Calculated Risk has a post on the business cycle based on Edward Leamer’s Housing and the Business Cycle paper. The basic thesis is that residential investment is a leading indicator for recessions, and a leading indicator for recovery:
PCEs are personal consumption expenditures. Here are some supporting charts from Leamer’s paper:
(Click on charts for larger versions in a new window)
The suggestion is that until housing turns around the recession won’t end. Business structures (CRE) clearly lags, so we have a long way to go in that sector.
This reminds me of Joseph Ellis’ work presented in Ahead of the Curve. Ellis sees the cycle like this:
(Click on charts for larger versions in a new window)
For Ellis real consumer spending is the leading indicator, and employment and capital spending both lag. Ellis maintains a series of charts showing the components of his model (available here) and commentary on current conditions. Real hourly earnings leads real consumer spending, and earnings are recently up, so under Ellis’ model we may see an upturn in 2009.
(Click on charts for larger versions in a new window)
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