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« Reader Help Sought | Main | Good Ideas and Possible Trades: Europe and More »

October 22, 2011



Angel -- I think that copper prices and the stock market are also included.

A problem is that other recession sources have equally good records (but perhaps are not as good at PR). It is difficult to evaluate track records when there are so few cases to predict.

As to positioning for a recession, there is always a lot at risk either way. This is what makes it worth spending some time on.

Thanks for the comments and the link.



John -- Thanks for the suggestion. It seems interesting and certainly worth some study.



bfuruta -- Thanks for your observations and the links. I am working on an article where I will do a more comprehensive comparison of the alternatives. I have read the ECRI book and followed the news coverage. There are also some helpful early papers.

But why should this be so hard? If the public data series is intended to be meaningful, we need to know how to interpret it.

More later -- and thanks again.


Angel Martin

bfuruta, in his many media appearances, Achuthan stated that contagion in the forward looking indicators is the basis of the recession call. The difficulty is that these forward looking indicators are not public.

At about 3:35 when speaking about contagion in forward indicators he references non-financial services, manufacturing and exports as all plunging together and feeding off each other in a downward spiral.

now, we don't know what forward indicators ecri is using for those sectors but i we guess that they include things like temp help employment, manufacturing overtime hours, new orders, overseas shipping bulk container rates, etc. maybe stock prices for companies in those sectors...

We also don't know what statistical tests they use to determine when common movements down in the forward indicators constitutes "contagion".

I want to be cautious when using the results from someone else's "black box". At the same time, the ECRI track record is good enough that I don't want to be positioned such that I need ECRI to be wrong about the recession call.


Thanks again for a good post Jeff.

Are you familiar with the Ifo Business Climate? It is an index measuring the business climate in Germany. You might want to take a look at it as it brings some perspective to the situation in Europe:

I personally like the Business-Cycle Clock.


Jeff, I have a comment on the ECRI public indicators. In their book Beating the Business Cycle and in this interview,
they say that the Growth rate is not used to forecast a recession. The growth rate cycle is different from the economic cycle of recessions and expansions. The WSJ article you mentioned, as well as most commentators, use the growth rate when considering whether the ECRI data indicates a recession is likely. Instead the WLI needs to be in a pronounced, pervasive (the details for that are not public), and persistent down trend. In this interview, , Achuthan says persistent is 3 months. Last summer 2010, while the growth rate was very weak below -10%, the WLI fell from high to low in 10 weeks—not persistent. This summer 2011, the WLI high was 04/21/11 and may still not have hit bottom. They made the recession call public 23 weeks after the high in the WLI, and they told their subscribers one week earlier, 22 weeks after the prior WLI peak. That is more than 3 months, but the indicator did not go straight down in that period.

I think you have put too much weight on the Long Leading Indicators. They give advance warning, but they aren’t the main basis of the recession call. The main information that we are missing is the pervasiveness of a decline in the WLI components. Much confusion comes from attending to the Growth rate in assessing recession risk.

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