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At the end of last September marquee economic business cycle research and forecasting group ECRI (Economic Cycle Research Institute) declared that a new U.S. recession was imminent, and that there would be nothing that the government, including the Federal Reserve, could do to prevent it.

Since that time the economy has actually picked up a bit, seeing fully two quarters of stronger-than-expected GDP and employment growth. Despite this, ECRI managing director Lakshman Achuthan reaffirms the position that in a free market economy, government action can not change the business cycle.

But is this really true? And perhaps more interesting, does he actually even really believe this?.

Let's take a look at his own words as recent as 2008 regarding the Great Recession:

Source: CNNMoney Slowdown Could Have Been Avoided

That article continues...
He argues that the economic stimulus package passed by Congress this year is too late to help many consumers and businesses and that the Federal Reserve was too timid when it started trimming interest rates last fall.

Since then the Fed has aggressively cut rates, most recently lowering them by three-quarters of a percentage point at its meeting Tuesday.
Financial pain hits close to home

"If they had done all this in the fourth quarter, I think we'd be having a different discussion," he said. "We might not have had Bear," he added, referring to the fire sale purchase of brokerage firm Bear Stearns (BSC, Fortune 500) by JPMorgan Chase (JPM, Fortune 500) that the Fed helped arrange over the weekend to avoid a collapse of Bear Stearns.

The ECRI, which forecasts a number of key economic readings such as employment, inflation and production from various business sectors, had been reluctant to join the rising tide of economists arguing that the economy has fallen into a recession. But it changed its call Thursday.

Achuthan said the tipping point for his firm's recession call was when its leading index for non-financial services, a sector of the economy that accounts for 62% of jobs, turned negative.

Although Achuthan said he saw weakness in the U.S. economy last fall, he did not make a recession forecast at that time because he thought it was possible the government could have done something then to prevent a recession.

(Larger font size added for emphasis)

So Achuthan states now that he does not believe governments can stave off recessions, but did so in 2008. Interesting. I suppose in his defense this apparent discrepancy requires some explanation that is plausible, but hopefully not so complex as to knot him up into a pretzel.

In the simplest of possible plausible explanations, perhaps Achuthan actually does believe that governments have the capability of managing the business cycle, but continually fail to do so because of the inherent dysfunction of governments.

But this would be at least in some conflict with what the ECRI's most recent assertions have been:

Revoking Recession: 48th Time's the Charm?
May 09, 2012

For the last three months, year-over-year growth in real personal income has stayed lower than it was at the beginning of each of the last ten recessions. In other words, this is what personal income growth typically looks like early in a recession.

Has personal income growth ever remained this low for three months without the economy going into recession? The answer is no.

The chart depicts real personal income growth over the last 60 years, with vertical shaded bands representing recessions, and the horizontal black line marking its latest reading. Except for three one-month dips[i], income growth has not been nearly this weak in 60 years without a recession – and certainly never for three months in a row.

So how can this be happening with such an accommodative Fed? After all, in spite of more “money printing” than anyone has ever seen, actual U.S. economic growth – including income and job growth – is slowing. In fact, in the last 60 years we have not seen a slowdown where year-over-year payroll job growth has dropped this low without a recession.

The unfortunate reality is that Fed is “pushing on a string.” But, in any case, the larger point is that the business cycle cannot be repealed in a free-market economy. Yet most people think recessions amount to some sort of “failure” and, if policy makers just did the “right thing,” they could stave off recession indefinitely, meaning they could get rid of the business cycle. Ironically, one hears this from many proponents of the free market, even though the business cycle is part and parcel of how every free-market economy operates.

In the past 222 years, the U.S. economy has experienced 47 recessions. So, are we to now believe that if the Fed prints enough money, it can postpone the 48th recession indefinitely? Is it plausible that, in an era of deleveraging and very weak income growth, more money printing and borrowing will increase consumption enough to keep the economy out of recession?

As students of the business cycle, we admit to being hopelessly biased in our belief that it is simply not possible to repeal recessions in market economies. It is not whether there will be a recession, but when. And ECRI’s indicators are telling us that a recession is likely to begin by mid-year, if not sooner, though this may not become obvious until the end of the year.

[i]As the chart shows, there was a one-month spike down in income growth below its current reading in December 2005 due to the comparison with December 2004 data that included a one-time $32 billion dividend payout from Microsoft. Owing to concerns about tax law changes during the Clinton administration that induced people to move as much of their earnings as possible from early 1994 into December 1993, the resulting adverse comparison made December 1994 income growth show a one-month drop down almost to its current reading. Finally, President Clinton’s election also caused people concerned about tax hikes to shift as much of their earnings as possible to December 1992, causing earnings to then fall through March 1993, which therefore shows a one-month dip in earnings growth to just below the current threshold.
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As the economies around the world teeter once again, with many already having slipped into "Growth Recession" if not outright technical recession, and with many more looking at the real possibility of outright recession in 2012 and 2013, "the recession" in 2011 was seeming mild by way of comparison to what could be lurking just around the corner.

Will "Recession 2012" look as bad as "The Great Recession" of 2007-2009? Could we skirt by this time without a full-on economic death spiral? Will the economy get better by election day? Or will Obama lose the election for economic reasons? (Presidential elections are usually won or lost for base economic reasons in this country, after all).

Stay tuned. I think it's fair to say that it is going to continue to be a pretty wild ride for the world economy for some time to come. Recession 2013? Recession 2014? Did the Great Recession ever really end in the first place? Many think not!

ECRI Weekly Leading Index
Has a moderate lead over cyclical turns in U.S. economic activity. Data begins in 1967.

