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» Jas_Jain - Industrial weakness could derail economy

In response to Industrial weakness could derail economy posted by ECRI:

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""The not-too-hot, not-too-cold 'Goldilocks' economy envisaged by many economists could turn out to be a mirage," said Achuthan."

Just a week or two ago, you WERE on of those economists, Lakshman. So, which one is it, what you said on CNBC a week or two ago or the quote in this article?

It would be lot more useful if you could simply characterize the PROBABILTY of a recessaion in 6-8 months. That would make your forecasts lot easier to track than these qualitative remaks, of which I thibnk you have made using more than 50 different terms or phrases.

Thanks for letting us know your latest outlook.

Jas

-- posted by Jas_Jain

» ECRI - Industrial weakness could derail economy

In response to Industrial weakness could derail economy posted by Jas_Jain:

If you are pointing out that we do not have the same forecast near term and longer term then you are right. That is to say that in the near-term the economy looks pretty good, but longer term (sometime in the second half of 2006) there are clouds on the horizon. Two specific concerns that show up in our leading indicators are with softer home prices weighing on the consumer, and slowing industrial growth globally.

-- posted by ECRI

» ECRI - Happy Birthday Lakshman!

In response to Happy Birthday Lakshman! posted by Kirk:

Thanks Kirk :-) and I'll try to pass on the message to Ted.

-- posted by ECRI

» Jim_Kerns - Happy Birthday Lakshman!

In response to Happy Birthday Lakshman! posted by Kirk:

Happy Birthday Lakshman! Better, many more of them as I appreciate your comments, analysis and insights. Thank you very much.

By the way, I just joined this forum (after reading it and its early version) only to wish you the best (i.e., I'm not a forum groupie.) However, I have read your book twice, so far!

A now a word for our sponsor. Kirk, you are to be commended for providing a high quality forum for information distribution and comment. The ability for a small, individual investor to participate in the same information flow and analysis as the big guys is much appreciated. JK

-- posted by Jim_Kerns

» SteveT - Happy Birthday Lakshman!

In response to Happy Birthday Lakshman! posted by Jim_Kerns:



I would like to offer my wishes for a Happy Birthday to Lakshman as well many more. I too have read the book “Beating the Business Cycle”. I found it very useful and use the knowledge I gained from the book as part of my decision making process on a weekly basis. That is not to say I make major decisions weekly. In fact nearly ever week the decisions is to do nothing.

Speaking of weekly. Gauge of U.S. economy slips in latest week
http://today.reuters.com/investing/finan...

Fri Mar 10, 2006 10:30 AM ET
NEW YORK, March 10 (Reuters) - Slower housing activity, higher interest rates, and an increase in jobless claims caused a gauge of future U.S. economic growth to fall in the latest week, a report said on Friday.
The Economic Cycle Research Institute, an independent forecasting group, said its weekly leading index edged down to 136.9 in the week ended March 3 from 137.2 in the prior week.
The annualized growth rate of the index fell to a seven week low of 3.0 percent in the latest week, compared with 3.5 percent in the prior week.
"Although the weekly leaking index growth rate has eased to a seven week low, U.S. economic growth prospects remain fairly positive," said Lakshman Achuthan, managing director at ECRI.

-- posted by SteveT

» Jas_Jain - Request for Info On Past Recession Forecasts by ECRI

Hello Lakshman,

I plan to write an editorial on the subject of ECRI's ability to forecast recessions 6-8 ahead of the actual start of the recessions. I would appreciate if you could provide a list of dates, i.e., mm-yy, of the forecast of the past 6-8 recessions by ECRI using the WLI data.

The only successful claim that I am aware of is that of forecasting the 1990-1 recession in advance. The forecast of the 2001 recession came on the same month that the recession began. Am I correct?

TIA,

Jas

-- posted by Jas_Jain

» Jas_Jain - How Long In Advance Did ECRI Predict the Last Two Recessions?

March 18, 2006

How Long In Advance Did ECRI Predict the Last Two Recessions?

The Recession of 1990-91

The prediction by Jeffery Moore was made in February 1990 and the recession began in July 1990. Thus, the prediction was made 5 months in advance.

The Recession of 2001

Here are three quotes that are highly revealing:

1. 3/28/01; Smart Money: “An array of indexes designed by ECRI to anticipate turning points in the worlds' business cycles is now collectively predicting a U.S. recession, defined as two consecutive quarters of negative economic growth. Indeed, every one of the firm's 100-plus indexes — save a leading index of the service sector — is signaling that a contraction is imminent. When can we expect it to materialize? "Our best guess is really soon," says Lakshman Achuthan, managing director of ECRI. In fact, later revisions to current economic data could very well indicate that a recession has already begun, he says.”

