It is clear that we are in an economic environment that we have not seen in over half a century. Statistics that have been generated only since World War 2 cover a period of time which was marked almost exclusively by continuous inflation. The last deflationary recession was in 1949-50.

As a result, many measures that accurately forecast changes in the economy during an inflationary period (for example, a positive sloping yield curve) may not apply now. Thus, I have been looking for statistical measures or comparisons that have data back to 1929, and appear to have given accurate readings even during deflationary periods. In general, it appears that the Kasriel indicator of positive yield curve + M1 money supply consistently growing in an absolute sense, and also faster than inflation did accurately coincide with periods of growth even during the Great Depression. Additionally, M2 money supply growing faster than commercial bank loans also coincided with the onset of recovery even prior to WW2. I have also looked at the role of an increase in the rate of real residential investment compared with GDP as a harbinger of recovery.

Today I will look at a fourth indicator.