Owen B

Where Is the Economy Headed? Four Bearish Views

I have a problem with the way Evans-Pritchard makes his argument, but not necessarily with his conclusions.

>>First a Feb. 2009 Evans-Pritchard article suggested he’s more optimistic (header below), so has he now had a change of heart?

”Recession: glimmers of hope? The first glimmers of hope are starting to emerge across the world, reports Ambrose Evans-Pritchard.

Glimmer of hope: the Baltic Dry Index measuring freight rates for iron ore and other bulk goods has been creeping up for two months after crashing 94pc in the worst fall in shipping history.

The pace of economic decline is slowing. Housing sales are picking up, even if prices are falling. Credit markets have begun to thaw…”

>>Second, his characterization of ECRI’s argument is sloppy, and done in a way that leaves out key facts that don’t support his view.

Evans-Pritchard writes “The Economic Cycle Research Institute (ECRI) says the US recession will be over by summer, insisting that its leading indicators have never been wrong – except once, in the Great Depression. Quite.”

But from a Statement on ECRI’s recovery call (businesscycle.com) we read:

“…In fact, over the last 75 years, growth rate cycle upturns during every recession were followed zero to four months later by the end of the recession itself. No exceptions.

Actually, there’s been only one solitary exception in the data we have examined, which go back well over a century. This was the growth rate cycle upturn of 1930-31, which gave way to a renewed downturn. But, when this growth rate cycle upturn was beginning at the end of 1930, USLLI growth was turning back down, warning that the firming in growth would soon be reversed, effectively opening the door to depression. That’s not the case today.

We know this because the USLLI data go back to 1919, covering not only the Great Depression but also the 1920-21 depression. Another ECRI leading index has a 105-year history, covering not only those depressions, but also the panic of 1907 and the associated 1907-08 depression. All of those leading indexes, which correctly anticipated recessions and recoveries over long periods of history, are now pointing the same way….”

Basically, Evans-Pritchard says ECRI’s leading indexes made a mistake in the Great Depression, but that is a fabrication. Rather the first growth rate cycle upturn in 1931 did not soon turn into a full blown business cycle recovery, but ECRI itself points that out, going on to say that its leading indexes were wise to that outcome, as opposed to being "wrong." An inconvenient fact for Evans-Pritchard?