and over-time hours. Watch DG spending, production and overtime!
It’s a Market Economy… … the stock market reflects expectations about the future value of profits companies earn in the real economy. Industrial production is a major component of the real economy. Falling production is negative for profits due to production’s high fixed cost base. Rising production is favourable for share prices.
Want to learn more? In the next slides we look at BCM’s unique approach to the business cycle based on the production function and employment. We conclude by showcasing how different economic series perform across the 8 stages of the business cycle. More available at www.business-cycle-monitor.com
Employment & Production… … given the volatility in industrial production monthly data, BCM uses private employment data to construct an 8-stage business-cycle. This forms the basis of our economic analysis and data presentation. Here’s how it works…
The Production Function… … shows how inputs (labour, capital, materials, and land) are turned into economic outputs (goods & services) through firm processes and technology. Technology Employment Capital ($) Materials Land
Firm Processes & Management
Economic outputs (Goods & Services)
The Production Function… Output = Productivity x Employment0.7 x Capital0.3 (Productivity is a function of technology, processes, management)
Thus for small changes in productivity and capital, Output is directly related to Employment
Output ~= Employment0.7 Technology Employment Capital ($) Materials Land
Firm Processes & Management
Economic outputs (Goods & Services)
Production & Employment… …as per theory, production growth closely correlates to Employment growth, and it is a smoother curve… Yearly production growth (%)
Yearly employment growth (%)
Production & Employment… …a 2% change in industrial production equates to a 1% change in private employment … Yearly employment growth (%)
Yearly production growth (%)
Employment, actual & growth… …this chart shows employment in actual levels, and in terms of % change on year prior levels Yearly employment growth (%) - LHS
Actual Private Employment (000’s) - RHS
We can define key points on the annual employment % change curve to define 8 points in the business-cycle
3 4
2
3 4
5
5 1 8
6 7 Slowdown
Downturn Recovery
Expansion
Slowdown
Downturn
This gives us the 8-stage business cycle as shown below. Expansion – Slowdown – Downturn – Recovery 3 2
4
Downturn (winter)
1
early
late
early late
(summer)
(spring)
5
early
Expansion
Recovery early
late
1
late
Slowdown (fall/autumn) 8
6 7
We can now relate the 8 stages to our simplified economy.
The business-cycle High consumer sentiment, leads to rising consumer spending, leading to rising industrial production, leading to rising employment.
Consumer Spending
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
The business-cycle With rising employment comes rising incomes and wealth, debt expands, sentiment and spending increase, leading to rising production, employment, commodity prices, inventories and business investment.
Commodities
Private Debt
Consumer Spending Interest Rates
Private Wealth
Real Income
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
Business Inventory
Business Investment
The business-cycle Looking at the major elements in turn.
Consumer Spending
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
The business-cycle via consumer sentiment
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via real private consumption growth
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via industrial production growth
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via industrial production level
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via private employment growth
3 4
2
3 4
5
5 1 8
6 7 Slowdown
Downturn Recovery
Expansion
Slowdown
Downturn
The business-cycle via private employment level
3
Slowdown
Downturn Recovery
Expansion
Downturn
3
4
2
1
5 6
8 7
Dark area indicates recession
Slowdown
4
5
The business-cycle via the unemployment rate
Slowdown
Dark area indicates recession
Downturn Recovery
Expansion
Slowdown
Downturn
understand, monitor & exploit… Commodities
Private Debt
Consumer Spending Interest Rates
Private Wealth
Real Income
Consumer Sentiment
Ind. Production & Serv. Activity
Employment
Business Inventory
Business Investment
…the business-cycle
The business-cycle overview Expansion
Slowdown
Downturn
Recovery
Employment Growth
Positive and increasing
Positive and decreasing
Negative and decreasing
Negative and increasing
Employment Level
Rising strongly
Rising more slowly to peak then initial fall
Falling quickly from peak then more slowly
Falling slowly to bottom then rising slowly
Decreasing steadily
Slow decrease to cycle low then rising
Rapid rise initially, then slower steady rise
Continued slow rise to peak then steady decline
Unemployment Rate Industrial Production
Continues to rise strongly
Rises strongly to peak the Falls to bottom then begins Continues to rise strongly begins to fall rising
Total Capacity Utilisation
Rises at faster pace
Stagnates at high level then begins to fall
Falls away rapidly to cycle low before recovering
Rises slowly
Growth in Real Consumption
Rises at faster pace
Stagnates at high level then begins to fall
Falls away rapidly to cycle low before recovering
Rises slowly
Consumer Sentiment
Rises and stabilises at cycle high
Begins to fall from cycle high to cycle low
Stagnates at low before beginning recovery
Continues rising towards cycle high
Durable Goods New Orders
Slowly rising from strength to cycle peak
Decreasing quickly from cycle peak
Rising from bottom
Rapid rise to near cycle high
Continued fall into cycle low, then late rise
Continued rise from below to above 100
OECD Composite CLI steady (rising perhaps) Falling steadily to below 100 Leading Indicator above 100, with late fall
Key Point Summary Key point #1: Output is proportional to employment Key point #2: GDP growth measures the economy Key point #3: Employment growth follows GDP growth Key point #4: Employment growth is smooth, available monthly, reflects business decisions & has an impact on consumer sentiment Key point #5: Monitor employment growth Key point #6: Understand where in the 8 stage business cycle we are
BCM 8 Stage Economic Cycle
BCM 8 Stage Asset Cycle
BCM 8 Stage Firm Cycle
BCM 8 Stage Personal Cycle
Interested?? Subscribe to our FREE publication, the
BCM Global Monitor. 40+ pages, 100+ series, easy-to-read graphical format, covers major OECD nations, incorporates our unique 8-stage business cycle recommendations. Register for our BCM US Supplement ($0.99/month) or our BCM Australian Supplement ($1.49/month)
www.business-cycle-monitor.com
Useful? Share the knowledge and help everyone Understand, monitor and exploit the business-cycle Email this slideshare presentation to others...
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