Recent Data

Date Level Growth

Jun 29 '12 121.9 -2.9
Jun 22 '12 121.7 -3.2
Jun 15 '12 121.5 -3.2
Jun 08 '12 122.1 -2.8

ECRI Calendar

March 22, 2012
Frankfurt Conference

ECRI will participate in the Bloomberg Sovereign Debt Conference in Frankfurt on March 22, 2012.

Crude Oil 1Yr Chart


State Coincident Index
3-Month Change

Is your state essentially in expansion or recession?
Lt Green-Dark Green: Growing-Faster.
Gray: No growth.
Pink-Dark Red: Contracting-Faster.

What is the
definition of recession?

According to the laypress, and even many economists, a recession is defined as two consecutive quarters of negative GDP (Gross Domestic Product). While this very simple definition is usually the case during recessions, it is not always so.

Most experts now acknowledge that GDP alone is an insufficient determinant of recession.

For one, GDP is often revised several quarters - even years - later, as more complete information becomes available that changes the components of the earlier, initial GDP estimates in what can be very substantial ways.

For another, not all serious downturns exact as serious a toll on GDP. Often, the decline is much more pronounced in GDI (Gross Domestic Income) and/or employment. If the income or employment of a nation is undergoing a pronounced, pervasive and prolonged decline even if for whatever various reasons its GDP may be holding up, is it not foolish to deny that a recession is underway?

For these reasons and others, the NBER (National Bureau of Economic Research), the official arbiter of recessions and expansions in the United States, determines whether or not the US has fallen into recession using a much more holistic approach.

As the NBER explains it:
Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?

Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. In 2001, for example, the recession did not include two consecutive quarters of decline in real GDP. In the recession beginning in December 2007 and ending in June 2009, real GDP declined in the first, third, and fourth quarters of 2008 and in the first quarter of 2009. The committee places real Gross Domestic Income on an equal footing with real GDP; real GDI declined for six consecutive quarters in the recent recession.

Q: Why doesn't the committee accept the two-quarter definition?

The committee's procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP and real GDI, but use a range of other indicators as well. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in activity." Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates. The differences between these two sets of estimates were particularly evident in the recessions of 2001 and 2007-2009.

Q: How does the committee weight employment in determining the dates of peaks and troughs?

In the 2007-2009 recession, the central indicators–real GDP and real GDI–gave mixed signals about the peak date and a clear signal about the trough date. The peak date at the end of 2007 coincided with the peak in employment. We designated June 2009 as the trough, six months before the trough in employment, which is consistent with earlier trough dates in the NBER business-cycle chronology. In the 2001 recession, we found a clear signal in employment and a mixed one in the various measures of output. Consequently, we picked the peak month based on the clear signal in employment, as well as our consideration of output and other measures. In that cycle, as well, the dating of the trough relied primarily on output measures.

Q: Isn't a recession a period of diminished economic activity?

It's more accurate to say that a recession–the way we use the word–is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when economic activity is contracting. The following period is an expansion. As of September 2010, when we decided that a trough had occurred in June 2009, the economy was still weak, with lingering high unemployment, but had expanded considerably from its trough 15 months earlier.

What is a
"Double Dip Recession"?

In the most general sense a Double Dip Recession occurs when an economy falls back into contraction for at least a couple of months (usually at least six) after a relatively brief expansion.

By this definition, the recession of 1981-82 which followed a year-long expansion after the very short, two quarter's long 1980 recession, seems to qualify. Also by this broad definition, the 1937 recession that occurred four years after the end of the 1929-1933 recession also qualifies. While each of those were technically "new" recessions, they happened so soon after their predecessors that many people tend to think of the separate 1980 & 1981-82 recessions as one nasty, long recession. Similarly, most people think of the 1929-1933 & 1937 recessions as encompassing "The Great Depression."

Another definition of a "Double Dip Recession" would be that of a recession which technically has not ended, and was only punctuated by a quarter or twos worth of head-fake rise in GDP. Many recessions throughout history have had such false hopes, only to swoon back down into contraction, until they finally came to an end.

List of Recessions:
Post-1900 US Recessions

Mo/Yr Started Duration
Sep 1902 - 23 Months
May 1907 - 13 Months
Jan 1910 - 24 Months
Jan 1913 - 23 Months
Aug 1918 - 7 Months
Jan 1920 - 18 Months
May 1923 - 14 Months
Oct 1926 - 13 Months
Aug 1929 - 43 Months
May 1937 - 13 Months
Feb 1945 - 8 Months
Nov 1948 - 11 Months
Jul 1953 - 10 Months
Aug 1957 - 8 Months
Apr 1960 - 10 Months
Dec 1969 - 11 Months
Nov 1973 - 16 Months
Jan 1980 - 6 Months
Jul 1981 - 16 Months
Jul 1990 - 8 Months
Mar 2001 - 8 Months
Dec 2007 - 18 Months

What is
Gross National Happiness (GNH)?

An alternate measure of a nation's wealth was conceptualized several decades ago as a means of cutting through the overemphasis on materialism of traditional wealth measures, and seeing the bigger picture.

According to GNHUSA.Org

  Gross National Happiness (GNH) is an indicator developed in Bhutan in the Himalayas, based on the concept elaborated in 1972 by the then King Jigme Singye Wangchuck. Since then, the kingdom of Bhutan, with the support of UNDP (UN Development Program), began to put this concept into practice, and has attracted the attention of the rest of the world with its new formula to measure the progress of a community or nation.

GNH is based on the premise that the calculation of "wealth" should consider other aspects besides economic development: the preservation of the environment and the quality of life of the people. The goal of a society should be the integration of material development with psychological, cultural, and spiritual aspects - all in harmony with the Earth.

The Four Pillars of GNH

  • the promotion of equitable and sustainable socio-economic development
  • the preservation and promotion of cultural values
  • the conservation of the natural environment, and
  • the establishment of good governance.


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