Looking at current readings of economic indicators compared to the averages of those in the past eight recessions, some striking data appears.

A comparison of Real Personal Income shows current readings below prior readings, which came in at -1.5%. Current readings for Non-Farm Payrolls, which is effectively an employment reading, show substantial declines below the -1.2% average of prior recessions.

Industrial Production looks no better. In fact, the average of past recessions is a figure of -3.8% but again current readings are below that figure. And the same can be said for Real Manufacturing & Trade Sales, where the average of past recessions is -3.3% but again current readings are below this number.

As a means of stimulating the economy, the Federal Reserve has expanded its balance sheet very substantially, from $886 billion in October 2007 to $2.18 Trillion in April of 2009. The desperate measures employed have been an attempt at supporting the falling drop in US consumer sentiment and US Small Business Optimism Index readings, the latter of which is very substantially below its 20 year low, sitting at 81.0.

The efforts so far have not impacted the Initial Unemployment Claims which have risen to a 4-week average that eclipses those of the tech bubble.

And the US is joined in its suffering by countries like Spain, Greece, Ireland and Italy. The 10yr government yield spreads in Ireland and Greece are approaching 250 basis points, while those in Italy are still under the 200 marker and Spain is showing a slight decline from a February peak.

The data is indicative of the past and the markets are forward looking so we must pay special attention to the markets. But ignoring such severe readings could lead to market complacency whereas a strong understanding of the fundamentals will lead to skepticism of even the most powerful bear market rallies.

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