Source: Economic Cycle Research Institute

Category: Cycles, Think Tank

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One Response to “U.S. Business Cycle: Yo-Yo Years”

  1. Lakshman Achuthan & ECRI had an excellent track record virtually void of false positives and negatives and thus I was shocked when on Sept 23 2011 they declared their work revealed the US economy was entering a new Recession so deep the FRB would be impotent to mitigate its course.

    In the intervening seventeen months Achuthan has been insistent future BEA revisions will ultimately confirm his position US economic growth has been in contraction … if not back to 2011Q4 – then at least since 2012Q3.

    He is stalwart in his hope history will repeat and has faith that just as the original 2008 BEA GDP figures were severely downgraded in annual revisions, so also will this demise fall upon the lofty 2011 & 2012 numbers (as high as 4.1%).

    I have not supported his thesis from the onset. In 2008, the TRENDLines Recession Indicator was gauging Real GDP in real-time and by Dec 23 2008 was signalling Real GDP had plunged to -9.7% (chart: ) whereas BEA was reporting a meager contraction of only -0.5%. So when BEA announced in July 2011 that 2008Q4 GDP was actually -8.9%, I was relieved my original output was accurate. The whole episode had played havoc with my benchmarking efforts and I learned to trust my own results rather calibrate to early BEA data.

    This leads me to believe Achuthan continues to chase the wrong rabbit. TRI has no monthly contractions in 2011, 2012 or 2013. It suggests Real GDP has steadily increased from the April 2011 pause (0.1%) to a 1.9% pace in Feb/2013. If there are heavy BEA revisions in store next July, none should produce negative quarters if they once again bring the data sets in line with the TRI track.

    This is not to say the US economy is healthy. Far from it! Since Sept/2012, my charts have featured TRIX … a measure which tracks Structural GDP retroactive to 1970. This metric reveals economic activity filtered of the influence from Congressional fiscal policy – their annual deficits and the rare surpluses. In short, I have found SGDP began to contract in March 2007, has averaged -8.6% in the interim and is -5.3% today. The US is mired in a Structural Great Depression.

    It is this reality which is being picked up by many leading indicators and gives rise to false positive signals by many of the macro models. They seem to be unable to accurately quantify the fiscal multipliers associated with the recent massive trillion dollar deficits. I predict the dismal readings will worsen in 2015Q2 when debt service levels commence to crowd out federal program spending. Without a sea change in political leadership with respect to addressing the issue of unsustainable entitlements, TRI projects rising debt service will ultimately induce a Treasuries yield (7%) crisis and Severe Recession in 2024.

    TRI’s structural & real GDP outlook charts: