Figure 10 adds F:P 24m and the Chicago Fed National Activity Index (CFNAI), which is a composite of many factors relevant to economic growth. CFNAI was -2.96 in March, down slightly from -2.82 in February. All four broad categories of indicators continued to make negative contributions to the index in March.[1]

Since 1967 (not shown in Figure 10), seven consecutive negative CFNAI readings (3-month moving average (MA) minus 6-month MA) have preceded all recessions. In November 2007, our diffusion method of CFNAI told us that a recession was imminent, which gave us about a one-year lead over blue-chip economists. In November 2008, NBER officially declared that a recession had begun in December 2007.

Our prior CFNAI readings have foretold a recession within one month of their birth. Following the severe recessions of 1980 and 1982, our CFNAI readings remained negative for only two months after each recession ended. After the mild contractions in 1991 and 2001, they stayed negative for 20 and 23 months primarily because these were jobless recoveries with very low median income growth.

The consumer's 24- and 36-month future-to-present expectations ratios (F:P 24) 36-MA (F:P 36) are employed to enhance our recovery readings during jobless recoveries. Since 1967, all recoveries were led by the F:P 24 trend line crossing over the F:P 36 trend line. Adding these consumer sentiment measures also confirms our CFNAI readings. Since 1977, only the 1981-82 recession was not accompanied with the F:P 24 below its 36-MA (F:P 36). Although our consumer confidence indicators point to an economic recovery within the next two-to-six months, CFNAI readings need to turn positive for at least two consecutive months to confirm a recovery.

Figure 10. Consumer Future + Present Expectations & Chicago Federal Reserve Nat’l Business Activity Idx (CFNAI)

The Current Climate

Employment is a coincident indicator. Recently the media has been referencing the 1990 and 2001 recessions when unemployment peaked after recessions ended and has determined the same is true for this cycle. The 1990 and 2001 cycles were exceptions to the rule. The peak in the unemployment rate will most likely exceed 10% and it will peak close to the date of the recession's end.

Default rates are also a coincident indicator. They peak one month before to two months after a trough in economic growth. Employment trends also follow defaults. The current YOY default rate is close to 8%. Moody's and Standard & Poor's expect this rate to peak at 14%–16% YOY during this cycle (by 2009-2010).

So, expect unemployment, defaults and RGDP to trough some time in 2010. This might not occur until after we get one or two quarters of positive RGDP. The equity rally is telling us that this is likely, but other factors indicate that we will then double-dip with our economic contraction resuming in a W pattern with the cumulative decline in RDGP near 10%. RGDP is currently off -4.2% from its June 2008 peak, which means that the last leg of the downturn after a brief economic recovery will be steeper than the first or current leg. Most likely, we are less than halfway through a garden-variety 19^th-century depression.

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