Posts filed under “Cycles”
The following was written by Lakshman Achuthan and Anirvan Banerji, co-founders of ECRI:
“As Geoffrey H. Moore once reminded us, if you can ‘predict’ a recession just as it’s beginning you are doing very well as a forecaster.” We recalled our mentor’s observation in our book, Beating the Business Cycle, and it’s just as relevant today as it ever was.
With the economy slowing, the double-dip recession debate has naturally assumed center stage. Perhaps you already know something about the Economic Cycle Research Institute (ECRI) or the Weekly Leading Index from your favorite analyst, commentator or blog. But, as debates go, this one is becoming heated and ECRI is being misrepresented more often than not. We write this note in an effort to address the more extreme misperceptions.
Recent diatribes from investment managers with blogs have culminated in an accusation that we are dishonest when it comes to ECRI’s forecast track record in the lead-up to the 2007-09 recession. Having ECRI’s forecast challenged is nothing new, but we’ve never had our professional integrity called into question, until now. Criticism of our work comes with the territory, but such charges do not. Therefore we ask you to consider what’s been left out of that narrative and, more importantly, why. Inquiring minds would surely investigate before accepting such character assassination.
One would find that the facts are willfully misrepresented, perhaps in an attempt to undermine ECRI’s credibility when expedient. Our detractor’s declaration is based on a cherry-picked quote from a PowerPoint file (including discussion notes) that we posted on our website on October 5, 2009. Ten months later, on Aug. 4, 2010, the charge was that “ECRI is caught” in an “Outright Lie,” saying that we claim to have forecast the recession in November 2007. This is simply made up.
Evidence offered to support this allegation resides on the third slide of 23 from an October 2009 ECRI presentation titled The Great Recession and Recovery. That slide shows our Weekly Leading Index (WLI) and includes an ECRI discussion note for the presentation saying that the WLI has been around for over a quarter century and that “it has correctly predicted every recession and recovery in real-time.”
In fact, that statement is undeniably true. The WLI peaked and went into a cyclical downturn six months before the recession began. So this is hardly a smoking gun.
In evaluating the performance of any leading indicator, the key question is whether its cyclical turn occurred before the cyclical turn in the economy. If so, the follow-on question is whether that lead occurred in real time, or showed up only in revised data. In the case in question the WLI peak occurred well before the business cycle peak, in real time. That was the point of that slide.
But, nowhere on the slide in question does ECRI claim to have predicted the recession. Nowhere do we equate ECRI to the WLI. To the contrary, a few slides later, we say that ECRI called the recession in March 2008. It’s inconceivable that anyone attending the actual presentation, or reviewing the presentation in retrospect, could come away believing otherwise.
To be clear, our detractors are capable of understanding what we’ve been saying all along. On July 20, 2010 they wrote:
“I suppose you can see how confusing this is when the WLI ‘has correctly predicted every recession and recovery in real time’ yet Lakshman Achuthan also says … ‘In fact, at the very least, ECRI itself would need to see a ‘pronounced, pervasive and persistent’ decline in the level of the WLI (not merely negative readings in its growth rate) following a ‘pronounced, pervasive and persistent’ decline in ECRI’s U.S. Long Leading Index (not discussed in the article), before it makes a recession call.’ That is a clear statement that the WLI cannot in and of itself predict anything unless it follows the ECRI’s U.S. Long Leading Index.”
That focus on our “clear statement” is correct. In fact, ECRI interprets the WLI in the context of our full array of leading indexes (including the Long Leading Index) as outlined in chapter seven of Beating the Business Cycle (Doubleday, 2004). And yet, these critics try to malign ECRI by conflating the WLI’s movements with ECRI’s recession calls.
The Whole Truth
Just go to The Great Recession and Recovery, which provides a clear timeline of ECRI’s forecasts from the fall of 2007 through summer 2009. We encourage you to examine the full presentation firsthand, but here are the pertinent slides from that presentation, starting with the third slide:
The 56 year cycle mentioned yesterday (“Periods When to Make Money” (© 1883) was picked up by FT Alphaville; we hear it caused some “consternation” in certain circles where the marinating of ice cubes takes place. I find these approaches quite fascinating, if for no other reason than I consider myself a student of market…Read More
Yesterday, we looked at Long Term Market Cycles dating back to 1927; Today, lets have a look at periodicity dating back to 1763. The cycle the (unknown) author posis is a repeating 16/18/20 year Across the top is the legend “Years in which panics have occurred and will occur again.” The past panic century of…Read More
You may recall that last month we picked up on a troubling signpost in the divergence between temporary hiring and private sector payrolls (less temps). In that post, I produced the following chart (below is from last month’s post, not updated with most current data): I wrote: But here’s the thing: Temp jobs are now…Read More
(Invictus here, friends. Please note that technical problems booted me out of this post before I was done with it, and it posted before I could get back in. Therefore I’m doing I’ve done some after-the-fact editing, which I would normally not do.) As readers may know, I have used some pixels here and elsewhere exploring what…Read More
Okay, so here’s today’s thought experiment. Instead of putting up some charts or tables and providing my own interpretation (not that I’m ever shy about doing so) , I’ve decided to post a Rorschach Chart. Below is a comparison of two data series that have a meaningful correlation (>0.70, with a lag in this case) over time. The two series are identified below the fold. For now, here’s the chart. So, what does it all mean (if anything)?
NOTE: Blue line goes to the right-hand scale, red line to the left-hand scale.
(Data Source: St. Louis Fed)
(Invictus here, boys and girls) As I have written previously here and elsewhere, I tend to look at everything through the lens of job creation. What is the correlation of a particular release to the job market, if indeed there is one. Does it lead? Lag? Is it coincident? If I can find a meaningful…Read More
The Case-Shiller Index printed this morning, so a bit of chart/table porn is in order. Below is a 20-in-1 look at the Composite 20 (both the chart and the table are NSA): 19 of the 20 metro areas showed sequential gains for the month, the only laggard being Las Vegas. Here’s a nostalgic city-by-city look…Read More
The Chicago Fed’s National Activity Index (CFNAI) printed this morning at 8:30 AM Eastern. As always, Calculated Risk covered the release, so I won’t rehash what’s covered over there. However, I will note — as I have before — that the Personal Consumption & Housing subcomponent remains mired in deeply negative territory. In fact, it has…Read More
I hate it when two people I know and like do battle. This week, it is Mike Shedlock of MISH’s global economic analysis squaring up against my friend and work neighbor, Lakshman Achuthan of the Economic Cycle Research Institute (ECRI). Mish ripped ECRI in an unsparing critique this morning: ECRI Weekly Leading Indicators at Negative…Read More