Monday, October 3, 2011
ECRI Calls For New Recession
This is a really good interview. You should watch the whole thing. Here are the main points
1.) Yes, there was an expansion. You don't create over 1 million jobs in a recession. However, total establishment jobs are still about 6.8 million below previous levels.
2.) Initial claims have yet to move below 400,000 in a big way. This indicates the labor market is in very weak shape.
3.) Exports were a primary driver of the last expansion. Because Europe and Asia are now slowing, this primary reason for the expansion is going away. Both note that copper has taken a nosedive and is now in recessionary territory.
4.) Because of the breadth of the downturn in their indicators, a recession is inevitable.
5.) He highlights that recent experience (1980-now) has been abnormal from a business cycle perspective. Shorter expansions (2-4 years) are more the historical norm. Here is a link to the NBER's recession dates, which confirms this statement.
There are three reasons why I disagree with his argument.
1.) Employment is already very weak. More importantly, companies cut a vast amount of jobs in the recession. Simply put, there just isn't much more fat they can cut. I don't see how we can have a massive amount of lay-offs leading to a spiraling downward in purchases leading to lower production etc...
2.) Housing is already very weak -- in fact, it never really recovered at tall. As NDD points out, you can't really have a recession if housing doesn't cooperate.
3.) The big Asian economies (India and China) are still growing at incredibly strong rates. While a slowdown is in the cards for both, the slowdown will be from high levels of growth (8%-10%).
The other "issue" I have -- and that's a poor word to use but the only one I have -- is, to my knowledge, ECRI hasn't formally released their methodology. Part of that's understandable -- they have a proprietary system that, so far, has been pretty good. But when you're making calls for a new recession, I'd like to see the data you're using the market the call.