Thanks to Andy Lees for the chart. He says:
The Conference Board index implies a recession of 1973/74 severity as per the attached chart. Whilst the data clearly disappointed against consensus estimates, it is exactly in-line with the Michigan overlay, the Philly overlay or the ISM forward index overlay and therefore should not be dismissed out of hand. Yesterday’s pickup in consumer spending was financed by a drop in the savings ratio. Had that drop been accompanied by improved consumer confidence it could have been interpreted positively, but the fact that the confidence is falling would suggest that the fall in savings is necessary for people to continue to survive.
I don’t ascribe that much importance to confidence data as a leading indicator. Moreover, as we saw during the 2000s, low consumer savings can bolster GDP growth for quite a long time. I remember saying something about low savings, low-quality growth and pro-cyclical forces back when this recovery was just beginning. Nevertheless, I agree with the underlying message here, namely that increasingly economic data indicate the US is dangerously close to a significant downturn. That this downturn happens in 2011 or even 2012 is no ‘guarantee’. Still, we are pretty close and I believe the removal of policy stimulus will push us over the edge.
P.S. – I am actually on an extended working vacation; that’s why I have not posted much. I am doing my one interview today at 1240 for BNN. We will discus this issue. Tune in if you get that station. Otherwise, video will be linked here later.