Tag Archives: commentary on ECRI

ECRI Statements From The Week Of May 7, 2012

Last week, ECRI issued a variety of statements and interviews that I found notable.  The full list is found at ECRI’s website.

Each of these interviews and articles is in some way a reaffirmation of ECRI’s recession call of September 30, 2011 that the U.S. was “tipping into recession,” and ECRI has reaffirmed that view since, including a notable statement on March 15 (“Why Our Recession Call Stands.”)

While I don’t necessarily agree with ECRI’s analyses and conclusions -my overall thoughts on ECRI’s measures and methodologies are complex and lengthy – below are various of last week’s comments that I find notable:

Bloomberg video, May 9:  ”Lakshman Achuthan on Renewed U.S. Recession Call: Video

ECRI, May 9:  ”Revoking Recession:  48th Time’s The Charm?

Here, ECRI discusses a variety of issues – including whether recessions can be avoided – and highlights the YoY Growth in Real Personal Income, especially for the last 3 months.  An excerpt:

For the last three months, year-over-year growth in real personal income has stayed lower than it was at the beginning of each of the last ten recessions. In other words, this is what personal income growth typically looks like early in a recession.

Wall Street Journal video, May 9:Free Market Economies Have Business Cycles

ECRI, May 11:Rising GDP Doesn’t Rule Out Recession.”

An excerpt:

What most people don’t understand is that recessions often begin when gross domestic product is still showing positive growth.

Four of the past six recessions started during a quarter when GDP was growing, as did 72% of all recessions in the past 94 years[1].

also:

One reason we believe the economy is heading for recession now is weak job growth. Since February, job growth has turned down, as have other key indicators.

also:

In fact, our research shows a new recession is likely to start by mid-2012. Under the circumstances, complacency about U.S. recession risk is likely to prove badly misplaced.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1353.39 as this post is written

ECRI WLI & ECRI WLI, Gr. Charts – A Notable Pattern

While my overall thoughts on ECRI’s measures and methodologies are complex and lengthy, I would like to highlight one aspect of the ECRI WLI & ECRI WLI, Gr. charts that I find particularly interesting.

From a casual observation standpoint, I have been noticing what I have been referring to as successive “dead cat bounces” in both the ECRI WLI & ECRI WLI, Gr. charts.

As one can see in each of the charts (from Doug Short’s blog post of May 4, 2012 titled “ECRI Weekly Leading Indicator:  Third Consecutive Decline“) below there is a progressive lessening in the amplitude of  advances one sees in each measure since the end (per NBER) of the recession in June 2009.

(click on charts to enlarge images)

ECRI WLI chart:

ECRI WLI, Gr. chart:

This successive “dead cat bounce” aspect is disconcerting on an “all things considered” basis, and is yet another metric (among many) that indicates the vibrancy of economic activity remains, at best, constrained.

As well, I believe recent ECRI statements, particularly that of March 15 (“Why Our Recession Call Stands“), should be considered in tandem with the WLI and WLI, Gr. readings.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1367.80 as this post is written

ECRI’s Recession Reaffirmation Of March 15, 2012 – Notable Excerpts

On September 30, 2011 ECRI released a statement titled “U.S. Economy Tipping Into Recession.”

Since that time, Lakshman Achuthan of ECRI has reaffirmed that view in various interviews, such as that on February 26, parts of which I highlighted in the February 28 post titled “The Velocity Of Money – Comments And Charts.”

Yesterday, ECRI again reaffirmed their conclusion first made in the September 30 statement, that a U.S. recession is forthcoming.  The statement is titled “Why Our Recession Call Stands.”  Here are a few excerpts that I find most notable:

Many have questioned why, in the face of improving economic data, ECRI has maintained its recession call. The straight answer is that the objective economic indicators we monitor, including those we make public, give us no other choice.

also: (note – USCI refers to ECRI’s U.S. Coincident Index)

But the point remains that the USCI, which summarizes the definitive coincident economic indicators – including jobs – indicates declining growth in the U.S. economy.

also:

In spite of the efforts of monetary policy makers, actual U.S. economic growth has slowed, while WLI growth has barely budged from a two-and-a-half-year low.

The bigger question is, can unprecedented, concerted global monetary policy action repeal the business cycle? The objective coincident and leading indexes that we have always monitored are still telling us that it cannot.

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with the commentary in such forecasts.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1402.60 as this post is written

A Current Chart Of ECRI WLI Growth

As I stated in my July 12, 2010 post (“ECRI WLI Growth History“):

For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.

However, I do think the measures are important and deserve close monitoring and scrutiny.

The movement of the ECRI WLI Growth is particularly notable at this time.  Below is a chart from Doug Short’s blog post of October 14 titled “ECRI Recession Watch: Growth Index Declines Further” :

(click on chart to enlarge image)

As noted on the chart, the most recent ECRI WLI Growth reading of October 7, at -9.6, is at depths rarely seen since 1965.

In conjunction with this reading, it is also important to take into account ECRI’s statement of September 30, which I featured in the October 3 post (“ECRI Recession Statement Of September 30 – Notable Excerpts“)

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1224.58 as this post is written

ECRI Recession Statement Of September 30 – Notable Excerpts

On September 30 ECRI released a statement titled “U.S. Economy Tipping Into Recession.”

