ECRI Sticks With Recession Call

Courtesy of Mish.

The ECRI is sticking with its “US is already in recession” call based on four coincident indicators. Very few agree, but for what it’s worth (perhaps nothing) I am one of those in agreement.

Here is a Bloomberg video to consider.

Also consider The Tell-Tale Chart by the ECRI.

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.

If you look at the size of the simultaneous declines in industrial production and personal income since July, that combination has never occurred outside a recessionary context in over half a century – but it’s occurred in every recession. This leads us to conclude that we are most likely already in a recession that began around mid-2012.

Now, please remember that, following our recession call, central banks really ramped up their efforts, and have literally been pumping more money into the economy than at any time in the history of humanity – and this is the upshot. No wonder the Fed is now all in.

So how come hardly anybody recognizes the recession? Perhaps it’s because of real-time data showing positive growth in GDP and jobs, and the lack of a recent salient shock.

Revisionist History

Some of that is revisionist history, notably the idea that in September 2011, the ECRI gave itself until December of 2012 to be proven correct. Rather, the ECRI kept changing dates waiting for data to match its call….

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