logo
  Join        Login             Stock Quote

Why ECRI’s Recession Call Stands

 March 19, 2012 09:57 AM


As the S&P500 breaks through 1400 and the powers that be in Europe assure us that things are just peachy, Lakshman Achuthan of ECRI continues to be downbeat on the US economy still calling for recession before mid year. Yesterday on Barry Ritholtz's Big Picture blog, Achuthan penned an explanation of his recession call. Click here for the original story.

Why ECRI's Recession Call Stands
Lakshman Achuthan & Anirvan Banerji
March 15, 2012

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.

[Related -Health Care SPDR (ETF)(NYSEARCA:XLV): The Only ETF You Need To Own – For September]

Let's start with the current state of the economy. A couple of weeks ago, we publicly highlighted ECRI's U.S. Coincident Index (USCI). It's important to understand that the USCI isn't a random concoction of data, but rather the gold standard for measuring current economic growth, as it summarizes the key coincident economic indicators used to determine the official start and end dates of U.S. recessions; namely, the broad measures of output, employment, income and sales. So when USCI growth is in a downturn (bottom line in chart), it's an authoritative indication that overall U.S. economic growth is actually worsening, not reviving.

[Related -CONN'S, Inc. (CONN) Q2 Earnings Preview: The BIG Move Quarter]

In contrast to the 3% GDP growth widely reported for the latest quarter, year-over-year growth in GDP, after peaking at 3½% in Q3/2010, has basically flatlined around 1½% for the last three quarters. Broad sales growth has followed a similar pattern, while the growth rates of personal income and industrial production have dropped to their lowest readings since the spring of 2010.

The exception to this weakening pattern is year-over-year payroll job growth, which continued to improve through January, and was essentially flat in February. However, the empirical record shows that job growth typically turns down after downturns in consumer spending growth, not the other way around. Because consumer spending growth remains in a cyclical downturn, we expect job growth to start flagging in the coming months. But the point remains that the USCI, which summarizes the definitive coincident economic indicators – including jobs – indicates declining growth in the U.S. economy.

How about forward-looking indicators? We find that year-over-year growth in ECRI's Weekly Leading Index (WLI) remains in a cyclical downturn (top line in chart) and, as of early March, is near its worst reading since July 2009. Close observers of this index might be understandably surprised by this persistent weakness, since the WLI's smoothed annualized growth rate, which is much better known, has turned decidedly less negative in recent months.


Next Page >>12
iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageArcelorMittal SA (ADR)(MT): Steel Stocks about to Get Red Hot

For the second consecutive day, a major broker upgraded a steel company by advancing their recommendation read on...

article imageExpress, Inc. (EXPR) Q2 Earnings Preview: Out of Style

Express, Inc. (NYSE:EXPR) will conduct a conference call to discuss its second quarter fiscal 2014 results read on...

article imageSmith & Wesson Holding Corp. (SWHC) Q1 Earnings Preview: Above Target

Smith & Wesson Holding Corp. (NASDAQ:SWHC) plans to release its first quarter fiscal 2015 financial results read on...

article imageUnited States Steel Corporation (NYSE:X): Turning $50 Says Credit Suisse

United States Steel Corporation (NYSE:X) is rolling today; up nearly 2.5% thanks mostly to an upgrade from read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center

Related Articles:

Three Stocks to Consider in a Hot Sector
More Articles on: Finance



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.