Tag Archives: recession

Is there a recession looming in our future? Let’s review the evidence.

Summary:  Today we have a status report on the US economy, focusing on the odds of a recession during the next year. This will provide context for the revelations in Friday’s new data festival, which could radically change the picture (so expect no conclusions here).

“You cannot prevent what you cannot predict.”
— ancient wisdom



  1. How are we doing today?
  2. What’s the trend?
  3. Taking the temperature
  4. What are the odds of a recession?
  5. What is a recession?
  6. Other posts in this series
  7. For More Information

(1) How are we doing today?

The US economy is $16 trillion component of a $72 trillion world. It seldom rolls over quickly, except from an external shock (e.g., the 1973 oil embargo). No such shock seems likely now.

On the other hand, we only know for sure where the economy was a few quarters ago, not now — despite the confident guesses of professional and amateur economists.

(2) What’s the trend

The US economy has been growing at an average of 2.2%/year since the start of the recovery (Q2 of 2009 through Q1 2013), with slow periods met by government action (fiscal or monetary stimulus).  As of Q2, GDP is 3.9% above the previous peak (2007 Q4).

The last three quarters been well below stall speed: real GDP grew 0.1% in Q4, 1.1% in Q1. and 1.7% in Q2. The scary slowdown in late 2012 drove the Fed to adopt the extreme expansion of the Fed balance sheet called QE3 (since politics have ruled out the more effective and useful fiscal policy).  As a resut, GDP has risen 1.4% during the past 4 quarters. Recovery!

Since the economy was far below stall speed  (<2%) during the past three quarters, we might be in recession now. Especially since economic indicators are often mixed during the slide, then revised downward.

The average revision of GDP from the advance to final revision is 1.2%; the standard deviation of revisions is 1%. So it is possible that Q2 might be revised to a negative number (details here).

(3) Taking the temperature

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The US economy is slowing. Things might get exciting if this continues.

Summary: In an this time of almost unprecedented economic intervention by governments — experiments on a scale never before attempted during peacetime — determining the state of the economy is difficult. Determining the near future of the economic is almost impossible. Determining the distant future requires psychic powers. Today we continue our series of looking at the data and guessing about the future.

“It’s hard to make predictions, especially about the future.”
— Aphorism, origin unknown



  1. Accurate economic forecasting is difficult.
  2. The recovery takes a nap
  3. What happens if the US slides into a recession?
  4. Look at the big four indicators
  5. What is a recession?
  6. Other posts in this series
  7. For More Information

(1) Accurate economic forecasting is difficult

“The worst is behind us. … And what did the worst do to us? Slowed growth to 0.5% in one quarter. Boo frickin hoo.”
— M Simon of the Classical Values website, mocking my warnings about the economy. Said on 27 August 2008, just as the economy was about to go off a cliff

The US economy is large, complex, and rapidly changing. Economic theory is immature. Our economic data collection agencies are grossly underfunded. The combination makes accurate forecasts almost impossible, especially detecting inflection points. Even economists find it difficult, proven by the record shown by surveys of economists. The best known are the Blue Chip Financial Forecasts and the Wall Street Journal’s Economic Forecasting Survey (available to non-subscribers here). Neither has ever forecast a recession.

(2) The recovery takes a nap

The US economy has been growing at 2% – 2.5% since 2010, with slow periods met by government action (fiscal or monetary stimulus). The last two quarters were slow growth: real GDP grew 0.4% in Q4 and 1.8% in Q1. Q2 looks to be another slow quarter. The consensus was +2% before the June data started to come in; now estimates are dropping fast (updated July 19):

We use the finest forecasting tools

  • Credit Suisse: +1.1%
  • JP Morgan: +1.0%
  • Bank of America -Merrill: 0.9%
  • Goldman: +0.8%
  • Macroeconomic Advisers: 0.6%
  • Barclays and Royal Bank Scotland: +0.5%
  • Morgan Stanley: 0.3%

We are in trouble if the theory about a “stall speed” is correct — that slowing below roughly 2% increases the odds of a recession. On the other hand, forecasts for second half and 2014 GDP are not being cut, so the gap between first half and second half GDP is widening fast — reflecting confidence about the transient effects of higher taxes, the sequester, higher oil prices, and higher interest rates. Also confidence that consumer spending and business investment will accelerate in the second half of 2013. And, above all, confidence about the wealth effects supposedly created by QE3 (more on this on another day).

In May there were many forecasts for 4% GDP growth in 2015. Now the consensus forecast is 3.0%. Hopes for a boom have dimmed, or been pushed into the future.

