Eighteen months ago, in September 2011, the Economic Cycle Research Institute made a startling call:
“The U.S. economy is… tipping into a recession. And there’s nothing that policy makers can do to head it off.”
This call garnered a great deal of attention, in part because ECRI had made another startling call the year before. The earlier call came in the midst of a consensus that the U.S. was indeed headed into a recession. And ECRI’s call, which proved to be correct, was that the U.S. was NOT headed for recession and that the consensus was wrong.
The accuracy of the bold 2010 “no recession” call, combined with ECRI’s insistence that its economic forecasts have never been wrong, focused a lot of attention on the 2011 recession call.
And when the recession that the U.S. was supposedly “tipping into” did not materialise, many market observers wanted ECRI to acknowledge its mistake and eat some crow.
But ECRI did not do that.
The firm simply adjusted the time horizon for its recession call, saying that it would occur in the middle of 2012.
By the end of that year, when a recession still had not occurred–at least not a recession that was visible in the statistics that most people generally use to define recessions (most notably, a sustained downturn in GDP), the calls increased for ECRI to admit its mistake.
But ECRI has not admitted a mistake! (See my interview with ECRI Managing Director Lakshman Achuthan above).
Instead, ECRI is simply insisting that the U.S. economy is mired in the middle of a mild recession that began in the middle of 2012… but we just don’t know it yet.
In support of this position, ECRI Co-Founder and Chief Operations Officer Lakshman Achuthan points out correctly that the timing of recessions is often determined only with the benefit of hindsight–often through revisions of prior numbers that initially did not show a recession. Achuthan thinks that, when the final revisions are in, they will show a recession that began in mid-2012.
Achuthan also points to several other measures that he says are consistent with recessions. This data, in his opinion, illustrates that the economy is in fact in a recession. (See charts here).
Ultimately, the distinction between a “recession” and a “crappy economy” is only important in economic forecasting circles, and our economy is certainly crappy. So the key question that most Americans want answered is “When is it going to get better?”
Unfortunately, ECRI’s Achuthan does not have an answer for that. All he can say is that he doesn’t expect it to get better anytime soon.
The action of the stock market, for what it’s worth, suggests that the worst is long over and that the economy is rapidly improving. But the fiscal squeeze of increased taxes and reduced government spending will almost certainly act as a drag on this year’s growth.
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