Monday, December 17, 2012

ECRI: U.S. In Recession Because Industrial Production, Personal Income and Sales Peaked In July (Chart & More)

source: ECRI
Lakshman Achuthan, co-founder of ECRI, has been getting a lot of heat lately for his July 2012 U.S. recession call. He addressed his haters in a news release on December 7, 2012 (see below). His overall view is that the U.S. is now in a recession because industrial production, personal income, and sales all peaked in July (3 of the 4 "U.S. Coincident Indicators"). Employment kept rising, but he mentioned that sometimes there is employment growth at the beginning of recessions.

Part of the reason why I started this blog was to keep track of guru calls in the media. When looking back at previous posts, Lakshman Achuthan started to make economic slowdown calls in June 2011. But on September 30, 2011, ECRI officially announced that the U.S. was "tipping into recession." When he was interviewed by Aaron Task on Daily Ticker, he said:

"We may be in a recession today already, or it may start in the next month or two. That answer we can have in about a year when the dust settles. When all the GDP revisions are in, and the jobs revisions are in, and sales... All those big numbers get revised so many times. Once they get revised, we'll see, did it start in the 3rd quarter, did it start in the 4th quarter." (Lakshman Achuthan interviewed on Daily Ticker on 9/30/2011)

That never panned out, but Achuthan did "clarify the timing of his call" two months later on Bloomberg TV. He extended his recession call to mid-2012.

"If there's no recession in Q4 (2011) or in the first half I'd say of 2012, then we're wrong. You're not going to know whether or not we are wrong until a year from now. Just to be very clear, jobs data comes in stronger, right? That means there's no recession right? Wrong. In the last recession, which began in December of 2007, jobs data didn't go negative for another couple of months. It was positive into the recession. I'll give you an even freakier example, which is the 1973-1975 recession. It took 9 months inside of the recession before jobs went negative." (Lakshman Achuthan interviewed on Bloomberg TV on December 8, 2011)

So, if he ends up being right that a recession started in July, it looks like he was two months off. All ECRI needed was a DeMark signal to confirm its initial call. Below I embedded Lakshman Achuthan's interview on the Kudlow Report.

"The Tell-Tale Chart

Following our September 2011 recession call, we clarified its likely timing in December 2011. Based on the historical lead times of ECRI’s leading indexes, we concluded that, if it didn’t start in the first quarter of 2012, it was very likely to begin by mid-year.

But we also made it clear at the time that you wouldn’t know whether or not we were wrong until the end of 2012. And so it’s interesting to note the rush to judgment by a number of analysts, already asserting that we were wrong.

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." (continue reading at ECRI)



Previous Post: ECRI's Achuthan: Fiscal Cliff? The Recession Started In July (very intense Bloomberg TV interview on November 29, 2012!)

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