(3) What happens if the US slides into a recession?

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Did the US fall into recession during 2012? Are we in recession today?

Summary:  In September 2011 the Economic Cycle Research Institute (ECRI) made a bold forecast of a recession in 2012 for the US economy, unlike the late 2012 boom expected by most economists. The boom never arrived, but perhaps neither did the recession. Today ECRI updates their forecast. Much depends on what the US economy does in 2013.

We use the finest forecasting tools


  1. Introduction
  2. The latest ECRI report
  3. About the ECRI
  4. Leave a Comment!
  5. For More Information

(1)  Introduction

Here is an important report, somewhat technical but deserves reading in full: “The U.S. Business Cycle in the Context of the Yo-Yo Years“, Lakshman Achuthan, Economic Cycle Research Institute, 5 March 2013 — It’s a brief, less-technical version of the report provided to subscribers (it’s a very expensive service, well-worth the money). Summary:

We are now in the Yo-Yo Years as described by ECRI early last year. Meanwhile, even though some economic data seems stronger on the surface, U.S. Nominal GDP growth is recessionary and we are below a “stall speed” measure highlighted by the Fed.

But first some context about economic forecasting, experts, and the role of consensus thinking in science.

(a) We know where the economy was 3 – 6 months ago, not where it is today. Accurate real time data (eg, new unemployment claims) tends to cover only fragments of the economy. Broad macro data has large error bars and often gets drastically revised — especially at inflection points.

(b)  Accurate economic forecasting lies beyond the current state of the art due to immature theory and the low quality of current data. Plus the rapid evolution of monetary economies makes building reliable models a moving target.  But we need forecasts, and economists do the best they can with available tools.

(c)  Experts’ forecasts tend to come from deeply biased sources, usually optimistic. Government officials value moral-building over truthfulness. Industry sources, such as realtors and investment banks, use bullish reports to boost their business.  The highly political nature of economic policy-making produces more strongly biased forecasts (often contrary to current economic theory).  Hence the value of independent sources like the ECRI (and their peers at the Conference Board and OECD).

(d)  Peoples’ need for certainty and the unreliability of experts fuels the crowd of amateur forecasters, most armed with more self-confidence than knowledge. It’s sad that this junk food for the mind finds such large audiences, since the Internet makes excellent analysis so accessable.

(e)  The monetary and fiscal stimulus applied during the past 5 years has no precedent during peacetime US history, and few precedents anywhere among the developed nations. The size of the stimulus has overwhelmed many market-based indicators of economic health, and perhaps introduced as yet unseen distortions and stresses. This had reduced the effectiveness of the traditional indexes of leading indicators (the ECRI’s WLI, the OECD’s CLI, and the Conference Board’s LEI).

(f)  As often in the sciences (and life) powerful insights often arise not in the consensus but among the fringe of expert opinions. Which brings us to the ECRI. In September 2011 they boldly predicted a US recession in 2012. They’ve repeated that forecast (see links at the end). Today they have updated their forecast, taking a stand against the consensus forecast of a strong recovery late this year and more rapid growth next year (just like the similar wrong consensus forecasts for 2011 and 2012).

(2)  Excerpts from the latest public ECRI report


It is now well known from the Reinhart and Rogoff work that, following financial crises, economies tend to experience unusually weak growth. But what this pattern suggested, even before the financial crisis, is that we were set to see a weak economic recovery, in any case.

Because the weakness of the revival from the Great Recession is almost universally blamed on the financial crisis, there is a broad consensus that the economy will return to much stronger trend growth after the deleveraging phase ends. But the implication of “the yo-yo years” thesis is that there is no clear reason for this longer-term pattern of weak growth to go away, even when deleveraging does come to an end. Indeed, the current evidence suggests that we are already in the yo-yo years for the U.S. and most other major developed economies.

It was against this backdrop, in late September 2011, that ECRI made a recession call. A couple of months later, in December 2011, we clarified our view of the likely recession timing, saying that we thought it would begin by mid-2012, but not be recognized before the end of 2012.

We said this because, over the last six recessions, the median lag between the recession start date and the first negative real-time GDP print had been half a year . As it happened, in January 2013 there was a negative GDP print, consistent with our belief that the recession had begun around mid-2012.

Nominal Gross Domestic Product (GDP)

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Did the recession begin in July? If so, expect an ugly 2013!

Summary:  Many US economic indicators have fallen off their peaks, some entering typical pre-recessionary levels. That’s bad, since the fiscal deficit and unemployment are already at recessionary levels. That’s a ugly place to start the downturn.  And the it might have already begun.

