ECRI Recession Call 2012: Is the ECRI Recession Call Wrong ?
Recession 2012 Call in Doubt
ECRI Doubles Down on 2012 Recession Call
Forecasts of recession 2012 are seriously in doubt, as very little has definitively pointed to the onset of a new recession this year. Despite this, ECRI, which back in September of last year called for imminent recession, perhaps the first true gun-jumping in the entire 16 year history of that preeminent economic forecasting business, has just double-doubled down on their recession call 2012 last Friday, reaffirming in another Bloomberg interview that by their methodology, a new recession is already underway.
Now let's be clear, no one is saying that this recovery has been stellar. But let us also be honest: no recession since the 1930s was more devastating, and left a deeper GDP Gap, than the Great Recession. As such, any recovery powerful enough to heal this wide and deep wound in just three years would have to be phenomenal.
Unfortunately, recoveries following severe financial crises, which the Great Recession was (ie: not really a garden-variety recession, but rather a depression), are almost always weak, feable, and vulnerable.
So it's been about a year since ECRI made its Recession Call 2011, ten months since ECRI made its Recession Call Q1 2012, seven or eight months since ECRI made its Recession Call Summer 2012, and two months since ECRI first began declaring that Recession 2012 is now underway.
20% Chance that Recession 2012 is Underway
By my own admittedly imperfect estimation, there actually is a chance that a new recession has been underway since July (the very, very, very last month by which a new recession was to start according to ECRI), but I put the odds of recession currently being underway in the U.S. at a statistically low one-in-five.
Several other websites and recognized experts have come out publicly over the past few weeks with even lower odds of current, or imminent, recession. Most notably, RecessionAltert.com, which has created a "Shadow Weekly Leading Index," places the likelihood of imminent recession at just two percent. 2%!!! And that doesn't even touch the idea that a recession is already underway!
What Do The NOW Numbers Really Say?
Many "experts" like to claim that a recession is defined as two consecutive quarters of negative GDP, but there is a very big error with this claim. GDP data is often significantly revised up or down many quarters later when more complete data comes in, and the largest of these GDP revisions usually occurs to initial GDP estimates that came out around economic turning points (the starts of recessions and recoveries).
Sure, many months later these economists get to see benchmark revisions of GDP data covering quarters now usually a year or more in the rear view mirror, but little good that does when it comes to "now-casting." Thus, the two consecutive quarters of negative GDP approach has been tossed out by most economists worth paying attention to, and in fact are not used operationally by the National Bureau of Economic Research's Business Cycle Dating Committee.
So what's an economist to do?
Luckily, there are five primary, monthly, near real-time indicators that economists can watch closely to get some sense as to whether or not a recession has snuck up on them. Even though these indicators are also subject to revisions, generally the revisions are less volatile, especially when these four indicators are watched as a whole, or "basket."
Five Big Near Real-Time Recession/Recovery Indicators
1. Weekly Initial Unemployment Claims (4-wk avg.)
2. Monthly Private Sector Non-farm Payroll (Net Gain/Loss, Seasonally Adjusted)
3. Industrial Production
4. Real Income Less Transfer Payments
5. Real Sales
Weekly Initial Unemployment Claims (4 week avg.)
Above: Initial Unemployment Claims tend to begin rising several months before the onset of a new recession, and then go parabolic once recession is clearly underway.
Presently indicating: Recovery
Monthly Private Sector Non-farm Payroll Net Gain/Loss, S.A.
Above: Net Monthly Private Sector Non-farm Payroll Employment usually begins contracting several months prior, or just heading into, the onset of recession.
Presently indicating: Recovery
Industrial Production (Index, 2007=100)
Above: Industrial Production generally begins going soft, if not rolling over, up to a full year or so prior to the onset of a new recession.
Presently indicating: Risk of recession starting within 12 months
Real Income Less Transfer Payments (Index, 2007=100)
Above: Real Personal Income Excluding Current Transfer Payments generally starts going flat, or outright rolling over, right around the start of a recession.
Presently indicating: Recovery
Real Retail Sales
Above: Real Retail Sales generally turns decidedly negative within the first few months of a recession.
