Friday, March 30, 2012

ECRI's got some more 'splainin to do

- by New Deal democrat

I feel kind of bad continuing to pick on ECRI. Their 2009 end-of-recession call was a once in a generation bullseye. I appreciate their approach. I even understand, if I don't like, their need for a black box.

But nobody's perfect. I certainly haven't been. And the evidence contrary to their recession forecast continues to accumulate.

First, here's Lakshman Achuthan on Bloomberg, on December 8, 2011:
Achuthan also noted that “the other half of the GDP report,” gross domestic income or GDI (which tends to be the more accurate measure of GDP) was up just 0.3% in the most recent quarter [NDD note: Q2 2011]. The Federal Reserve has observed that when GDP and GDI differ, the GDP figure tends to be revised toward GDI, not the other way around. Achuthan warned that the GDI figures are “a big red recession signal.”
Here's the BEA, yesterday:
GDI Q3 up 2.6%
GDI Q4 up 4.4%
Secondly, today ECRI's WLI rose to 0.0. According to their founder, Prof. Geoffrey Moore:
[T]he first signal of recovery ... is set off when the six month smoothed rate of change in the leading composite first goes above +1.0%."
At the rate the WLI has been rising, it will be above 1.0 in two or three weeks.

And their coincident index, which he relied upon in his March 16 reiteration, climbed above 2.0 in February and apparently climbed further this month.

In fairness to ECRI, two of the four indicators of recession are quite weak -- real income has turned negative since December and industrial production was flat in the last month -- so ECRI's call could still prove correct, but more and more of their own arguments seem to be turning against their forecast.