Lakshman Achuthan, whose Economic Cycle Research Institute has a strong track record of calling economic expansions and recessions, has faced a lot of criticism for ECRI’s contention that the U.S. is in a recession that started in mid-2012. But he and the group are not wavering.
“We’re not budging from our call,” Achuthan told Business Insider in an email. “Looking back, the epicenter of the recession was the half-year spanning Q4 2012 and Q1 2013, which saw just 0.6% annual GDP growth, mostly from a freak jump in agricultural inventories (w/out which it would be 1⁄4 percent).” He also says that early in the last few recessions “there were massive gyrations of two-to-four percentage points in GDP prints, generally downward, due to very belated revisions. So GDP for Q4 and Q1 could easily end up negative after revisions.”
Achuthan says that the notion that the U.S. economy is about to take off and reach “escape velocity” is flat-out wrong. Even ignoring December’s weak jobs numbers, he says employment trends have been worsening. While the employer portion of the government’s job survey has looked strong, those numbers typically get revised downward, he says. The household portion of the survey usually is subject to far less revision and its initial numbers are more trustworthy, he says, and they haven’t been very good. “Something that nobody seems to have noticed is that the household survey, adjusted to the payroll concept, actually shows a decline in employment since the summer,” he says.
Lakshman Achuthan of the Economic Cycle Research Institute continues to say that the U.S. is in a recession that began in the middle of 2012. Achuthan tells Bloomberg Surveillance that initial GDP readings are often revised downward by 2% to 4% during recessions, meaning the weak growth numbers we’ve seen over the past year or so could actually be revised into negative territory. As for the strong manufacturing data coming from the Institute for Supply Management in recent months, Achuthan says the correlation between ISM’s manufacturing reports and actual production has “collapsed” in recent years. He thinks markets have become somewhat disconnected from fundamentals, and says the Federal Reserve’s efforts to generate a “wealth effect” may be pushing stocks higher, but they aren’t pushing the economy higher.
Lakshman Achuthan of the Economic Cycle Research Institute is standing by his previous call about the U.S. having entered recession in the middle of 2012. Achuthan tells Bloomberg Surveillance that, while home prices have increased, “that does not mean you don’t have a recession.” He also says rising housing prices do “not mean an upturn in construction activity.” He says recessions are defined using four areas: production, employment, income, and sales. Both production and income peaked in July, he says.
Lakshman Achuthan of the Economic Cycle Research Institute says the U.S. is in a recession. Achuthan tells Bloomberg that jobs data is one key indicator signaling that recession is here. He also says he thinks GDP growth will be revised downward significantly for the first half of this year. Julian Callow, chief international economist at Barclays Capital, offers a counterpoint.
Lakshman Achuthan of the Economic Cycle Research Institute says the U.S. economy is in recession. Achuthan, who had been forecasting a recession by mid-2012 for the past several months, tells Bloomberg that industrial production, manufacturing and trade sales, and personal income growth data is all indicating that a recession has begun. Achuthan says that a recession doesn’t have to involve a fall off an economic cliff, but is simply when the economy has peaked and is contracting. He also talks about the labor market, and his longer-term outlook for the economy.
The Economic Cycle Research Institute is standing by its call for the U.S. to enter recession in the middle of this year. ECRI COO Lakshman Achuthan tells Bloomberg that recent data is confirming what the group has been saying for some time: that recession is coming. A decline in the rate of job growth supports that belief, he says, adding that personal income growth is a “real weak spot”. He does add, however, that he thinks the recession should be relatively mild, though he sees the potential for more frequent recessions going forward.
The Economic Cycle Research Institute is continuing to stand by its recession call, and now contends that a reason for the recent improvement in U.S. economic data is a problem with the way seasonal adjustments are made.
In a press release on its web site, ECRI says that recent data is worse than many believe. “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,” the group says. “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.”
ECRI is focusing a good deal on year-over-year data, not data from successive quarters. The reason: “Most data, both public and private, are seasonally adjusted. But the nature of the Great Recession seems to have had an unexpected impact on the statistical seasonal adjustment algorithms that are hard-wired to detect when the seasonal patterns evolve and change over the years. This is normally a good thing, but when the economy fell off a cliff in Q4/2008 and Q1/2009, it was partly interpreted by these procedures as a lasting change in seasonal patterns. So, according to these programs, data from Q4 and Q1 would be expected thereafter to be relatively weak, and therefore automatically adjusted upwards. Our due diligence on this subject indicates a widespread problem, resulting in many recent economic headlines being skewed to the upside.”
ECRI says that the bottom line is that despite “unprecedented, concerted global monetary policy action”, policymakers have been unable to “repeal the business cycle”.