Monday, March 9, 2009

"First homes, then cars, and last business equipment"

CalculatedRisk created the following tables based on a paper by Prof Edward E. Leamer from UCLA tackling the temporal order of GDP components.

When Weakness Typically Starts

Pre-Recession Coincident with Recession Lags Start of Recession
Residential Investment PCE Investment, non-residential Structures
Investment, Equipment & Software

When Recovery Typically Starts

During Recession Lags End of Recession Significantly Lags End of Recession
Residential InvestmentInvestment, Equipment & Software Investment, non-residential Structures

CR quotes: "The first item to soften and the first to turn back up is residential investment. The temporal ordering of the spending weakness is: residential investment, consumer durables, consumer nondurables and consumer services before the recession, and then, once the recession officially commences, business spending on the short-lived assets, equipment and software, and, last, business spending on the long-lived assets. The ordering in the recovery is exactly the same."

Will homebuilding and retail be among the first sectors to recover from the current bear market?

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