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Recession 1990 revisited: The Message from Phila.
The message from the Business Outlook Survey for January, published today by the Philadelphia Federal Rserve Bank, matches the message from consumers commented upon in " Recession 1990 Revisited: The Message from Consumers".The Business Outlook Survey contains two broad indexes of manufacturing conditions. The first, the Diffusion Index, is a measure of present conditions. The second, the Future General Activity Index, measures the outlook for manufactoring growth over the next six months. Both Indexes dropped sharply in January (see Chart below). With regard to the Future Activity Index, the Bank commented that the decline from 5.2 to (-16.9) "was the first negative reading since January 2001 and the lowest reading since 1990."
Interestingly, the Future Index showed a similar
drop from 5.2 in July 1990 to (-17) in September of that year. The onset of the 1990 recession was eventually dated to July
1990. By the same metric, it is likely that the onset of
the current recession will be dated on or around December 2007. It should be noted that during the recessions of
1973-74 and 1981-82 much more negative readings were recorded for both Indexes.
The implications for Gold
of such recessionary conditions are clear: the easy monetary Fed policies, so favorable for Gold
and reflected in the extremely bullish readings of the Gold Barometer, are guaranteed to continue for at least a couple of years longer. It is this visiblity of favorable conditions
over a long time horizon that, whether it is earning growth for common stocks or low to negative interest rates for Gold,
is a prime determinant of higher prices.
| Business Outlook Survey for Jan. 2008 |
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| Data source: Piladelphia Federal Reserve Bank |
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