Economic Cycle Research Institute: New Recession Has Begun


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EDITOR’S COMMENT: This group has been right every time and has NOT issued false warnings. It is saying what most Americans already know — that the economy is in bad trouble. It is going to stay in trouble as long as we allow the banks to control the purse strings of the entire nation and as long as they control the members of congress and the members of state legislators around the country.

It will remain this way while the narrative of the banks is taken as gospel despite and maybe because they did it to us. This is like going to a rapist for sec education. The Banks are the last people we should go to on the state of the economy, the reforms necessary and the application of the rule of law. When we get the narrative straight, which maybe the Occupy Wall Street protesters are doing, then we will address the truth and only then will be able to fix the economy and raise our prospects.

October 8, 2011

An Ugly Forecast That’s Been Right Before


LET’S face it: economic forecasting is an act of sheer hubris. Which, of course, only incites people to do it.

The stock market offers its predictions, and, occasionally, it’s even right. As the economist Paul Samuelson once put it: “The stock market has called nine of the last five recessions.”

Economists have an even worse record, particularly when it comes to predicting downturns. In 1929, for instance, the Harvard Economic Society declared that a depression was “outside the range of probability.” Whoops.

Then there is the matter of the last recession. With the benefit of hindsight, we now know that the downturn began in December 2007. Few people realized it at the time. A survey by Blue Chip Economic Indicators that month found that, as a group, economists believed that the economy would grow by 2.2 percent in 2008. Instead, it began to shrink.

Are we heading into another recession now? Again, the consensus says we’re not.

But at least one organization with an exceptionally good track record says another recession may already be here. That is the Economic Cycle Research Institute, a private forecasting firm based in Manhattan. It was founded by Geoffrey H. Moore, an economist who helped originate the practice of using leading indicators to predict business cycles. Mr. Moore died in 2000, but the team he trained is still at work.

Relying on a series of proprietary indexes, the institute correctly predicted the beginning and the end of the last recession. Over the last 15 years, it has gotten all of its recession calls right, while issuing no false alarms.

That’s why it’s worth paying attention to its current forecast. It’s chilling: as bad as the economy has been, it’s about to get worse.

In the institute’s view, the United States, which is struggling to recover from the last downturn, is lurching into a new one. “If the United States isn’t already in a recession now it’s about to enter one,” says Lakshman Achuthan, the institute’s chief operations officer.

It’s just a forecast. But if it’s borne out, the timing will be brutal, and not just for portfolio managers and incumbent politicians. Millions of people who lost their jobs in the 2008-9 recession are still out of work. And the unemployment rate in the United States remained at 9.1 percent in September.

More pain is coming, says Mr. Achuthan. He thinks the unemployment rate will certainly go higher. “I wouldn’t be surprised if it goes back up into double digits,” he says.

At the moment, the institute is sticking its collective neck out.

Compare the institute’s forecast with the latest Blue Chip survey, which was released on Friday. In it, the consensus is that the economy is slowing, but still growing modestly, and that it will continue to do so. On average, the economists included in the tally foresaw a growth rate of 2 percent in 2012. In January, the consensus prediction for 2012 was a growth rate of 3.1 percent.

Economists have been ratcheting down their projections, recognizing that the recovery has been so weak that it won’t take much to set the economy back.

A dark cloud hovers over the euro zone. Greece is increasingly perceived as likely to default on its debt, causing as-yet-unknown problems for the global financial system. Spain, Portugal and Ireland are already in downturns. Last week, Jan Hatzius and Dominic Wilson, two Goldman Sachs economists, predicted that France and Germany would soon fall into a “mild recession,” contributing to a slowdown in the United States, where they put the odds of a new recession at 40 percent.

In Congressional testimony last week, Ben S. Bernanke, the Federal Reserve chairman, was also downbeat. He said that the economy was “close to faltering” and that the Fed had lowered its own forecast, adding that the Fed is prepared to intervene as needed. He did not predict a recession, however.

Mr. Achuthan, on the other hand, says that the gross domestic product rate is likely to go negative by the first quarter of 2012, if not sooner. He told me last week that he couldn’t tell exactly when the recession would start — or whether it had already begun. The institute made its recession call only after an array of economic indicators showed a “pronounced, pervasive and persistent” downturn consistent with a recession, he says. By contrast, in the summer of 2010, when some market bears interpreted the decline in one of the institute’s indexes as a signal that a recession was in the offing, the institute said the pattern pointed not to recession, but only to weakness.

Now, he says, the pattern is clear.

This time, Mr. Achuthan says, a host of leading and coincident indexes — those that suggest activity down the road, and those that measure current movements —are all pointing strongly toward recession.

The institute’s U.S. Leading Diffusion Index, for example, has dipped into territory that, with only one exception, would have signaled the recessions of the last 60 years. The single exception was in a short-lived downturn in 1966-7.