The hot-flying US economy

The hot-flying US economy


  1. The ECRI says the recession began in July
  2. About the ECRI
  3. Economist Gary Shilling also sees a recession
  4. Updates
  5. About Economic Statistics & Forecasts
  6. For More Information

(1) ECRI: the recession began in July 2012

The ECRI is one of the leading US economic forecasting groups. This is a follow-up to their prediction of recession in 2012 made in September 2011, described here.


The Tell-Tale Chart
Excerpt from a press release of the Economic Cycle Research Institute (ECRI), 29 November 2012.

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.

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It’s the end of the world we’ve known since WWII (updated status report)

Summary:  This is an updated status report about the end of the post-WWII world.  The global recession has accelerated the transition, revealing the current order’s weaknesses, and showing the people in the emerging nations that they have outgrown it.  The major nations continue to defend the current systems, a futile effort wasting time and resources that could be better spent adjusting to the new world now evolving.  This post updates previous posts in this series; links appear at the end.

By S. D. Siegel


  1. Decline follows the peak, as night follows day
  2. What happens next?
  3. Can we predict the form of the new world order?
  4. For more information

(1)  Decline follows the peak, as night follows day

Thou know’st it’s common; all that lives must die,
Passing through nature to eternity.
— Queen Gertrude to Hamlet (Act I, scene 2)

The post-WWII era peaked in the 1990s, with the end of the Soviet Union in 1991, the crushing of the emerging nations in 1997-98 (leading to their search for new systems), and the trough of WTI crude oil at $12 in 1998.

Decline started soon after, resulting from structural flaws in the major nation’s political processes.  Symptoms include:

  • growing domination of the financial sector in the politics of US and Europe (eg, the failure of regulators to rein in the technology and housing bubbles before they burst),
  • the ill-designed stage 3 of the European Monetary Union started in 1999,
  • Bush Jr’s tax cuts in 2001 and 2003 undercut the solvency of the US government,
  • the US reaction to 9-11: the War on Terror’s massive changes to America’s internal political regime and external grand strategy, and
  • the major nation’s inability to craft effective energy policy in response to the first signs of global oil production peaking (eg, rising oil prices).

The decline so far consists of two sets of interrelated dynamics.  First, a reversion to the mean of history:  the center of economic power returns to the East, ending a few hundred year long aberration.

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Is there a dark swan event ahead for the American economy?

Summary:  Europe is slowing fast.  Asia may be slowing.  Both trends are closely watched.  But despite its fantastic fiscal and monetary stimulus, there are tentative signs that the US is slowing.  Here we look at one expert team’s forecast of a recession.  If they’re right we’d enter this recession with a 7% fiscal deficit and high unemployment.  It would be a black swan event, with the government having few tools to mitigate it.

Here are three reports from the Economic Cycle Research Institute, a well-respected independent shop.  They publish the Weekly Leading Indicators, one of the three best-known leading indicators (the other two are by the OECD and Conference Board; see The Economist for details).  They expect a US recession in mid-2012.

(1)  Their original bold forecast:  “U.S. Economy Tipping into Recession“, 30 September 2011 — Excerpt:

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. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not “soft landings.”

… 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.

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We have an economic recovery. It costs $1.1 trillion per year – and might still fail

Summary:  Many economists and pseudo-experts forecast not just the long-anticipated “v” recovery, but an acceleration of the current good news into a boom.  Before we pop the corks, let’s look at the recovery, what the recovery cost us,  and how we’ve spent this expensively bought time.

What happened in 2011?

  • 1.8 million new jobs (from the current employment survey)
  • Increase in personal income of $576 billion
  • Increase in annual GDP of $965 billion
  • Cost of this recovery:  $1,057 billion of new Federal debt

The recovery is real.  Government spending sustains the economy while households pay down (or default) on their excess debt.  The recovery is real, just like the recovery of a patient in a hospital’s intensive care ward.  Wired and tubed, fluids flowing and machines humming, the patient feels fine.

  • What happens when we disconnect the patient?  Code Blue!  Immediate medical attention needed!
  • What happens if the US cuts spending to reduce the deficit? Code Blue!  Instant recession.

Let’s look at the big picture

In 1929 – 1932 our leaders did everything wrong, since they had no reliable theory to guide them.  In 2008-2009 we faced a similar situation but successfully applied costly lessons learned during the Great Depression.  We passed that test.  The second phase was more difficult, and we may have botched it.

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