Sunday, May 13, 2012

ECRI is still forecasting an imminent recession, but their call is still sounding a bit hollow

I have a lot of respect for the folks at the Economic Cycle Research Institute (ECRI) whose analysis of leading economic indicators and historic trends continues to lead them to stand by their call from last September that the U.S. economy is tipping into recession. They are still expecting this recession to commence by the end of the first half of this year, but admit that it could take another six months before revisions to the data actually show that a recession is underway.
I follow their Weekly Leading Index (WLI) every week and listen to every interview they give, and there is certainly some wisdom to their call, but this time I have serious doubts. Part of there thesis revolves around how the economy behaved in past business cycles and using that behavior to model how the economy will behave this time. That approach has merit, but I am not convinced that it has the kind of absolute reliability that they are claiming.
They did back off on one claim. Back in September they suggested that the recession would be quite bad, but now they are saying it will be more modest, like the recessions in the 1980's and 1990's rather than like in the 1970's.
The simple fact is that every time is different and the conditions at this juncture are about as unique as one could expect relative to quite a few recent decades, or ever, for that matter.
In short, there is a fair chance that a recession will in fact occur, but I would not say that it is a slam dunk. I would rate it at a 20% to 40% probability. I would have to see weekly jobless claims rising and the monthly ISM reports showing contractions before I will concede that a recession is underway or even imminent.
For one thing, there is still way too much financial stimulus sloshing around to "drive" a recession.
Next year, with the Federal budget sequester and expiration of tax cuts will be a whole new ball game, but that's not where we are for the next seven months.

-- Jack Krupansky



Recession depression does it really matter whch one it is anymore.


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