2008 financial crisis: the indicators that warned
Global Financial Crisis 2007-09: from October 9, 2007 to June 30, 2009.
Updated
What happened?
Poor-quality mortgages in the US spread to the entire financial system. The collapse of Lehman Brothers in September 2008 froze global credit and triggered the worst recession since the 1930s, which according to the NBER lasted from December 2007 to June 2009. For this analysis, the episode runs from October 9, 2007 to June 30, 2009.
What would Crisis Monitor have shown?
Recalculating the index each week with the data available at the time, it stood at 22 out of 100 when the decline began and peaked at 93 in Dec 2008. The index moved to Alert (35 or more) in Nov 2007 (2 months after) and entered Crisis (60 or more) in Apr 2008 (6 months after).
This is a reconstruction made after the fact using weekly data: it helps show how the indicators behave, but it does not guarantee that things will happen the same way again.
How did the data move in that crisis?
From one year before to the end of the crisis. The vertical line marks when it began; the dashed red line is the level beyond which the data point becomes a concern.
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Which data points warned first?
5 data points entered the stress zone before the crisis began: long vs short rates (2 years), long vs short rates (3 months), stock market fear (VIX), financial stress (St. Louis) and others.
Gold and copper are not part of the index, but they help show fear and activity: see how they moved on the gold and copper pages.
The first time each data point entered the stress zone (score 66 out of 100), searching from 12 months before the start. “Before” = it warned before the crisis began; “after” = it reacted late. Note: after another crisis, some data points were still elevated from the previous one.
| Indicator | How does it usually behave? | When did it first become a concern? | When did it warn? | Moment of peak stress |
|---|---|---|---|---|
| Long vs short rates (2 years) | Usually warns early | Oct 2006 | 12+ months before | -0.19% Nov 2006 |
| Long vs short rates (3 months) | Usually warns early | Oct 2006 | 12+ months before | -0.59% Mar 2007 |
| Stock market fear (VIX) | Moves with the crisis | Aug 2007 | 2 months before | 45.26 Oct 2008 |
| Financial stress (St. Louis) | Moves with the crisis | Aug 2007 | 2 months before | 4.16 Sep 2008 |
| Ease of borrowing | Usually warns early | Aug 2007 | 2 months before | 1.01 Sep 2008 |
| Copper vs gold | Usually warns early | Nov 2007 | 2 months after | -48.0% Oct 2008 |
| Consumer sentiment | Usually warns early | Nov 2007 | 2 months after | -29.2 pts Aug 2008 |
| Store sales | Moves with the crisis | Jan 2008 | 3 months after | -6.3% Oct 2008 |
| Credit of ordinary companies | Usually warns early | Feb 2008 | 4 months after | 5.09% Oct 2008 |
| Recession probability | Moves with the crisis | Mar 2008 | 5 months after | 62.6% May 2008 |
| Rise in unemployment (Sahm rule) | Moves with the crisis | May 2008 | 7 months after | 1.10 Sep 2008 |
| Factory output | Moves with the crisis | Jul 2008 | 9 months after | -8.1% Oct 2008 |
| Unemployment benefit claims | Usually warns early | Aug 2008 | 10 months after | 60.6% Dec 2008 |
| Dollar strength | Moves with the crisis | Never became a concern | — | 86.52 Oct 2006 |
| Credit of risky companies | Usually warns early | FRED only publishes the last 3 years of this series (ICE license) | ||
Does the current moment resemble that crisis?
Score from 0 to 100 for each area, today and at different moments of that crisis.
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How does everything look now? See the live dashboard.