GDP Components, Recessions and S&P 500

With the charts below, I want to answer two questions. 

When do I buy S&P 500 stocks?

Of late, the economy has been driven by consumer spending or PCE.  Curiously, plotting PCE growth versus S&P 500 yields a very nice chart. Currently, hedge funds are goosing the stock market but watch out!  The divergence doesn't last for very long.

PCE and SP500 ...Updated Q1'07

Are we falling to deflation or is economy going to recover?

GPDI is a very good indicator for recessions.  It always goes negative before or during a recession.  It bottoms out between -10 and -15%. 

It always shows a nice up-trend in recovery - a nice 'U' shape within a year. If it falls below -10% and keeps dropping - no 'U' shape within a year - there is danger of depression.  However, it's not good with stocks which lead GPDI by up to 6 months (except recently).

GPDI includes the following categories of GDP (spending)-

This quarter reported negative.  As you can see, the economy needs a mean rate of 8% to keep growing.  It is also a good indicator of recovery OR starting an up-trend -  a nice 'U' shape.

GPDI ...Updated Q4'07

Recovery from 1990 recession is indicated nicely by GPDI.

Also the 2001 recession...

Government expenditures (GCE) grew rapidly in the early 1980s to offset the decline in housing.  It grew rapidly from a real rate of 1% to 7% per year in 1984.  Will government cushion the next recession? Government can sometimes be late...see Depression below.

GCE includes the following-

Currently, GCE growth is moderate.  I expect it to accelerate with 'make work' projects.

GCE ...Updated Q4'07

Here is government supporting the Depression.  They waited until 1933 before increasing spending.  I will watch GCE especially if other sectors don't perform after the next recession. Notice how depressions have instability for long periods see here 3 years+ of negative growth.