An analyst for the New York Times reported that falling new car sales have been a near perfect indicator of recessions since 1968, having predicted five recessions since then without fail, and he reports that the new car sales decreased in June 2006.

According to the indicator, if sales by new-car dealers are down by 2 percent or more over 12 months, compared to the 12 previous months and adjusted for inflation, then a recession is either underway or set to begin within a few months. The June 2006 report of a 2.4% decrease in sales compared to last year would indicate a recession. Looking back at the available data (1968 was the first year this data was compiled), in November 1979 the indicator dipped to minus 2.9 percent and a recession began two months later. In May 2001 it dropped to minus 2.6 percent and two months later a recession began.

The indicator measures all sales by new-car dealers, including the sale of used cars, parts, and service. It does not measure sales by dealers who sell only used cars. The indicator is being called the "dealer doldrums indicator." The analyst for the New York Times noted one problem with the indicator: by the time it shows a problem, it is fairly obvious from other signs that the economy isn't doing well. Inverted yield curves, declining GDP figures, lower housing starts and now lower new car sales are all tools to determine if the economy has slowed down.

John Laub is the Chairman of the CEO-CFO Group.

1. "A Car-Sales Indicator Suggests a Recession Is Near or Already Here." Floyd Norris. The New York Times. August 19, 2006.

2. "Times: Car Sales Indicate Recession." News Max.com. August 21, 2006.