2. June 06, 2001; Pool & Spa: “ECRI’s Anirvan Banerji disagrees, noting in a recent Business Week article that almost all of his institute’s leading indicators point to a national recession by the end of 2001. The key figure is unemployment, which has begun to creep up after more than half a year at 4 percent. As unemployment rises and consumer confidence further erodes, a recession will occur, Banerji says. “A recession this year no longer appears to be avoidable,” he says.

3. 02/07/2002; TheStreet.com: “Thus, it's highly likely that the economy will begin to recover by the first quarter of 2002.

Thus, ECRI DID NOT predict the recession until after the economy was already in recession. As late as in May’01 (assuming that the BusinessWeek article quoted in June was quoting what was said few weeks ago) the ECRI was predicting “a national recession by the end of 2001,” when, in fact, the economy was already out of the recession by the end of 2001. Also, the prediction of the recovery was months after the recovery had already begin.

Conclusion: Neither the beginning nor the end of the recession was predicted in advance even by a single month by the current economists, Lakshman Achuthan and Anirvan Banerji.

Thus, the claim by ECRI economists that they can predict recessions 6-8 months in advance, based on their leading indicator, WLI, is false. I plan to present the evidence, hopefully soon, that WLI is much more of a coincident indicator than a leading indicator. The record of the Yield-Curve, 10Y-3M-YD, is so far superior that there is no contest. See:

ACCURATE CHARACTERIZATION OF YIELD-CURVE & RECESSION PROBABILITIES

http://www.financialsense.com/fsu/editor...

More facts on the subject to come soon. Lakshman's comments and criticism are most welcome.

Jas

-- posted by Jas_Jain

» Jas_Jain - More Facts On the Timing of the ECRI’s Forecast of 2001 Recessio

More Facts On the Timing of the ECRI’s Forecast of 2001 Recession

Courtesy of this wonderful forum (thanks, Kirk) let us examine the following excerpts (emphasis is mine):

1. Author: ECRI
Date: May 4, 2001 3:06 PM
Subject: Re: Re: Re: WLI Update

Hi Rande,
I'm glad that you are doing due diligence on us forecasters, but if you continue your research you will find that ***** we have not made an actual recession call since February of 1990. *****

2. May 11, 2001 10:34 AM
ECRI weekly index rises again in May 4 week

NEW YORK, May 11 (Reuters) - The Economic Cycle Research Institute (ECRI) said on Friday its weekly gauge of U.S. economic activity posted a fifth consecutive rise in the week ending May 4, ***** but remains at levels that indicate a possibility of recession. *****

3. Author: Kirk
Date: May 16, 2001 12:46 PM
Subject: ***** WLI Recession Call *****
Nice interview with Ted on CNBC Lakshman! I think I spotted a flaw in your recession call.

It is clear that in early May’01, full two months into the recession, ECRI had not made a definitive forecast of a recession. There is “a possibility of recession” at any given time, but certainly as much today as in 1996 or late 2000 to early 2001.

From Kirk’s post it is not clear if the “WLI Recession Call” on CNBC was definitive, but it can be taken as the first date of the recession call.

It would be helpful if Lakshman and Anirvan adopt the same type of unambiguous language that Geoffrey Moore used in his 1996 forecast where he gave the odds (or the probability) of recessions to be 2/3rd. It turned out to be a false alarm, but that is the risk in any forecasting. One must be willing to accept the future outcome as it happens. BTW, Moore assigned the same odds to his 1990 forecast of a recession, in March 09, 1990 article, which did materialize! So, in 1996 the same odds didn’t lead to the recession and in 1990 they did! And I respect that.

Jas

-- posted by Jas_Jain

» Jas_Jain - Call it the Oil Recession -- So, What Is Different This Time?

March 18,2006

Comment made by ECRI Economist, Anirvan Banerji, who specialize in forecasting recessions, on 9/13/00:

"I'll tell you why. The fact is, throughout the last 50 years, there has never been a spike in oil-price inflation of this magnitude without a subsequent recession. That's right -- never. And a spike in oil-price inflation preceded almost every recession."

That was when the Crude Oil Prices went up by mere $15 per barrel. Compared to Sep'00, the Crude Oil Price increase by Aug-Sep'05 was $40 per barrel; the inflation threat wasn't any less; and the Fed has been raising rates. I can't imagine why the same economist is not talking about the threat of recession, or an advanced warning, this time around?

