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Should We Take ECRI's Recession Call Seriously?

We reported this past week on ECRI's assertion that the recession began in July 2012. I have discussed it in my weekly summary post, but I have never expressed an opinion concerning the validity of ECRI's call.

Most of my compatriots have written off ECRI's recession call for a variety of valid reasons - most of which revolve around their own forecasting tools which are giving a different answer. We at Econintersect also have our forecasting tools - but I am open to exploring the possibility that we are in a new recession.

Consider that this is not 2007 with massive economic imbalances. This is 2012, with:

  • the effects of the stimulus wearing off,
  • austerity beginning to bite in the public sector,
  • a looming fiscal cliff whose solution will not be good for the near term economy,
  • the ground wars in Afghanistan slowing and ended in Iraq (meaning slowing military spending),
  • Europe failing economically,
  • China and India slowing

This may be the perfect storm part II - HOWEVER there are few imbalances except those which have not cleared yet from the last recession. So my question is more delicate - would we even feel like we were in a recession? My position continues to be that the new normal may be giving the wrong answer to traditional forecasting tools - including ECRI's.

So in the new normal, do not discount anything - but believe nothing.

The Econintersect economic forecast for December 2012 shows weak growth. The underlying dynamics continue to have a downward bent. There are recession markers still in play, and one of our alternate methods to validate our forecast is recessionary. All in all, not a great forecast - but not one which would cause you to jump out the nearest window either.

ECRI believes the recession began in July 2012. ECRI first stated in September 2011 a recession was coming . The size and depth is unknown. The ECRI WLI growth index value is enjoying its thirteenth week in positive territory (but at a ten week low this week). The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

/images/z weekly_indexes.PNG

Initial unemployment claims fell again from 410,000 (reported last week) to 393,000 this week. No Hurricane Sandy effect in this week's data. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here).

The real gauge - the 4 week moving average - rose significantly from 396,250 (reported last week) to 405,250. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge. This is the highest 4 week average in over one year, and is up 3.3% year-over-year.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2010 (blue line), 2011 (red line), 2012 (green line)

/images/z unemployment.PNG

Bankruptcies this Week: Dewey & LeBoeuf, Safeguard Security Holdings

Data released this week which contained economically intuitive components (forward looking) were:

  • Rail movements (where the economic intuitive components indicate a moderately slightly expanding economy).
  • Personal income fell again this month.

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Weekly Economic Release Scorecard:
India: GDP Falls to 5.3%
SF Fed: Infrastructure Spending Has Big Multiplier
A Tale of Two Countries
A Streetwise Hercules at the Bank of England
Forexpros Weekly Wrap-Up 30 November 2012
What We Read Today 30 November 2012
Fed's Balance Sheet: 28 November 2012: Balance Sheet Up $1.8 billion
Yah Baby - ECRI Says The Recession Began In July 2012
Chicago Purchasing Managers Barometer Turns Positive in November 2012
October 2012 Real Personal Income and Expenditure Contracts
Infographic of the Day: Women in the Workforce
Rail Week Ending 24 November 2012: Coal Is A Growing Headwind for Rail
Another Open Letter to Mitt Romney
How to Use Real Estate Exchanges
Economic Forecast December 2012: Main Street Continues to Cool
France Threatens to Nationalize Mittal
What We Read Today 29 November 2012
Kansas City Fed: Manufacturing Activity Declines Again in November 2012
October 2012 Pending Home Sales Shows Even Stronger Home Sales Coming
24 November 2012 Unemployment Claims: Now 3.3% Higher than Same Week in 2011
Second Estimate 3Q2012 GDP Improved Because of Inventory Growth
Infographic of the Day: Plastic Bags Are Suffocating the World
The Present Crisis, A Pattern?
Top Mid-Cap Growth Funds: Consensus Stock Picks
Congress Absolves Corzine
The Bank of Canada Governor is Wrong on Too Big To Fail and Wrong on Canada's Banking System
Company Year End Partying Increases in 2012
Is Monetary Policy Being Thwarted by Consumer Debt Overhang Ending?
November 2012 Beige Book: Shows Some Manufacturing Contraction
What We Read Today 28 November 2012
October 2012 New Home Sales Are Not As Good As Previous Months
Home Price Index (NYSE:HPI) Rises 1.1% in 3Q2012
Nonfinancial Leverage NFCI Relatively Unchanged w/e 23 November 2012
Why is Spain's Unemployment Rate So High?
Infographic of the Day: Divorce in America
Accounting for the Environment in Europe: Progress and Lessons
Capital Formation and the Fiscal Cliff
Debt Crisis Solutions are Leaving Investors Behind
Primary Dealers Are Buying Corporates, A Bullish Sign For Stocks
3Q2012 Household Debt Continues to Contract
Inequality Is Killing Capitalism
What We Read Today 27 November 2012
Philly Fed USA Coincident Index Continues to Show Growth in October 2012
November 2012 Conference Board Consumer Confidence at Post Recession High
Richmond Fed Manufacturing Activity Shows Moderate Growth November 2012
Chicago Fed Midwest Manufacturing Index (CFMMI) Declines Again in October 2012
Case-Shiller Home Prices Show 3% Gain YoY in September 2012
Durable Goods New Orders Improves In October 2012
Stratfor: Gaza, Catalonia and Romantic Nationalism
infographic of the Day: Flue Vaccinations at Work
Update on Post-Sandy Condition and Election in America
de Tocqueville in China
OECD Slashes Global Growth Forecast
Glimmer Of Hope Seen In Covered Call Trading
Average Gasoline Price Rise Slightly in Week Ending 26 November 2012
Big Banks Use the Shadow Banking System to Commit Massive Accounting Fraud
What We Read Today 26 November 2012
Walter to Head SEC
Texas Manufacturing Still Positive November 2012, but Just Barely
CFNAI Super Index Sinks to Near Recession Levels in October 2012
Household Services Expenditures Remain Weak More Than 3 Years After Recession End
Infographics of the Day: Investor Sentiment vs Stock Price
Gold Confirms Transition to Bullish Translation
Cameron: The EU Itself Needs Austerity
Five Ways to Turn the Fiscal Cliff Into an Outstanding Investment Opportunity
Catalonia Separatists Gain Victory, Weaken Position
Unemployment Claims Recovering from Superstorm Sandy
Insider Trading 23 November 2012: Big Jump in Insider Selling
What We Read Today 25 November 2012
Coming Weeks' 10 Market Movers: Their Big Lesson For 2013
Sunday Economic Comedy: A 1955 View Of Home Economics
Infographic of the Day: Holiday Shopping In the USA
What To Do When Signal:Noise is Greater than One?
Online Holiday Shopping from Work: 50% Do It
The Other Lost Colony
European Banking Union Proposal
EUR/USD Technical Analysis
The Twinkies Effect On Employment
China: Balancing Political Ideology and Economic Pragmatism
Final November 2012 Michigan Consumer Sentiment Revised Significantly Down
October 2012 Leading Economic Index Rises Slightly
Silver to Decline

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.