An Indicator Of Peril
The graph below plots RVA since 1948. Periods deemed recessionary by the National Bureau of Economic Research (NBER) are denoted in gray.
Data Courtesy: St. Louis Federal Reserve (FRED)
Since 1948 there have been 277 quarters of data. RVA has only been negative during recessions or in proximity to periods leading up to and/or following recessions.
Currently, three of the last four quarters have produced negative RVA levels. Real GDP is not producing similar results, having averaged 2% growth over the same quarters. As mentioned earlier, RVA and Real GDP may not be well correlated over short time frames.
RVA is just one source of data arguing that economic trouble lies ahead, therefore, we would be wise not to read too much into this one indicator. Of concern, however, is that negative RVA readings have an impeccable pattern of signaling recession as a coincident indicator. Will this time be different? If not, then we would expect to see other economic indicators reflect similar weakness in the weeks and months ahead. Clinically, our efforts focus on finding valuable data that will allow us to help clients make prudent decisions. This is certainly one such piece of data.