Just Dying to Worry About the Economy?

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As I mentioned to CNBC's Maria Bartiromo last weekend on her show, The Wall Street Journal Report, right now the U.S. economy sort of reminds me of the dysfunctional family in the Oscar-nominated film Little Miss Sunshine: It doesn't work perfectly, but it gets the job done in the end. To economists Brian Wesbury and Robert Stein of First Trust Portfolios, today's soft economy reminds them of the slowdown during the 1990s expansion:

"The similarities between the two business cycles are striking. Both started out with modest recessions, followed by relatively weak "jobless" recoveries. Most early gains in income accrued to companies and high-income workers, not middle- or lower-income workers. But after dramatic Fed tightening, the economy entered a soft patch. In the 1990s, the economy reaccelerated, and falling unemployment helped generate strong income gains for workers across the income spectrum. In turn, Washington, D.C., found itself on the receiving end of a gusher of revenue that drove the federal budget into surplus territory for the first time in decades. We expect this pattern to repeat itself in the current decade."

Now if you really want to worry about the economy or are thinking about short-selling the S&P 500, here are some recession signs to watch for, courtesy of bearish Merrill Lynch economist David Rosenberg's analysis and my loose paraphrasing:

1) Labor markets. Fret if the four-week moving average of initial jobless claims moves above 360,000 for at least two weeks and no special factors like weather are involved. The current figure is 339,000, which is still 21,000 below the cutoff but has risen by 30,000 since January.

2) Economic slack. Beware if the unemployment rate goes up 0.5 points or more from its low point or the industry capacity utilization rate falls 4 points or more from the peak. So far, the jobless rate is up 0.1 percentage point, and the manufacturing CAPU rate is down 1.5 percentage points.

3) Manufacturing. Worry if the ISM Manufacturing Index slips below the 47 mark. It hit a recent nearby low of 49.3 in December but bounced to 52.3 in January.

4) Retail sales. Furrow your brow if the three-month trend–excluding gasoline–goes negative. As of now, this metric has not been negative at any time during the past three or six months and is currently running in excess of 4 percent.

5) Real personal disposable income. Gasp if the three-month trend slows to a 2 percent annual rate or lower. The trend is now at 2.3 percent, year-over-year–adjusted for the recent one-time surge because of bonuses–down from the recent peak of about 4.5 percent last August.

6) Consumer confidence. Fret if the University of Michigan (currently 91.3) scale goes below 81.9 and the Conference Board (currently at a five-year high of 112.5) scale falls below 97.5.

7) Leading indicators. Worry–despite head fakes in 1966 and 1996–if the year-over-year pace of the Conference Board's Leading Economic Indicators turns negative. The LEI is now just barely in negative terrain, at -0.1 percent for January.

8) Mortgage approvals. Rosenberg recommends keeping close watch on the weekly MBA mortgage applications data that come out every Wednesday morning. He sees them as an important gauge to see if the tightening in credit guidelines is feeding through into home sales.