An Ugly Forecast

http://www.nytimes.com/2011/10/09/your-money/a-recession-forecast-that-has-been-reliable-before.html?src=me&ref=business

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"Progress is often just a good idea away." (John C. Maxwell)

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I'm always interested in economists whose forecasts have been right over "years." I didn't know there were any. Over the weekend, the NY Times published a story about the Economic Cycle Research Institute (ECRI) which uses leading indicators to predict business cycles.

Relying on a series of proprietary indexes, the institute correctly predicted the beginning and end (I don't agree that it ended and I think most labor economists would side with me but the "technical end" did occur at a date certain time) of the last recession. So, over the last 15 years, it has gotten all of its recession calls right, while issuing no false alarms.

One of my all time favorite quotes is by Paul Samuelson ( an economists whose textbook was the most widely used by generations in college over the last half of the 20th century): "The stock market has called nine of the last five recessions." That's about what I think of forecasting. Or, everybody's all time favorite: the Harvard Economic Society in 1929 declaring that a depression was "outside the range of probability."

Back to the folks who know what they're doing: the folks at the ECRI say that, as bad as the economy has been, it's about to get worse. So, I guess that means the standard BLS unemployment rate statistic (currently 9.1%) goes to double digits. Their prediction for GDP growth is that it goes negative by the first quarter of 2012, "if not sooner." The GDP doesn't have far to go to do that.

The institute's U.S. Leading Diffusion Index has dipped into territory that, with only one exception, would have signaled the recessions of the last 60 years.

And, it gets worse: the ECRI people say more frequent recessions are likely to be the norm in the future.

I hope they're wrong.