Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off.
As the IMF concluded in a study of economist forecasts from 63 countries their “record of failure to predict recessions is virtually unblemished.” The Economist magazine noted in 2005, “ECRI is perhaps the only organisation to give advance warning of each of the past three recessions; just as impressive, it has never issued a false alarm.”
ECRI’s recession call isn’t based on just one or two leading indexes, but on dozens of specialized leading indexes. That includes the U.S. Long Leading Index, which was the first to turn down before the Arab Spring and Japanese earthquake, followed by downturns in the Weekly Leading Index and other shorter-leading indexes.
“Last year, amid the double-dip hysteria, we definitively ruled out an imminent recession based on leading indexes that began to turn up before QE2 was announced”, says ECRI. “Today, the key is that cyclical weakness is spreading widely from economic indicator to indicator in a telltale recessionary fashion.”
Why should ECRI’s recession call be heeded? “Perhaps because, as The Economist has noted, we’ve correctly called three recessions without any false alarms in-between. In contrast, most of those who’ve accurately predicted a recession or two have also been guilty of crying wolf – in 2010, 2005, 2003, 1998, 1995, or 1987.”
“A new recession isn’t simply a statistical event. It’s a vicious cycle that, once started, must run its course. Under certain circumstances, a drop in sales, for instance, lowers production, which results in declining employment and income, which in turn weakens sales further, all the while spreading like wildfire from industry to industry, region to region, and indicator to indicator. That’s what a recession is all about.”