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National Economic Trough Forecasted During August 2009

November 28, 2008

National economic trough forecasted during August 2009. The expected trough of the national economy’s 1000 Point Strength Index (“TPSI”) has been extended two months from June 2009 to August 2009, and is forecasted to reach its lowest point since December of 1948. (Click here for the chart). As of October 2008, the TPSI deteriorated to 279.2, reflecting a decrease of 5.0 points (-1.76%) from the prior month and down 105.3 points (-27.39%) from the prior year.

The significant downturn in the capital markets coupled with declining consumer confidence and employment growth has been a catalyst for the deterioration of the national economy. Competitive Analytics’ comprehensive index is formulated on a 0-to-1,000 point scale and encapsulates 76 indicators dating back to January 1930 which directly and indirectly drive the national economy. A score of 500.0 is calibrated to economic equilibrium/stabilization, scores above 500.0 reflect economic strength, and scores below 500.0 reflect economic weakness. The current baseline peak level is benchmarked at 567.7, while the current baseline recession and absolute recession levels are benchmarked at 385.8 and 351.5, respectively.

CA developed the TPSI as an extremely reliable leading indicator based on its ability to anticipate each of the 9 phases of an economic cycle (Click here for 9 Phases of Economic Cycles). If you are interested in a custom TPSI for your company, submarkets, products, services, or competitors, please call us or email us.

Warning signs back in April of 2004. Indications were visible as early as 2Q04 that US median home prices were going to experience significant deterioration in the near future. The peak of the last US economic expansion occurred during March 2004 as the TPSI peaked at a 71 month high of 587.6…And the following month the TPSI declined 10.7 points (-1.82%) to 576.9 and subsequently continued its downward spiral to the current level of 279.2 as of October 2008. Concurrently, US Median Home Price did not reach its apex until March 2007 at an all time high of $262,600. The validity of the TPSI’s significant leading ability for US median home price can be measured by historical and current market cycles (See Mark-to-Market Median Home Price Forecast). The TPSI leads the current decline in median home price by 3 years, peaking exactly 36 months prior to the downturn in US median home price.

Yes. We are in recession…12 months ago. Aligned with negative consumer sentiment and deteriorating global market conditions, the protracting downturn in America’s economy has justifiably fueled the current US recession. Mathematically, TPSI’s October 2007 reading of 384.5 already placed the US economy in recession. Amid intensifying depreciating economic indicators and egregious outlooks, CA’s current TPSI is worse than the recession of the early 1990′s and falls precariously parallel to the depression of the early 1930’s. Though the National Bureau of Economic Research (the official arbiter on the subject) has yet to officially categorize the nation’s recent downturn as a recession, CA’s TPSI suggests otherwise. CA firmly believes the benchmark for calling a recession is severely outdated. The national economy continues to plunge amid negative employment growth, the housing sector’s worst downturn in a generation, the accelerating decline of asset values, increased credit losses, locked-down capital markets, a depreciating dollar, the looming threat of inflation amidst commodity price acceleration, and strained economic growth conditions.

When will we hit the bottom? A national economic trough is forecasted to hit bottom during August 2009 (10 Months from current date) as TPSI is expected to bottom at a staggering 728 month low (60 years and 8 months). Although the US economy is currently in Phase 5 of the current economic cycle (i.e. last phase of contraction – See Nine Phases of the Economic Cycle) and expected to complete its full downward spiral during the balance of 2008 and through 2Q2009, CA’s Peak-to-Trough Model calls for the US economy to trough during August 2009 when the TPSI declines to 232.3. This historically steep decline reflects a decrease of 46.9 points (-16.80%) from the current TPSI of 279.2 as of October 2008.

What to do? Decisive and immediate steps need to be taken by executive leaders to anticipate these market conditions and minimize potential losses in the short-term as well as strategizing for Phase 6 of the economic cycle which calls for the start of the “first expansion phase.” See Chart on CA’s 9 Phases of the Business Cycle. CA realizes that every client is unique, and therefore, CA can customize our 1000 Point Strength Index and Peak-to-Trough Forecast Models for any geographic submarket, sector, industry, company, product, service, or project.

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