ECRI’s Lakshman Achuthan is convinced that the U.S. is in recession. He even has a date when it began: July 2012.
His call is based on the four economic indicators followed by the National Bureau of Economic Research (NBER), the folks who tell us when recessions begin.
So, with about a month to go before year-end, what do the hard data tell us about where we are in the business cycle? Reviewing the indicators used to officially decide U.S. recession dates, it looks like the recession began around July 2012. This is because, in retrospect, three of those four coincident indicators – the broad measures of production, income, employment and sales – saw their high points in July (vertical red line in chart), with only employment still rising.
The employment indicator seems to be a problem for Achuthan’s recession call, especially considering today’s report. But this isn’t a dealbreaker. From Achuthan:
But if we’re in recession, and the business cycle peak was in July, how could employment be higher three months later? Actually, this was also true in three of the last seven recessions – and in the severe ’73-’75 recession, job growth stayed positive eight months into the recession. Thus, positive jobs growth isn’t inconsistent with the early months of recession. Of course, all of this data is subject to revision, but, as we’ve noted before, the ultimate revisions to coincident indicator data after business cycle peaks tend to be downward.
Going back to the other indicators:
If you look at the size of the simultaneous declines in industrial production and personal income since July, that combination has never occurred outside a recessionary context in over half a century – but it’s occurred in every recession. This leads us to conclude that we are most likely already in a recession that began around mid-2012.
“Nobody likes to be the bearer of bad news, but a recession isn’t the end of the world,” writes Achuthan. “There have been 47 recessions in the past 222 years and, as before, we’ll see renewed growth after the 48th. Because business cycles are part and parcel of how all market economies operate, that’s about as close to a sure thing as it gets.”
Read the whole post at BusinessCycle.com.
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