Wayne Wile – Another Recession Indicator

As I reported earlier today, the monthly ISM Manufacturing New Orders Index is flashing recession. The March data was released on May 2 and it shows that New Orders have now declined for 17 straight months on a year-over-year basis, with March dropping 4.2% from a year ago.

Real Gross Private Domestic Investment (RGPDI) is another excellent leading indicator of recession. If businesses aren’t investing, recessions almost always follow. The latest update of this economic indicator became available last Thursday. Unfortunately, RGPDI is only reported quarterly.

As illustrated below, RGPDI turned down during the third quarter of last year. It fell a little further during the fourth quarter of last year and fell again in the first quarter of this year (the latest number), which again reinforces my belief that a recession is either underway or will soon begin.

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You can see the pattern in the chart as clear as day. The gray vertical lines are recessions and each one of them occurs during a downturn in business investment.

I may sound like a broken record when it comes to this recession issue. But believe me, this is important. This ridiculously over-priced equity market will be punished beyond recognition by an economic recession, presenting investors with one of the best short opportunities in many years. And the onslaught of a recession will also complete the destruction of what credibility the Fed has left, opening the way for the mother of all gold rallies.

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