Monday, 03 October 2011 16:20
Last Friday Laksman Achuthan (left), co-founder of Economic Cycle Research Institute (ECRI), announced that not only has the economy entered a new recession, but that “it’s going to get a lot worse. The vicious cycle is starting where lower sales, lower production, lower employment and lower income [leads] back to lower sales … you haven’t seen anything yet.” Despite some evidence that the economy is growing in places, it’s not enough to overcome the significant array of indicators that Achuthan has used successfully for years to predict the economy. According to The Economist, ECRI has never issued a “false alarm,” and this time should be no different.On his website, Achuthan stated:
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.
ECRI’s recession call isn’t based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down — before the Arab Spring and Japanese earthquake — to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes…
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.
Achuthan anticipated some skepticism regarding his announcement and explained that recessions are getting closer and closer together with scarcely enough time for the economy to recover from one before another one begins. The interested reader can click here for his slide show back in March 2010 that proves his point.
Achuthan has plenty of company. MarketWatch noted on the same day as Achuthan’s announcement that personal income declined in August and consumer spending slowed as well. And no new jobs were added to the economy in August and those who were working saw a decline in their average hourly earnings. Nouriel Roubini, chairman of Roubini Global Economics LLC, wrote a few days earlier:
The way I see the global economy, I think we’re entering into a recession again in most advanced economies [and] I think we’re already into one in the U.S. based on [both] hard and soft data. … At this point, the issue is not whether there is going to be a recession … but whether it’s going to be relatively mild or whether it’s going to be a severe recession [coupled with] a global financial crisis... read more>>
