During my travels last week I was fortunate to catch an excellent CNBC interview with Lakshman Achuthan of the Economic Cycle Research Institute (ECRI). The ECRI gets a lot of recognition for recession forecasting because they have avoided "false positives," a problem with many other approaches.
Analysts with a bearish bent sometimes take comments from the ECRI and apply their own interpretation, thereby undoing the careful work of the researchers. We have pointed this out in past discussions.
In a typically astute and useful interview, Lakshman pointed out the flaw in using year-over-year data to interpret current indicators. He showed that a more sophisticated analysis reveals a more significant decline in economic indicators, something that already gets plenty of attention from the media and the bearish wing of the blogosphere.
The CNBC spin was negative, and they were cutting away to view the CEO's from the auto companies reporting on their visit with the President, so viewers had to listen carefully to get the key point.
Lakshman emphasized that the data he was reviewing were coincident indicators. When specifically asked about whether they were forecasting a recession, he said they were not, at least not for "three or four quarters" which is as far as they predict.
Thanks to the excellent TVEyes service, you can watch the entire interview for yourself to check this out.
Market participants continue to struggle with the concept of recession odds. They seem not to understand that there is always some chance, about 20%, of a recession from unexpected economic shocks. In a time when the Fed is slowing the economy to something below the normal trend growth rate, a bit over 3% real growth, those odds may creep up a bit. It does not mean that we need to hunker down and prepare for doom and gloom, despite the ongoing cycle of market negativity.
