Howestreet.com - the source for market opinions

ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

October 28, 2016 | Real Investment Picks Up: 2016 Recession Off?

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Real gross private domestic investment (not to be confused with income) is the measure of physical investment used in computing GDP.

Real GDPI measures investment in the private economy, not under the influence of massive amounts of relatively stable government spending. It is an indicator of the future productive capacity of the economy.

Real GPDI rebounded this quarter following three negative quarters, but the trend in investment remains historically weak if not outright recessionary.

Real GPDI – Percent Change From Previous Quarter

real-gpdi-2016-10-28a

The series is so volatile it’s difficult to tell much from that chart other than it looks very weak compared to investment in other 10-year periods.

Real GPDI – Latest 4 quarters

  • 2015 Q4: -2.3%
  • 2016 Q1: -3.3%
  • 2016 Q2: -7.9%
  • 2016 Q3: +3.1%

A better way of looking at GDPI is comparing growth to a year ago. Over time, GDPI should rise.

Real GDPI – Percent Change From Year Ago

real-gpdi-2016-10-28b

Negative year-over-year GPDI is associated with all 11 recessions since 1950. There were three notable instances of negative GPDI where a recession did not occur. Is this the fourth?

Real GPDI 2016 – Percent Change From Year Ago

  • 2016 Q1: -0.67%
  • 2016 Q2: -2.93%
  • 2016 Q3: -2.66%

We have now had three consecutive quarters of declining year-over-year real private investment.

GDI and GPDI Recession Indicator

An even stronger recession signal is given when Real Gross Domestic Income (Real GDI) is also negative. Unfortunately GDI was not updated in today’s GDP release. It will not be available until the third estimate of third quarter GDP on December 22.

For a look at how GDI and GPDI provide a strong recession signal, please see Real GDI, GPDI Recession Indicators Take II.

Recession Off?

Today’s 2.9% third quarter GDP estimate by no means precludes a recession this year.

The average year-over-year GDP growth rate at the start of recessions is 3.35%. Ten of the eleven recessions over this timeframe have begun at a higher level of real YoY GDP. The year-over-year growth rate is now 1.5%.

For details, please see Real GDP Increases 2.9% Led by Exports; Expect Revisions.

Today’s GDP report was nowhere near as strong as the headline number look.

Mike “Mish” Shedlock

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the HoweStreet.com Weekly Recap.

October 28th, 2016

Posted In: Mish Talk

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site

*
*

This site uses Akismet to reduce spam. Learn how your comment data is processed.