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