ECRI Stays with
Recession Call
New American | The vicious cycle is starting where lower sales,
lower production, lower employment and lower income [leads] back to lower sales…
BOB ADELMANN
New
American Tuesday, March 13,
2012 ‘When Lakshman Achuthan
(left), co-founder of Economic Cycle Research Institute (ECRI) appeared on
CNBC to defend his prediction last September of an “imminent”
recession, challenges came from many observers, including Tom Keene and Ken
Prewitt of Bloomberg and Jon Stewart of The Bonddad Blog. Each pointed to
an array of economic indicators that appeared to make Achuthan’s
prediction appear almost silly: jobs data improving, auto sales increasing,
homebuilders stock prices bouncing, consumer sentiment positive, and others.
Achuthan remained adamant about his
prediction, made late September 2011, that not only would the economy
shortly enter a new recession but
It’s going to get a lot worse. The
vicious cycle is starting where lower sales, lower production, lower employment
and lower income [leads] back to lower sales…
You haven’t seen anything yet.
He repeated his prediction in the
face of new data apparently pointing in the opposite direction: “Since our
recession call five months ago the definitive hard data [we] used to determine
official recession dates have gotten worse, not better, despite the consensus
view things have been improving.” He reviewed his arguments:
GDP growth peaked in the third
quarter of last year and has been declining since then.
Personal income growth and retail
sales have also peaked and are declining.
The industrial production growth
rate, year over year, has dropped to a 21-month low.
Economic growth is at its worst
reading since early 2010.
He concluded: “The continued
weakening in economic growth is consistent with our recession call from five
months ago. In 50-plus years, looking backwards, growth has never slowed this
far without a recession following in short order … personal disposable income
growth has now been negative for the last five months. That’s never happened,
ever, without a recession, not even close.”
Based upon his September call,
economic forecasters were looking for increasing price inflation at the
consumer level (which didn’t happen), unemployment moving higher to 12 to 15
percent (which also didn’t happen), Gross Domestic Product — GDP — going
negative for two or more quarters (which didn’t happen either), and federal
government deficits staying above $1.5 trillion every year (which appears to be
accurate).
Jon Stewart pulled up some graphs of GDP (showing growth), industrial
production, retail sales and disposable income (all showing growth) and
concluded that
With gasoline prices nearing $4 a
gallon already, ECRI may yet get their recession before the end of the first
half of 2012, but if they do it won’t be for the reasons cited by Achuthan.
In a separate study Stewart showed precisely what Achuthan had predicted: real (inflation-adjusted) wages
declining sharply since September 2010 with a matching decline in net
disposable (spendable) income over the same period. The robust numbers Stewart
cited to challenge Achuthan’s call are coming out of
a declining savings rate and the consumers’ existing stock of savings which is
nearly exhausted. Concluded Stewart, “ECRI is probably right
about the
None of the challengers mentioned the
continuing shadow inventory of houses waiting to come onto the market, or the
declining European economies, or