ECRI sticks with Recession call

Feb 24th 2012 (CNBC video)

In Short:
Recent jobs growth is a lagging indicator. Coincident indicators show slowing growth. Most leading indicators still support a recession, except markets, which are up due to central banks' printing.

In Detail:
Since the recession call 5 months ago, all the coincident data shows slowing growth:

• YoY GDP growth: peaked 3Q10, falls to 1.5% in 2Q11 and flatlined since then
• Personal income growth: same
• Broad sales growth: same
  
• Industrial production growth: down to a 22 month low as of Jan

Taking these together: the coincident index is at a 21 month low. And leading indicators (apart from the stock market) still support this.

Velocity of money is at a record low in US, Europe, China. The money is going to the market, hence the new highs.

Jobs are a lagging indicator: follows consumer spending growth. Expect jobs growth to flag in the next few months. Personal disposable income has been negative for 5 months.

Recession should be here by mid-year 2012, but the consensus would probably take 6 more months to recognize it.

Early 08: recession begins in Dec 07, but got a double digit springtime rally, Oil went to $147 inside a recession...because of the money being printed.

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Hope they're right - I want to buy cheap shares. Mabye they are, and the market is being pumped up by piles of newly printed money. OTOH: Are they just finding excuses and moving the goalpost (first to June, then to saying it wont be recognized till 6 months after this)?

No matter what, I just wait. Buying in a recession is the easiest and lowest risk way to make big money. I am not good enough to trade the ins and outs of the market.

Market action definitely does not agree with ECRI yet. For the last 3 months, it has been very strong in its daily action: going up on high volume, ignoring bad news (Greece), and with pullbacks that are on low volume, or U shaped. We simply don't see any weakness. If ECRI is flat-out wrong, I gotta wait a year or two more before I get my wish.

ECRI calls Recession

New recession call from ECRI. At a minimum, a shallow one, but if there are unexpected shocks, it would be deeper.

Continuing the chronological listing of ECRI's calls:

• 31 Aug 11: Summary of Member Report Issued Aug 19, 2011
  Job Market to Remain Weak. Still cant tell if slower growth or recession. Has been persistent, not pronounced or pervasive. No upturn in sight yet.
• 17 Sep 11: Radio interview: Skating on this ice.
  Fwd looking indicators show continued slowing. Risk of a new recession is "quite high", don't yet know. Should know by end Nov.
• 30 Sep 11: US Recession (Bloomberg)
  Recession "now inescapable". Over a dozen 12 US leading indexes (different aspects in the US economy), all showing contagion. Vicious cycle to start. Will continue to be pronounced, pervasive and persistient. "If Europe cleans its act up and everything is good, there's still going to be a recession." If there is an unpredictable event (eg: Lehman imn 08) it will be worse. How long? Don't know yet. Right now, minimally, its a shallow recession. Recessions kill inflation.
  

Good. Soon I'll get a change to use the money I've been hoarding.

Market Timing with ECRI

I like these guys. Their announcements are clear and straightforward. And if they don't know something, they say it.

They do not make predictions, they just observe changes in their indicators. Their Weekly Leading Index (WLI) tracks short term changes in the economy. It has an average lead of 10 months at business cycle peaks and three months at business cycle troughs. The stock market is one component. Their Long Leading Index (LLI) is proprietary and leads about a year. It does not include the stock market.

We don't interpret the results ourselves, but wait for ECRI to make news releases. There is a lag, firstly because they are predicting the economy, rather than the stock market, and secondly because they alert their customers first. Too bad it seems they are not interested in individual subscriptions.

Lets see how useful their results have been:


They firmly called the recovery at point 1, in early April 09:

• 03 Apr 09: WLI Edges Up: "With WLI growth rising to a 23-week high, an upturn in the U.S. growth rate cycle is now in clear sight". [Note: Good call. Would have doubled my profit.]
  

From late 2009 to late 2010 (at 2), there was talk of a "double dip recession". ECRI generally discounted this. [I started following their releases here]:

• 31 Oct 09: No Double Dip: Growth is "broad based". "On the issue of double-dip recession, we do not see a real downturn in the next few quarters".
• 27 Nov 09: Sharp Recession Sharp Recovery? WLI is "consistent with a steady economic recovery."
• US Yearly growth gauge down, double dip unlikely (6th Feb 10): trends pointing to a double-dip recession are "nowhere in sight."
• 28 May 10: WLI Growth Tumbles: "The downturn in WLI growth evident since early 2010 has recently intensified, so it should be no surprise when U.S. economic growth slows noticeably in the months ahead," [Note: we must distinguish between a slowdown in growth and a slowdown]
• 19 Jul 10: Slowdown Call came long ago: "For now, ....the data indicates slowdown, not recession"
• 01 Sep 10: Recession or Soft Landing? Currently in a slowdown. Historically, slowdowns result in a recession more than 50% of the time. Inconclusive, will make a call by end Nov.
• 18 Oct 10: No Double Dip recession but Jobs Growth to slow: "We categorically rule out a double dip recession." GDP/production/jobs numbers will go weaker, but not negative...may feel like a recession.
• 06 Mar 11: Big Picture Outlook: Cyclical expansion is speeding up. Growth will continue at least till Sept.

In Mar 11 (at point 3), they signal a slowdown in growth rate (not a recession):

• 06 Mar 11: Global Industrial Growth Downturn and Growth to Peak for Global Industrial Sector: "We see, unambiguously, a downturn in the growth rate of industrial activity (incl. commodity prices) by this Jun/Jul. Not a recession, its a change in the rate of growth (2nd derivative). Expect strong market reaction. Global. [Note: Would SELL here if I was following them]
• 09-17 Jun 11: Soft Patch not a blip, A prolonged slowdown, Throttle back in economic growth Ahead?, Mirror Image of last Fall?: Growth will slowdown at least till end of year. US slowdown will spread to broader US economy. No recession till end of year, not sure after that.
• 19 May 11: ECRI Sees slowdown but no new recession
• 29 Jul 09: Slowdown Undeniable and Shocks during slowdown are risky: Not in recession yet. But combination of slowdown and any external shock is risky. Cannot rule out recession next year.

So far, their calls have been spot on. Lets see how the latest one turns out.