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Thursday, July 16, 2015 2:49 PM

"Too Soon to Fret" Says ECRI, No Recession on Horizon: Another Blown ECRI Call?

Mish Moved to MishTalk.Com Click to Visit.

After insisting for over a year that the US was on verge of recession if not in one (I made the same mistake), The ECRI now maintains Recoveries Remain Resilient.

Growing ranks of the great and the good are worried that the global economy, like Humpty Dumpty, will have a great fall, never to be put together again. We understand their apprehension, given our concern since the summer of 2008 about collapsing trend growth.

[Mish comment: what about the ECRI recession call made in September 2011?]

But in terms of our current assessment of global recession risk, we aren’t ready to join in. This is because the major developed economies aren’t yet in windows of vulnerability that our leading indexes are designed to detect.

Right now, no matter what the source of the potential shock – Greece, China or the Fed – the major developed economies are unlikely to be tipped into recession. No doubt this will change in time, and the U.S., in particular, bears close watching. But it’s too soon to fret about recession just yet.
False Alarm

I was wondering if the ECRI ever admitted their mistake. I found it, on May 11, 2015, quite a few years late.

Doug Short on Advisor perspective writes ACHUTHAN: The US recession I've been warning about for years was actually a 'false alarm'
The ECRI finally admits to a bad recession call in September 2011, referring to it as a "false alarm". They describe the situation as "Greater Moderation", where the 2012-2013 downturn was the worst "non-recession" in 50 years and is unlikely to be repeated.

History of ECRI's 2011 Recession Call

ECRI's weekly leading index has become a major focus and source of controversy ever since September 30, 2011, when ECRI publicly announced that the U.S. is tipping into a recession, a call the Institute had announced to its private clients on September 21st.

Chronology of ECRI's Recession Call

  • September 30, 2011 : Recession Is "Inescapable"
  • February 24, 2012 : GDP Data Signals U.S. Recession
  • May 9, 2012 : Renewed U.S. Recession Call
  • July 10, 2012 : "We're in Recession Already"
  • September 13, 2012 : "U.S. Economy Is in a Recession"

Tipping Into Recession

Here's the September 30, 2011 U.S. Economy Tipping into Recession call.
Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off.

ECRI’s recession call isn’t based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down – before the Arab Spring and Japanese earthquake – to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not “soft landings.”

Why should ECRI’s recession call be heeded? Perhaps because, as The Economist has noted, we’ve correctly called three recessions without any false alarms in-between.
Repeated Lies

Quite frankly that last statement is a lie as I have pointed out before. The ECRI called the 2007 recession way late.

In March of 2008, and when they finally did, they called it a "recession of choice".

I don't mind blown calls. I certainly have had a number of them. What I do mind is repeated lies about them.

A Look at ECRI's Recession Predicting Track Record

On October 13, 2009 I penned A Look at ECRI's Recession Predicting Track Record.

I pointed to the November-December 2007 ECRI Outlook. Unfortunately, the link I had no longer works, but I did capture this image.

Window of Opportunity 

On January 25, 2008, the ECRI claimed There Is A Window of Opportunity for the US Economy.
The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI’s Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession.

If we have a recession this year, it will be the best advertised in history. Recently, several Wall Street houses joined the 70% of Americans who have been expecting a recession for the last few months. A number of other prominent economists boosted their estimates of the probability of a recession above 50%.

Yet such probability estimates imply that a recession is a matter of chance, whereas it is still a matter of choice. This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet.
ECRI Denial

The ECRI laid it on pretty thick, openly mocking the "best advertised [recession] in history" while claiming "This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet."

The irony is the recession was about 2 months old at the time.

Recession of Choice

Finally, on Friday, March 28, 2008 the ECRI pronounced a "A Recession of Choice".
The U.S. economy is now on a recession track. Yet this is a recession that could have been averted. In January, given the plunge in the Weekly Leading Index, we declared that the economy had entered a clear window of vulnerability. Yet we emphasized the brief window of opportunity within that window of vulnerability for timely policy stimulus to head off a recession.

The bottom line is that the outcome was not pre-ordained. Policy-makers had a choice about the speed with which stimulus took effect. If they had understood this, their actions could indeed have averted this recessionary downturn.
A Choice in 2008, but No Choice in 2011?

We are supposed to believe there was a choice in 2008 (two or three months into a recession), but no choice in 2011 for a recession that never happened!

Third Blown Call Coming Up?

And the ECRI still brags about not missing calls, while attempting to sweep two blown calls under the rug.

Is a third consecutive blown call on the way?

Mike "Mish" Shedlock

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