- The economy is sounding a recession warning that has only been wrong once in the last 120 years.
- ECRI’s leading economic index has started to decline over the past year, said senior economist Lakshman Achuthan.
- GDP growth and the job market are also weakening in some areas, which could cause problems in the United States, he added.
The U.S. economy is sounding a classic recession warning that has only shown a false positive once in the last century, according to economist Lakshman Achuthan.
The business cycle expert and co-founder of the Business Cycle Research Institute pointed to worrying signs of weakness in the United States, with warning signs of a slowdown appearing in many areas of the economy.
ECRI’s leading economic index — the economic indicator with a near-perfect track record — began declining over the last year, Achuthan said, speaking on a webcast Wednesday with Rosenberg Research.
The decline in the index has started to stabilize in recent months. Yet a decline in the index has been followed by a recession every time in the past 120 years, he noted, with the exception of the index decline after World War II.
“While this is not a guarantee of a recession, it certainly indicates that there are many people vulnerable to shocks,” Achuthan warned. “More often than not, it really speaks to cyclical vulnerability.”
Added to this are other signs of an increasingly sluggish American economy. GDP is expected to slow significantly in the first quarter, with the Atlanta Fed forecasting an expansion of just 2.5% over the final three months. Meanwhile, the U.S. Coincident Index, a measure of growth that includes data on GDP, employment and retail sales, has trended near 0% over the past two years, plunging after a peak by around 20% in 2021.
Hiring conditions are also beginning to deteriorate considerably. Although job growth appears strong on the surface, the unemployment rate has continued to rise, reaching its highest level in two years in February.
At the same time, ECRI’s cyclical working conditions index, a measure of “cyclical labor impulses” in the economy, has plunged almost 50% in recent years. This sharp decline reflects the falls observed before the recession of 2001, 2008 and that of the pandemic, according to historical data from ECRI.
The hiring strength appears to be in non-discretionary areas of the market — which typically happens before a recession, Achuthan said, as consumers prioritize needs over wants. Job growth in education and health care increased about 4% last year, although job growth in all other sectors tended to be close to 0%, according to the ECRI data.
“Without that, we probably would have been in a recession,” Achuthan said of the growth in non-discretionary hiring.
According to Achuthan, these warning signs point to a “tug of war” in the economy, with growth in the United States oscillating between cyclical weakness and external support, such as stimulus spending and labor hoarding. during the pandemic. If this support fades, it could “create problems”, he warned.
Other economists have sounded the alarm about a looming slowdown, especially as inflation could remain high and the Fed risks keeping rates high for longer. According to economist David Rosenberg, a recession is four times more likely than an economic expansion, and an economic downturn with large job losses could occur before the end of the year.
businessinsider