Presently indicating: Recovery
Recession 2012: You Decide
ECRI Doubles Down on 2012 Recession Call
Forecasts of recession 2012 are seriously in doubt, as very little has definitively pointed to the onset of a new recession this year. Despite this, ECRI, which back in September of last year called for imminent recession, perhaps the first true gun-jumping in the entire 16 year history of that preeminent economic forecasting business, has just double-doubled down on their recession call 2012 last Friday, reaffirming in another Bloomberg interview that by their methodology, a new recession is already underway.
Now let's be clear, no one is saying that this recovery has been stellar. But let us also be honest: no recession since the 1930s was more devastating, and left a deeper GDP Gap, than the Great Recession. As such, any recovery powerful enough to heal this wide and deep wound in just three years would have to be phenomenal.
Unfortunately, recoveries following severe financial crises, which the Great Recession was (ie: not really a garden-variety recession, but rather a depression), are almost always weak, feable, and vulnerable.
So it's been about a year since ECRI made its Recession Call 2011, ten months since ECRI made its Recession Call Q1 2012, seven or eight months since ECRI made its Recession Call Summer 2012, and two months since ECRI first began declaring that Recession 2012 is now underway.
20% Chance that Recession 2012 is Underway
By my own admittedly imperfect estimation, there actually is a chance that a new recession has been underway since July (the very, very, very last month by which a new recession was to start according to ECRI), but I put the odds of recession currently being underway in the U.S. at a statistically low one-in-five.
Several other websites and recognized experts have come out publicly over the past few weeks with even lower odds of current, or imminent, recession. Most notably, RecessionAltert.com, which has created a "Shadow Weekly Leading Index," places the likelihood of imminent recession at just two percent. 2%!!! And that doesn't even touch the idea that a recession is already underway!
What Do The NOW Numbers Really Say?
Many "experts" like to claim that a recession is defined as two consecutive quarters of negative GDP, but there is a very big error with this claim. GDP data is often significantly revised up or down many quarters later when more complete data comes in, and the largest of these GDP revisions usually occurs to initial GDP estimates that came out around economic turning points (the starts of recessions and recoveries).
Sure, many months later these economists get to see benchmark revisions of GDP data covering quarters now usually a year or more in the rear view mirror, but little good that does when it comes to "now-casting." Thus, the two consecutive quarters of negative GDP approach has been tossed out by most economists worth paying attention to, and in fact are not used operationally by the National Bureau of Economic Research's Business Cycle Dating Committee.
So what's an economist to do?
Luckily, there are five primary, monthly, near real-time indicators that economists can watch closely to get some sense as to whether or not a recession has snuck up on them. Even though these indicators are also subject to revisions, generally the revisions are less volatile, especially when these four indicators are watched as a whole, or "basket."
Five Big Near Real-Time Recession/Recovery Indicators
1. Weekly Initial Unemployment Claims (4-wk avg.)
2. Monthly Private Sector Non-farm Payroll (Net Gain/Loss, Seasonally Adjusted)
3. Industrial Production
4. Real Income Less Transfer Payments
5. Real Sales
Weekly Initial Unemployment Claims (4 week avg.)
Above: Initial Unemployment Claims tend to begin rising several months before the onset of a new recession, and then go parabolic once recession is clearly underway.
Presently indicating: Recovery
Monthly Private Sector Non-farm Payroll Net Gain/Loss, S.A.
Above: Net Monthly Private Sector Non-farm Payroll Employment usually begins contracting several months prior, or just heading into, the onset of recession.
Presently indicating: Recovery
Industrial Production (Index, 2007=100)
Above: Industrial Production generally begins going soft, if not rolling over, up to a full year or so prior to the onset of a new recession.
Presently indicating: Risk of recession starting within 12 months
Real Income Less Transfer Payments (Index, 2007=100)
Above: Real Personal Income Excluding Current Transfer Payments generally starts going flat, or outright rolling over, right around the start of a recession.
Presently indicating: Recovery
Real Retail Sales
Above: Real Retail Sales generally turns decidedly negative within the first few months of a recession.
Presently indicating: Recovery
Recession 2012: You Decide