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Guest Commentary: US recession already in play? One lone voice continues insisting

By Yohay Elam
05 December 2012 22:00 GMT

Recent US indicators continue showing the same picture: the US economy continues to grow slowly – not an impressive recovery, but still growing. The housing sector seems to lead while manufacturing lags.

However, one highly regarded research institute, ECRI, has called a recession in 2012, and said that we will know this only with some distance. They now say the recession has begun in July 2012, and that the deadline for seeing this is the end of 2012. Are they going to be proven right or wrong?

ECRI’s Lakshman Achuthan is the lone voice talking about a recession, and has been grilled on his called by many analysts, several times. The US economy actually grew by an annualized rate of 2.7% (according to the second release) in Q3. Job growth during these months and since then was quite healthy, especially if we look at the positive revisions made since the initial releases.

For the time being, ECRI explains its call by using its coincident indicators, and by looking at job activity at previous recessions:

  • Actually, this was also true in three of the last seven recessions – and in the severe ’73-’75 recession, job growth stayed positive eight months into the recession. Thus, positive jobs growth isn’t inconsistent with the early months of recession. Of course, all of this data is subject to revision, but, as we’ve noted before, the ultimate revisions to coincident indicator data after business cycle peaks tend to be downward.

The end of the year marks the deadline for the “fiscal cliff”, but also for this call. It will be interesting to see if NBER (National Bureau of Economic Research), will indeed declare one, and date it back to around July 2012.

Further reading: All you need to know about the fiscal cliff

By Yohay Elam, ForexCrunch

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05 December 2012 22:00 GMT