rofgile (99.00)

ECRI becoming defensive about their "2011 recession call"

December 03, 2011 – Comments (2)

As many CAPS bloggers are aware, earlier this year the Economic Cycle Research Institute made the bold claim that "a new recession is unavoidable".  This statement was made by the cofounder of ECRI:

"The vicious cycle is starting where lower sales, lower production, lower employment and lower income [leads] back to lower sales," - Lakshman Achuthan (From Yahoo, Aaron Task).  VIDEO from September 2011

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  I was initially very skeptical of this claim.   Data in September hardly showed that a recession is "unavoidable" or guaranteed.  How can anything that is over a year away in economics be guaranteed to happen?  Especially in the last 3 years, when political decisions can have such impact in world economics.  In fact, I would say that this guy is full of SH*T.

 This quote from BusinessInsider DutchBook is priceless:

 " You have to respect the marbles on a guy with no economics or mathematics training to speak of, calling out everyone on the street (never mind that a few shops are predicting recessions as well) saying that the firm for which he simply is the head of marketing and operations is infallible. It’s awesome stuff, markets are wrong, economists are idiots, him and his subscribers are the smartest people on the planet because they are the only people looking at forward looking indicators. Priceless. If you haven’t seen it yet I implore you to click through below."

 Bold emphasis is mine. 

 Many mainstream economists, who of course also look at leading indicators, have tried to get any information on Achuthan's Black Box of indicators which point to a "unavoidable recession".  This guy won't even release one such indicator that supported his statement.  We just have to take his word that he has some magical data of the future that clearly and consisely, without any room for error, says that we are going into recession.

 Fine.  Lets look at economic indicators which we can actually see publicly:

 US Manufacturing index in Oct was 50.8, Nov 51.5, Nov End 52.7.  Manufacturing sector is growing, and the growth is ACCELERATING into the end of the year.

 4-week moving average of jobs is 395 thousand, has flatlined recently but previously was falling.

 Non-farm Payroll growth is accelerating from 80,000 Oct to 120,000 November.

 Consumer spending: we just had monster growth in Black Friday sales and 30% supermonster growth in cyber monday sales y/y.

 CPI has fallen recently, inflation is fairly tame.

 Gasoline prices have been falling since May 2011 (LINK) .  Almost below $3.00/gallon here. If you want a predictor of future consumer spending, I would say this is my favorite one.  When gas prices fall below $3.00/gallon you will see a huge amount of extra money going to those of lower to middle income.

 Our trade deficit has been falling for 3 months, with record high export sales as the driver.

 What about other leading indicators than ECRI?  The Wells Fargo, The Conference Board, and the FED indicators all have longer track records than ECRI.  And guess what? All three of these indicators DISAGREE with the ECRI claim and point to continued expansion.  (LINK) 

 FED

Worse, since the "unavoidable" recession call, the public ECRI weekly indicator has been itself going more positive (WSJ).   

I hope the ECRI and Achuthan get sharply proven wrong.  Fortune telling is still a risky business, even if you business is selling fortunes. 

 -Rof