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Friday, February 24, 2012

ECRI Remains Bearish on US Economy - Recession Still Expected

Lakshman Achuthan, Co-Founder & Chief Operations Officer of the Economic Cycle Research Institute (ECRI - More about ECRI) appeared on CNBC this morning to discuss their economic outlook. The video is below.
In a nutshell ECRI remains bearish on the US economy with a continuing forecast for a recession. They believe economic growth doesn't really "muddle along" at sustained low rates.
Summary of Key Points:
Since September Recession Call, ALL of the data used to define recessions is slowing.
  • Year-over-year GDP Growth peaked in Q3 2010, fell to 1.5% in Q2 2011 and has been flat-line since then.
    (Annualized quarterly GDP growth for Q4-2011 was 2.8% but the year-over-year growth was only 1.6%)
  • Personal Income Growth and Broad Sales Growth see  Same kind of pattern
  • Industrial production at 22 month low
Put those into a COINCIDENT INDEX then it shows the growth has been slowing.  We have not had a decline like that in the Coincident Index without a recession in the last 50 years. 
Joe Kernan pointed out the Federal Reserve must agree with Lakshman and ECRI because they continue to print money and keep rates low.
  • Lakshman said World's central banks are printing money like crazy which is why we feel better.  If you look at how often money is exchanged in the economy, then it is at a record low in the US and Europe and near record lows in China.
  • Jobs have improved but that is a bit of a lagging indicator.  ECRI still feels jobs will get worse and follow consumer spending growth which is going down.  Personal disposable income has been negative for FIVE MONTHS!
Lakshman says recession should begin by mid year 2012.  He says revisions in the data might say a recession has already started just like the last recession.  If the recession is starting now, then the consensus should figure it out in about six months (August.)
Can anything change his mind?  The stock market seems to be predicting a recovery.
  • Leading indicators do not negate the recession forecast.  WLI is up but with the tons of money printed, they are surprised these are not up more.
  • The stock market rallied after their recession call in 2008 before it rolled over.  
Remember it was not until much later that revisions said the last recession started in late 2007.  Q1 2008 was the first quarter of negative GDP at -0.7%.  The data during that time was positive and the stock market thought we would have a recovery.
Revised GDP Q4-2007 to current Q4-2010

 For more information, read:
Click to order their book
Book: Beating The Business Cycle
In 2004, Lakshman Achuthan co-authored "Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy"

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