ECRI Repeats Recession Call Based on Coincident Indicators, Especially Income

Once again Economic Cycle Research Institute's Lakshman Achuthan repeats his recession call, this time saying within three months.

His call is based on coincident indicators, especially income. According to Achuthan, income growth in the last three months is lower than at the start of any of the last 10 recessions.

Link if video does not play: Why U.S. Economy is Heading Back Into Recession

Once again I tend to agree with him, yet once again I find some things that sound rather disingenuous.

When asked "Can the Federal Reserve do anything about this?", Achuthan responded "no".

Specifically Achuthan replied "It's so ironic. We're all free-marketeers. .... the free market has indigenous inherent business cycles which means ups and downs. It's ironic that we think that the Fed or other policies could just stave off a recession".

I agree. However, the statement represents one hell of an attitude change as the following flashbacks show.

Window of Opportunity

Friday, January 25, 2008
ECRI Says There Is A Window of Opportunity for the US Economy

The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI’s Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession. ....

This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet.

ECRI Denial

The ECRI laid it on pretty thick, openly mocking the "best advertised [recession] in history" while claiming "This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet."

The irony is the recession was about 2 months old at the time.

Recession of Choice

Friday, March 28, 2008
ECRI Calls it "A Recession of Choice"

The U.S. economy is now on a recession track. Yet this is a recession that could have been averted. In January, given the plunge in the Weekly Leading Index, we declared that the economy had entered a clear window of vulnerability. Yet we emphasized the brief window of opportunity within that window of vulnerability for timely policy stimulus to head off a recession.

It is a somewhat different story with regard to GDP, because the cyclically volatile manufacturing sector still accounts for 36% of GDP. A mild downturn in that sector should limit the decline in GDP in this recession.

Question for Achuthan

If it was a recession of choice in 2008 (after the recession already started), why isn't it a question of choice now? Of course, it is entirely possible Achuthan has changed his mind about what is or isn't possible.

Then again, is that change of heart a new fundamental belief or simply a necessary statement because his call is now recession as opposed to no recession in late 2007 and early 2008 (while later taking credit for predicting a recession).

It is not my intent to keep bringing this discrepancy up, but Achuthan has come out with yet another reason for his call that is dramatically different that what the ECRI has stated before.

The key point however is the forecast, and on that score I side with Achuthan. I also side with Achuthan that he Fed cannot do much to stave off recessions. History will show who is correct.

Mike "Mish" Shedlock
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