Jas
-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-

http://www.thestreet.com/comment/spincyc...

Call it the Oil Recession
By Anirvan Banerji
Special to TheStreet.com
Originally posted at 1:33 PM ET 9/13/00 on RealMoney.com

The economy's humming along, no more interest-rate hikes are in sight, and the markets are starting to feel comfortable again after the inflation scare last spring. Sure, the euro's tanking, but isn't that their problem? True, oil prices are at decade highs, but in inflation-adjusted terms that's still moderate. Why worry?

I'll tell you why. The fact is, throughout the last 50 years, there has never been a spike in oil-price inflation of this magnitude without a subsequent recession. That's right -- never. And a spike in oil-price inflation preceded almost every recession.

Why is that? To understand the link, it's useful to examine the so-called Katona effect, named after the late George Katona of the University of Michigan. Katona was an economist and psychologist who formulated a view that the timing of consumer spending is linked to price-level volatility. This view was based on what he had learned from his consumer surveys: When consumers encountered an unexpected jump in prices, consumption fell and savings increased.

Measuring the Unexpected
The trick to proving the Katona effect is finding a measure for how consumers may be "surprised." To measure the volatility of CPI, I used a 12-month moving standard deviation of the CPI, which, when plotted against a measure for the pace of consumer spending, shows a surprisingly close fit.

The Katona effect is found quite clearly in the data for the U.S. and several other countries. Since last year, with inflation rising rapidly, price volatility has risen to a nine-year high. In response, growth in consumer spending has already dropped to a two-year low, and if the Katona effect continues to hold, may soon drop further.

The Key Is Uncertainty
It isn't hard to understand why the Katona effect provides such a keen insight into consumer psychology. When price volatility rises, it increases inflation uncertainty -- and that causes the consumer to build up precautionary reserves, in the form of savings balances.

Also, a rapid pickup in the CPI -- especially if it arises from higher food or energy prices, like now -- causes diminished discretionary spending. That's because a bigger part of the consumer's budget is going to nondiscretionary expenses. As a result, discretionary spending, such as that spent on deferrable goods like cars and furniture, suffers. This, in turn, ultimately depresses overall spending.

The Current Problem
How much has food and energy price inflation risen? Energy inflation already spurted to a two-decade high this year, and if oil prices keep spiking, it may go higher still. In case you hadn't noticed, even food-price inflation is now at a 41-month high -- and that's according to the government's numbers (For anecdotal evidence about food-price inflation, see Herb Greenberg's column titled "Taking a Closer Look at the Honey Well" ).

What it adds up to is the possibility of a sharp slowdown in consumer spending, possibly even the sort of spending decline that triggers a recession. Under the circumstances, underlying inflation pressures are not a worry -- in fact, the Future Inflation Gauge dropped for the fourth-straight month in August, signaling a benign inflation outlook.

Rather, the concern is that the leading indicators of growth may be starting to roll over, and further spikes in energy prices could tip the economy over into its first downturn in a decade. If the Fed is able to avert a recession after price spikes of this magnitude, that would be a first. Fact is, we've never been able to avoid a recession after this big a spike in oil-price inflation -- so that's already something to worry about and watch for.

Finally, if such a recession hits, it would be an international one, and therefore especially severe. Apart from the fact that a U.S. downturn would drag many countries down with it, other countries are at least as vulnerable to rising oil prices as we are.

And in case anyone thinks the eurozone is a safe haven, remember that oil is priced in U.S. dollars. So, while oil prices may have tripled in the U.S. since early 1999, the drop in the euro has made them quadruple in the eurozone, making the Katona effect that much worse in Europe.

The bottom line is, don't be misled by any jump in headline inflation numbers. The danger has now shifted from inflation to recession.

-- posted by Jas_Jain

» Jas_Jain - "it's down for three weeks in a row and five of the past six"

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From ML Research; 03/20/06:

“The ECRI leading economic indicator fell 0.2% in the March 10th week – it's down for three weeks in a row and five of the past six. Still, we're not sure that this will break the prevailing well-entrenched belief that this economy is ripping. You have to go back to the May/05 'soft patch' to see the last time the ECRI was down three weeks in a row. Soft patches didn't stop a "measured" Fed last year; will it stop a "non-measured" Fed this year? We say yes. And finally, we're not alone – the ABA's Economic Advisory Committee says the Fed will stop at 5% as "the balance of risk is shifting from inflation to slower growth." Sounds like a very familiar theme.”

-- posted by Jas_Jain