In addition, its U.S. Coincident Index has moved into territory that would have signaled recessions over those six decades, with three exceptions. Those were dips in September 2005, after Hurricane Katrina; in March 1993, after a huge storm on the east coast of North America, and in July 1952, after a steel strike. In none of those cases did the two indexes reach recession territory at the same time, as they have now, he says.

TAKEN as a whole, he says, these and other indicators are quite clear. “We’ve entered a vicious cycle, and it’s too late: a recession can’t be averted,” he says.

Unfortunately, this isn’t the end of the institute’s gloomy prognostications. What’s worse, he says, is that the business cycle appears to have become shorter than it was from the mid-80s until the start of the last recession, an era that has sometimes been called “the Great Moderation.”

For the foreseeable future, he says, “more frequent recessions are likely to be the norm.”

6 Responses

  1. The United States has become—simply put—a CORPORATION RIDDLED WITH FRAUD…and the CEO’S have LAID US ALL OFF…while they hoard their money and buy fancy shiny things for themselves…which includes weapons.

  2. But the country’s money woes have been created with an intent, as is stated in Crisis by Design; The purpose is to slide in the replacement currency for the dollar, defeat America’s sovereignty and rule the world by controlling the money supply through central banks.

    The reason that shithead Bernanke isn’t implementing any measures to correct, is because he wants the dollar done for. It’s the first step in the Federal Reserve’s system to change money to an electronic debit and credit system, that they alone control. BIS, IMF, and a host of 3 letter quasi-government agencies and commissions are already in place, all they have to do is irradicate the dollar!

    So what we have to do is take away their control by returning to the “greenbacks” that Kennedy was replacing fiat paper FR notes with, and cut the Federal Reserve out of the picture. True boycotts of all Wallstreet banks and their instruments of financial tyranny will be our method of removing them from our society. The return to the gold standard and the reversal of all legislation that favors banks and coporate interests over those of the common man (who does all the actual work in this country) will sever the plutocrats from our republic.

    We don’t just need financial reform, we need political reform. The people we elect to represent our wishes need to be cordoned off from the Money Changers and their mintons. As long as there is temptation, it’ll be abused by those with money and/or power.

  3. “New” recession… What a joke!

    Call it what you want; the economy has been in shambles since 2008, when Bush allowed a bad situation to linger forever with his bailouts.

    He should have let the banks fail. By now, we’d be working out of the slump, one day at a time and getting closer to succeeding. What he did is prolong an inevitable agony.

  4. Also: Neil. Please consider replacing WordPress with Disqus which permits editing of posts already made.

  5. Neil: some new metaphor is needed to describe what is going on: rearranging deck chairs on the Titanic doesn’t do it any more.

    There is a broader systemic breakdown of linkages which bind our society together: may I please give an example.

    Over the Millennia, there has always been a symbiotic relationship between the old and the young. Rather than spending down their savings in pure consumption, the ideal relationship is where the old invest in the young: and the young repay the courtesy by delivering currently produced goods to the old. The banks intermediate that function by engaging in the government-guaranteed no-brainer business of banking.

    We have now arrived at a point where the elderly have no place to put their money – except to take huge chances in the stock market. And the young have no practicable way to finance their present needs – even if they are employed.

    The breakdown of the symbiotic linkage which exists between the young and the old is the reason why are are starting to the see the senior generation showing up at the occupywallstreet rallies. I am told that at a recent occupy rally in Salt Lake City there were numerous conservative Orin Hatch seniors, LDS if you care to believe, who were out to support the young. The very old who had depression era parents remember that at the end of the day, in the final analysis, somebody has got to go get and make the stuff we need to live on. Successful somatic behavior requires eating, staying warm and dry, and being nice to the young folk who have the energy to make it happen.

    The old know that idle young is a far more serious situation than just an apparent lack of work ethic: the old know that it is only the young who can deliver the goods the old need. An idle young person threatens the very survival of the old.

    By the time the Tampa and Charlotte Party Conventions roll around late next summer, this country will have disintegrated into Hoovervilles across the country, out of which will pour riots into the streets.

    It’s going to be ugly: and one might even see drones flying back and forth policing American citizens from the air. I can even see the possibility of violence against the financial institutions and their employees who orchestrated the massive theft which has just occurred.

    The Paris Commune starts to emerge as an example of where this all heading.

    What are we going to do to make lives of the people newly living in these tent cities more comfortable? Or, shall we simply clone Deputy Inspector Anthony Bologna and issue him even more serious variants on the made/pepper spray he used last weekend?

  6. In Florida, we never came out of the recession we were in in when George Bush was elected. 9/11 came and along with the oil spill, has finished this states hopes of ever coming out of this mess.
    Enter Rick Scott, right wing, asshole of the first order. With his “lets get to work” joke of a campaign slogan.
    Only a aroused citizenry can turn this situation around, with a bailout for the people.

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