ECRI: No Double Dip Recession

This is the analysis emanating from the ECRI:

(CNN) – Op-Ed by Lakshman Achuthan and Anirvan Banerji

The good news is that the much-feared double-dip recession is not going to happen.

That is the message from leading business cycle indicators, which are unmistakably veering away from the recession track, following the patterns seen in post-World War II slowdowns that didn’t lead to recession.

For 25 years, we’ve personally spent every working day studying recessions and recoveries. Based on our work and that of our colleagues at ECRI, we’ve called the last three recessions and recoveries without any false alarms, including an accurate forecast of the end of the most recent recession in the summer of 2009.

After completing an exhaustive review of key drivers of the business cycle, ranging from credit to inventories and measures of labor market conditions, we can forecast with confidence that the economy will avoid a double dip.

But the bad news is that a revival in economic growth is not yet in sight. The slowing of economic growth that began in mid-2010 will continue through early 2011. Thus, private sector job growth, which is already easing, will slow further, keeping the double-dip debate alive.

Of course, it is the renewed job market weakness, combined with deflation fears, that is behind the Fed’s promise to implement a second round of quantitative easing, or QE2.

Achuthan and Banerji go on to talk at length about QE2. They suggest that the Fed is always late, exacerbating the trend already in place, both as the economy slows and again as it accelerates. I would agree with that. In this particular case, the Fed is not conducting conventional monetary policy. The Fed Funds rate is already as low as it can go.  Instead, the Fed is trying a different and mostly untested monetary tool in order to reduce interest rates (and the exchange rate with them).

As for the double dip scenario, I have already been saying over the past few weeks that the technical recovery will not fade because of the anaemic jobs data. For example, today I wrote:

My take: the downward trajectory in claims is rather slow. However, this is not out of line with the last two jobless recoveries. 2011 will be much more about the ability for the economy to make gains in the face of a weak housing market and likely austerity at the federal as well as the state and local level.

And on this score, I doubt whether the ECRI data set will be a good indicator of where things are headed. This economic crisis has been secular in nature and is about too much leverage and too much debt. It is not about a cyclical downturn caused by the Fed choking off an overheated economy. I still think there are even odds for a double dip, but it has everything to do with deleveraging and housing and relatively little to do with the normal cyclical agents of recovery upon which the ECRI is predicated.


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.