Friday, August 28, 2009

ECRI: No Double Dip Recesion

Here's a big contrast to my view.

A weekly measure of future U.S. economic growth slipped in the latest week, though its yearly growth rate surged to a 38-year high that suggests chances of a double-dip recession are slim.

The Economic Cycle Research Institute said its Weekly Leading Index for the week to Aug. 21 fell to 124.4 from a downwardly revised 124.9 the prior week, which was originally reported at 125.0.

But the index's annualized growth rate soared to a 38-year high of 19.6 percent from a downwardly revised 17.4 percent the prior week, a number which was originally 17.5 percent.

"With WLI growth continuing to surge through late summer, a double dip back into recession in the fourth quarter is simply out of the question," said ECRI Managing Director Lakshman Achuthan, reinstating the group's recent warning to ignore negative analyst projections

The ECRI numbers track a group of variables in the economy. They obviously don't put heavy weight on money supply, since the halt in money supply would have crashed this leading indicator a month or two ago.

How does the WLI work?

"It objectively measures the key drivers of the economy like credit,inventories and profits, "says an ECRI paper.

There are two problems with this kind of tracking in the current environment. First, these things tend to move up because of earlier money supply growth. What they may be detecting now is feedback from the Sept. 08 money printing (M2 nsa) into early 2009 that ranged in the neighborhood of 15% annualized.

Second,the increasing profits they are tracking are the profits that have occurred to a significant degree in the investment banking sector through manipulated trading that occurred with the help of the government which was attempting to sneak even more money into this sector.

But all of this has stopped. ECRI is just picking up the vapor trail. As to why Achuthan sticks his neck out in these unusual times to say a double-dip in the fourth quarter is out of the question, I have no idea, other than he is watching his upticking numbers and thinks they can't reverse. It happens to a lot of econometricians who watch numbers without theory behind them.


1 comment:

  1. I agree that Achuthan is useless when it come to government policy. But he has been correct more often than not. I've noticed that guys who simply "follow the trend" are often more successful than guys who try to predict how our very complex economy will react to something that an unpredictable bureaucrat may or may not do.