Anatomy of a Murdered Economy

Finally!

On September 16, 2009, Warren Buffett slapped a gravestone on the Great Recession: "I think the odds are very much against getting significantly worse. [The economy] has sort of plateaued at the bottom right now."

One year later -- almost to the day -- the U.S. government decided that Buffett was right. According to official statistics from the National Bureau of Economic Research (NBER), the Great Recession ended in June 2009. And no sooner had NBER announced its findings than Buffett chimed in with a further prediction that "we will not have a double-dip recession at all."

So I'm glad that's settled. Now, can we all get back to growing the economy again?

Not so fast
As fellow Fool Morgan Housel reminded us last month, calling the timing on a recession's beginning or end "isn't exactly a science." So before we toss that last shovelful of dirt on the Great Recession's casket, and begin planting new sod, perhaps we should take one last peek into the hole and make sure this thing really is well and truly dead? Fortunately, our friends over at the Consumer Metrics Institute, "Home of Daily Consumer Leading Indicators," have done just that for us.

In a report released Monday, CMI broke down the Great Recessionary Data for us, timelining the disaster in a series of six successive "events." Unlike NBER, and unlike Buffett, CMI doesn't see the Great Recession as something that started, ended, and is now officially R.I.P. Rather, CMI sees the Greater Recession as a single, long-drawn-out event -- which is still unfolding. Quoting at length from this week's report:

  • The recession most likely started with a drop in consumer confidence, triggered by bad financial news (Bear Stearns, Lehman Brothers, etc.) and media coverage of the "Housing Crisis"/subprime loans.
  • The initial recessionary downturn was accelerated by political uncertainties in 2008 and rising energy prices.
  • An organic recovery started late in 2008 when energy prices collapsed, lasting well into 2009 with help from short term stimuli ("Cash for Clunkers" and the Federal New Home Tax Credit).
  • During 2009 (and now deeply into 2010) a ruthless corporate obsession with short term earnings exacerbated the already weak employment picture, even as equity markets recovered.
  • By late summer 2009 consumers realized that this was not a "garden variety" recession, as unemployment persisted and fixed incomes plummeted.
  • By early 2010 demographically appropriate "frugal" consumer habits had emerged, reducing discretionary spending in favor of increased personal savings (or the paying down of debt).

And for the slower members of the class (including yours Fool-y), CMI then drew us a picture of how all this played out:


Now, Warren Buffett may say this isn't a double-dip picture, but it sure as heck looks like one to me. The economy was growing until it exploded, began recovering around about the time Buffett said the recession was "over" -- and then began a sudden, dramatic, and even deeper dive around November/December of last year. And, as an example of CMI's prophesied "new frugality," we're seeing exceedingly weak profits reports (down 19%, 9%, and 7%, respectively) roll in this week from the likes of such consumer-sensitive manufacturers as Kimberly Clark (NYSE: KMB  ) , Whirlpool (NYSE: WHR  ) , and Procter & Gamble (NYSE: PG  ) .

And that was the good news ...
Now for the bad news. As tallied by CMI, what we now refer to as the "Great Recession of 2008" had a total of 793 percentage-days of contraction over the course of 221 days. (Hmm? What's a "percentage day?" Think of it this way -- if every day of the year, the U.S. economy was 1% smaller than in the previous year, that would be 365 percentage-days of decline. So 793 percentage days -- that's like the whole economy trudging along 2.2% slower than it used to, with not a single day of good news anywhere in sight.)

In short, the Great Recession has now morphed into a broader, longer-drawn-out, Greater Recession. So far in 2010, we've already racked up 820 percentage-days of contraction, and the year's not over yet. While not everyone's suffering equally (Ford (NYSE: F  ) just reported a 30% jump in quarterly sales. Amazon.com's (Nasdaq: AMZN  ) year-to-date sales haul is 40% greater than last year), there is evidence aplenty that all is not well. Before accounting for forever-fudgeable loan-loss provisions, YTD revenues at all four of America's remaining megabanks -- Bank of America (NYSE: BAC  ) , Citigroup (NYSE: C  ) , JPMorgan Chase, and Wells Fargo -- are down from last year.

Foolish final thought
In the spirit of Halloween, I've saved the scariest statistic for last. According to CMI, over the last 60 days the U.S. economy has averaged daily "growth" vacillating from about negative 5.5% to even-more-negative 6.1% -- and according to CMI, the data it mines for these statistics generally front-run official government GDP growth reports by about three months. Put it all together, and this suggests five straight months of mid-single-digit growth declines, with little indication of any uptrend.

Maybe that's not a "double-dip recession." Maybe it's just the "new normal." Either way, it sure ain't pretty.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

Amazon.com and Ford Motor are Motley Fool Stock Advisor picks. Kimberly Clark and Procter & Gamble are Motley Fool Income Investor recommendations. The Fool owns shares of and has written covered calls on Procter & Gamble.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 28, 2010, at 6:17 PM, SMFT wrote:

    Rich - you are a solid downer, man. I am seriously considering selling all my stuff, taking the cash to Las Vegas, and blowing out my brains on Monday morning....

    No, seriously, this is sobering stuff. But to ignore it is to our great detriment. As both a business owner and a private stock investor, this type of truth is invaluable. Thanks...

  • Report this Comment On October 29, 2010, at 1:18 AM, BogeyHacker wrote:

    The Consumer Metric Institue service is about as close to having an economic crystal ball as humanly possible. Mr. Rich Smith, thank you for sharing such a potentially valuable tool!!!

  • Report this Comment On October 29, 2010, at 10:03 AM, TMFDitty wrote:

    @BogeyHacker: It really does look that way, doesn't it? My fellow Fool, Mike Pienciak, gave us a first-run look on the accuracy of its predictions in July, and the results were striking:

    http://www.fool.com/investing/value/2010/07/12/the-new-econo...

    TMFDitty

  • Report this Comment On October 29, 2010, at 9:11 PM, dollarpuppy wrote:

    Thanks for the commentary and explanation of percentage days of contraction. I first saw the CMI chart here: http://dshort.com/articles/guest/Ilargi-Thoughts-ahead-of-Q3...

    I agree that although it's only one piece of data, it does paint a bleak picture that seems to be out of sync with the markets stunning climb over the last several months.

  • Report this Comment On October 30, 2010, at 3:41 PM, DavesHere wrote:

    In 1975, they told us the recession was winding down. it was a slow process, in large part because business of all sizes refused to risk replenishing inventories. Today, we have the same story if we simply substitute "employees" for "inventories." As in all downturns, half the battle of the come-back is in making those who make the buying and hiring decisions believe. Whoever coined the oxymoron, "Great Recession," should be taken out back and beaten with a stick, along with anyone uses it out loud.

  • Report this Comment On October 31, 2010, at 4:18 PM, richvermil wrote:

    I no longer believe in anyone's ability to predict the future of the economy or stock market. The larger the concensus, the greater the likekihood of it being wrong.

  • Report this Comment On November 06, 2010, at 1:01 AM, yosemitebean wrote:

    @TMF Ditty - "and the results were striking:"....as in lightning striking?:)

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