My thoughts on ECRI’s work are complex.  While I don’t necessarily agree with their comments in this September 30 statement, I do find the following excerpts to be especially notable:

Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off.

also:

More than three years ago, before the Lehman debacle, we were already warning of a longstanding pattern of slowing growth: at least since the 1970s, the pace of U.S. growth – especially in GDP and jobs – has been stair-stepping down in successive economic expansions.

also:

It’s important to understand that recession doesn’t mean a bad economy – we’ve had that for years now. It means an economy that keeps worsening, because it’s locked into a vicious cycle.

also:

Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1131.42 as this post is written

ECRI WLI Growth: Wild Times

As I commented in the July 12 post:

“For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.

However, I do think the measures are important and deserve close monitoring and scrutiny.”

Along those lines, I would like to make comments on the ECRI WLI Growth chart, as seen from a long-term perspective.  This chart is from Doug Short’s blog post of July 16:

As one can see, the chart shows the history of the ECRI WLI Growth vs. GDP and recessions from 1965.

I believe the wild swing from 2008 to the present is very significant for many reasons, of which five are discussed below:

First, as one can see, this swing dwarfs others from a long-term historical perspective.

Second, as many have commented, this depth of negative readings has a high incidence of presaging recessions.

Third, as I have commented extensively, this is yet one more economic statistic that is showing a highly atypical reading, especially if one believes we are in an economic recovery.  This is especially evident when one looks at the currently ECRI reading vs. the GDP reading.  As such, it is a “(negative) outlier” as I have referred to such (most recently in the July 14 post.)

Fourth, another question to ask is how one should interpret such a pronounced spike and then decline?  One thought is that the index may be exhibiting more volatility than in the past – which may distort any historical comparisons, correlations and/or conclusions one may make with regard to its movements.

Fifth, I find the long-term chart (not shown) of the ECRI WLI (Weekly Leading Index) itself to be rather interesting.

Given the above, the ECRI WLI Growth Index, in conjunction with overall economic conditions, certainly should be interesting to watch going forward…

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SPX at 1064.88 as this post is written

ECRI WLI Growth History

For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.

However, I do think the measures are important and deserve close monitoring and scrutiny.

Toward that end, I recently came about a July 5 article, found here, from Doug Short that provides a good (and concise) historical perspective and review on ECRI WLI Growth rates.  His charts comparing WLI Growth to GDP and the Fed Funds rate go back to 1965, as shown.

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SPX at 1077.96 as this post is written

ECRI On Frequency Of Recessions

I recently came across a notable excerpt in ECRI’s “U.S. Cyclical Outlook” of December 2009 (pdf):

“The bottom line is that long expansions are needed after severe recessions to undo the damage.  After the 1932-33 depression, not even four years of expansion were quite enough, despite 10% annual GNP growth.  This time trend growth is likely to be far lower, and the danger of frequent recessions accordingly higher.”

my comment:

I find the above excerpt interesting and notable.   While I don’t necessarily agree with ECRI’s current forecast or economic interpretations, the concept of Sustainable Prosperity is one that I have frequently written of, and it is imperative that we, as a nation, should consider our longer-term economic plight as we seek to improve our current economic  condition.

ECRI WLI Interpretation & Commentary

The recent steep fall in the ECRI WLI has been widely commented upon.

I’ve recently run across two items, an article and an interview, that I think are very notable with regard to interpreting the WLI.

The first is an article ( “Is ECRI Growth Rate Index Signaling A Double Dip?”) that discusses the predictive history and interpretation of the WLI.  The second is a June 11 CNBC interview of ECRI’s Lakshman Achuthan about the recent drop in the WLI and how he believes it should be interpreted.

Although I indicate the level of the ECRI WLI on a monthly basis (“Updates On Economic Indicators”), my only previous commentary on ECRI and the ECRI WLI can be found at this post of July 15, 2009.

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SPX at 1115.23 as this post is written

Recent ECRI Statements

In this post I would like to highlight ECRI and some of its recent statements, after which I will make comments.

From a recent (7/14/09) Newsweek story, quoting ECRI, found here:

http://www.businesscycle.com/news/press/1481/

“From our vantage point, every week and every month our call is getting stronger, not weaker, including over the last few weeks,” says Achuthan. “The recession is ending somewhere this summer.”

I found the following phrase on this ECRI site link to be interesting:

http://www.businesscycle.com/about/approach/

“The emphasis is on the development of leading indexes that hold up in spite of structural changes…”

And finally, this is interesting from the ECRI website:

http://www.businesscycle.com/

“In fact, over the last 75 years, growth rate cycle upturns during every recession were followed zero to four months later by the end of the recession itself. No exceptions.”

“Actually, there’s been only one solitary exception in the data we have examined, which go back well over a century. This was the growth rate cycle upturn of 1930-31, which gave way to a renewed downturn. But, when this growth rate cycle upturn was beginning at the end of 1930, USLLI growth was turning back down, warning that the firming in growth would soon be reversed, effectively opening the door to depression. That’s not the case today.”

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My comments:  There is a lot I could say regarding my views on ECRI’s methodologies and current views.  

For now, I will say that as previously stated on this blog, I believe (and my analysis indicates) that we are in a “new (economic) environment.”   Whether ECRI’s methodologies yield the correct interpretation of our current economic environment will of course play out with time.  This is something that I plan on watching closely…

As an aside, I’ve been wondering about the following…If a (U.S.) central banker or other main policymaker were to wholeheartedly believe in the methods and long term predictive ability of ECRI’s methodology, wouldn’t it make sense, especially under a very stressful, uncertain economic situation, to try to craft policy in line with that which would promote strong ECRI leading (WLI & USLLI) growth – under the assumption that economic recovery would follow?

SPX at 927.66 as this post is written

 

Copyright 2009 by Ted Kavadas