Monday, September 19, 2011

Rut Roh Raggy - ECRI's Lakshman Achuthan Says U.S. Skating on Thin Ice and Risk of Recession is Quite High - Doctor Copper Might Agree

I've been following the thoughts/predictions of ECRI quite closely the past few years, as their modeling, has been amongst the best, if not the best, on predicting economic conditions in the U.S.  They ratcheted down expectations for the U.S. economy significantly in spring, way ahead of the Wall Street curve who was drinking the Bernanke Kool Aid of 'transitory' slow downs.  As of late August they were not ready to make a recession call - and still are not ready to do it, but their prognosis seems to continue to degrade.  Mr. Achuthan now believes the risk of recession is quite high, and we should know within 75 days or so.  Of course that is for the economy as a whole - many people in the country never left the Great Recession.

Via NPR:

  • "We are skating on very thin ice," Achuthan tells Guy Raz, host of weekends on All Things Considered.  Achuthan says the jury is still out on whether the U.S. will go into another recession, but he suspects that it will be clear one way or the other by the end of November.
  • Achuthan, co-founder and chief operations officer of the Economic Cycle Research Institute, says all of his economic indicators point to more sputtering ahead.  "The risk of a new recession is quite high," he says.
  • If we do have a double-dip recession, Achuthan says, the people who are already having trouble finding work and paying bills are already in a depression and that they "are going to suffer more."  "It poses massive problems for policymakers because a new recession automatically increases all of these expenditures out of the public sector, while at the same time dramatically decreasing all their revenue," he says. "So there's even less ability to help the people who are hurting the most."
  • Some economists argue that right now we are just in a period of slow growth, not unlike that of the early 1980s. They say there are signs of a turnaround in the near future. 
  • Achuthan argues there is no evidence to support that point of view.  "This is very different than the early 1980s. The issues that ail the U.S. economy and the jobs market today are not things that result from nearby events. What we're living through and dealing with now has been building for decades," he says. "If you look at the data, you see that the pace of expansion has been stair-stepping down ever since the 1970s, on all counts — on production, how much can we produce, how many jobs can we create, how much money do we make, how much do we sell. These are all trending down."
  • So, Achuthan says, "those who were expecting we should have a vigorous recovery had no right to do so."  In fact, he says, it is likely that the U.S. will see more frequent recessions than it's used to for the next five or 10 years. "The best news I can give you is that cycles do turn, but there is going to be a lot of pain in between," he says.

[Aug 29, 2011: Video - ECRI Updates its Thoughts on Potential Slowdown]
[Jun 14, 2011: Video - ECRI's Achuthan - Prolonged U.S. Slowdown Underway]
[Jul 7, 2011: Video - ECRI's Achuthan Sticking to Script that Slowdown is not Transitory]


If you still believe in the forecasting ability of "Dr. Copper" (named as its a commodity used in so many industrial applications), it might be agreeing with the ECRI.  We are seeing 9 month lows (chart below is only thru last Friday)

  • Copper fell to a nine-month low in New York on speculation Europe’s debts are hampering growth, curbing metals demand.  European manufacturing contracted again this month, economists said before a purchasing managers index report this week. 
  • Copper for December delivery fell as much as 13.75 cents, or 3.5 percent, to $3.794 a pound on the Comex in New York, the lowest price for a most active contract since Dec. 1.  Prices in New York have dropped 14 percent this year.

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