ECRI: Conditions Still Consistent with Recession

I’ve been taking the other side of the ECRI’s recession call for over 18 months now, but their latest call cites an unusual occurrence:

“So, with U.S. GDP growth at 2.5%, how can we be in recession?

Few realize that GDP data for almost all the early quarters of recent recessions have been revised down dramatically.

Recall that the GDP release on August 28, 2008 – with the economy eight months inside the Great Recession – revised Q2/08 GDP growth to 3.3% from 1.9%, up from 0.9% in Q1/08. But both of those data points, as well as GDP data for the first two quarters of the 2001 and 1990-91 recessions, were revised by 2 to 4 percentage points over time. This is how real-time data often behave during recessions.

In any case, yoy nominal GDP growth at or below 3.7% has been seen only in recessionary contexts. In Q1 2013, it fell to 3.4%, the second straight quarter below 3.7%.”


I think we’d all agree that the economy isn’t exactly robust right now, but I don’t see the recession here.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

More Posts - Website

Follow Me:

  • GLG34

    Their recession call is now bumping up against the two year mark. At some point it just gets embarrassing, no?

  • Grasping at straws

    This is similar to when they said real GDP yoy never got below 2% without recession following. Well, that was true for the past 50 years, but that rule did not work this time. This is the same type of argument. The rule works until it doesn’t. Not very useful.

    I used to have a lot of respect for them. Now it’s just sad.

  • LVG

    Cullen, this validates your approach using the BSR. Those who didn’t understand the balance sheet recession missed how important the turn in credit would be and how it really was “different this time”. The ECRI didn’t see the difference in this recession so they missed the call.

  • Cullen Roche

    Agreed. I think understanding the BSR over the last 5 years has been the most crucial economic insight of all….

  • Lee Colville

    Would you say understanding BSR was a “sufficient” condition or just “necessary”?

    I would argue that it is necessary but necessarily sufficient. Misunderstand the system and you are unlikely to predict anything right. However, even if you understand the system you still have to predict the direction of the different components to have a forecast.

    What other factors would you put your success down to Cullen?

  • Adam P.

    ECRI leading index has been debunked, the credibility of Dr. Achutan is very low, he is fighting for his own survival. This is an excellent overview from my favourite analyst (sorry Cullen, you’re doing a very good job but Doug Short is just soooooo good):

  • LRM

    Doug Short’s site is just great.
    The work of Vbra that Doug is presenting looks promising.

  • InvestorX looks like the better ECRI.

    Just a note: the WLI has been decomposed, but it is obviously not a very important indicator to ECRI, as they publish it weekly.

    RecessionAlert.Com also has 3 (or more indicators):
    1) own WLI-2 version
    2) NBER model of coincident indicators
    3) SuperIndex of coincident and leading indicators

  • Andrew P

    If they keep making the same call, they will eventually be right. You know, a broken clock is right twice a day (unless it is digital).

  • kman

    This isn’t saying anything definately but Maybe he will have the last laugh yet.

    “Chicago PMI slumped to a three-and-a-half year low of 49.0 in April, down from 52.4 in March and at a reading indicating contraction. Economists polled by MarketWatch had expected a 52.5 reading. Order backlogs were particularly weak, falling to 40.6 from 45.0″

  • Chris of Stumptown

    it’s true that in the past 3.7% growth occurs as the economy slows from higher levels. However we have been in a post recession recovery bumping along with this slow growth. I would describe this more as an illustration of how poor the recovery has been, rather than a smoking gun that we are now in recession.

  • Steve W

    Still very much “muddling” through. Labor participation rates are low, many of the new jobs people are taking are for lower pay, unemployment rate still above 7%, rail freight trends still positive – but weakening a bit, housing value “recovery” starting to level (and will be largely flat for years, if Schiller is correct),the payroll tax hike hasn’t been in effect that long (and thank goodness gasoline prices went down a little), and the effects of the sequester are just beginning to be felt. The ECRI may well be wrong on their recession call for a long time, but I can’t help but think that the U.S.A. will experience a very long (record breaking?) “new normal” sluggish economic phase. Mosler said that deflationary risks loom — and I agree.