ECRI: NO RECESSION YET
Despite a sharp decline in the ECRI Lakshman Achuthan, ECRI’s Managing Director believes the pessimism is unfounded. While he believes we are due for an economic slowdown he also believes the chatter of a double dip is unwarranted at this point (via Globe and Mail):
Lakshman Achuthan, managing director of ECRI, says the criticism has gone too far. The claim that the WLI is dominated by financial-market factors is “factually false.” (ECRI does not disclose the specific pieces of its indicators, but Mr. Achuthan describes the sweep as “housing to money to inventories to confidence.”)
Also, he notes, it’s not a simple positive-to-negative swing that forecasts a recession, making the BMO analysis oversimplified, he says. ECRI is looking for “pronounced, pervasive and persistent” changes in the WLI.
That being said, Mr. Achuthan isn’t necessarily siding with the bears. “They’ve latched onto the index as the greatest thing since sliced bread because it converges with their views – it’s gone down quite sharply,” he said. “It’s a very good leading indicator, but it’s not the Holy Grail of economic forecasting.”
Mr. Achuthan isn’t calling a recession yet, at least. He notes that while indeed, all negative 10 per cent readings have been coincident with a recession, there are two examples in older, unpublished monthly data where that did not come true, in 1951 and 1966. For now, he says, the data indicates slowdown, not recession.
Achuthan might not believe the economy will enter a technical double dip (despite strong historical evidence to the contrary), but then again who really cares? Economists are notorious for calling recessions late. The stats, however, regarding the equity markets and the ECRI’s performance are far more convincing – and they’re not good. Stocks have fallen 80% of the time following an ECRI peak.
Economists are notorious for calling recessions late. The stats, however, regarding the equity markets and the ECRI’s performance are far more convincing – and they’re not good
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Very good point. Its also interesting that the US has not officially declared an end to the 2007> recession well over a year after all the usual suspects were declaring perpetual growth had arrived.
His prediction that the economy will not fall into a recession allows his firm to be right regardless of how the economy performs. I don’t know if he really believes that the chances of a double dip is small, but it probably is a smart business decision.
At -9.8% he can not call a recession, even though the indicator has never gone beyond -4% without an ensuing recession. So it begs the question, is there another “magic hidden” indicator within ECRI or is this just Achuthan’s personal opinion? he sights “For now, he says, the data indicates slowdown, not recession”, well what is this “other data” then?
I guess we could know for sure this Friday? The weekly index was flat last week so any improvement would keep it a mystery, but surely further deterioration into the double digits would trigger a recession call.
Without knowing what’s inside the box we are not really in a position to say whether there are any mitigating circumstances. But let’s be honest, the -10% recession call is less impressive then Paul the octopus …
Heck we don’t need no f***ing ECRI to call a recession. Be patient and wait for the Q2 GDP to come out ( and the revisions downwards later) then chart these numbers: Q4 09, Q1 10 and Q2 10 and see which direction the trend line is slanted.
In November of 2007 the ECRI was bragging it did not forecast a recession, one month before the recession started in December 2007.