The economy remains in a climate with a very weak recovery. There is still some good news though. All of the recent calls for a “double dip recession” grew too loud and are now being somewhat muted. It really looks as though the chances of a double dip recession are coming down. There are two key things to reconsider about the next recession coming upon us immediately. First is that the term “double-dip” actually no longer applies because we have been in recovery mode for too long. Second, and much more important, is that this recession everyone was so scared about is looking like it won’t be coming to America after all.
Is the world suddenly fixed? No. Are there still problems? Very much so. Will unemployment and housing suddenly recover? No. Still, the current barometer is showing that a recession is not yet likely going to come to the United States. We have broken down ten key factors that signal how we may have luckily avoided the next recession: GDP, stocks, corporate earnings and dividends, interest rates, commodities and inflation, consumer spending, China and India, Europe, economist predictions, and the election cycle.
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GDP, Gross Domestic Product
The U.S. Gross Domestic Product was far from any great or massive growth. Regardless of what anyone says about GDP, this is the true barometer for whether or not we are in or entering into a recession. For the third quarter, that preliminary reading was +2.5% and even the price component via the PCE Price Index was +2.4%. Celebrating 2.5% growth might be a bit like taking a teenager to celebrate a birthday with any gift they want, in the dollar store. Still, this is not anywhere close to a recession. It is up from the readings of +1.3% GDP in the second quarter and versus +0.4% in the first quarter. The caveat: anything under 3% GDP growth will not really lend to a great recovery and it is certainly not going to act to help housing prices nor the constantly weak jobs market.
October of 2011 is turning out to be a phenomenal month. This may be the best in a generation. Not only did the DJIA get back above 12,000 after the E.U. stabilization and Greek debt haircut but this is up from the low of just under 10,400 for better than a 16% gain from the low. This also happened during earnings season and we have witnessed the CBOE Volatility Index (The fear index) drop from a peak of above 45 down to almost 25, showing that the fear is drying up. And the best news is that Apple Inc. (NASDAQ: AAPL) was only up about 5% so the market itself broadly outperformed Wall Street’s favorite darling. You cannot have an infrastructure recovery without Caterpillar Inc. (NYSE: CAT) and its stock has risen a whopping 37% from the first day of October. The two DJIA banks of J.P. Morgan Chase & Co. (NYSE: JPM) and Bank of America Corporation (NYSE: BAC) are both up just over 30% each from the first day of October. Even a bear market bounce would not be this big if a recession was imminent. The caveat: even a remedial chartist and a cocktail napkin chartist can recognize that stocks over the last three weeks have moved from very oversold to extremely overbought.