Friday, 30 September 2011


The Economic Cycle Research Institute has, over many years, earned a reputation as the world's most reliable forecasting organization.  Its array of 'black box' leading indicators take the pulse of economies across the globe, with the aim of alerting investors and decision makers to major turning points accurately and presciently.  

Long before America's 2000 and 2008 downturns were made official and well before most Wall St economists made their belated calls, ECRI warned that the US was entering recession.  In spring 2009, when many were predicting all-out depression, they suggested the worst was over.

Their credibility was further enhanced last summer when one of ECRI's most widely watched short term indicators, the Weekly Leading Index, appeared to predict a major downturn.  The market plunge and worsening economic data prompted many pundits to proclaim the onset of a new recession.  But ECRI's Lakshman Achuthan was far more cautious, insisting that his other indicators showed recession in 2010 was unlikely.  He was right.


Manufacturing activity in the world's most important emerging economies 

has begun to contract

Earlier this year he was among the very first to forecast a global slowdown, a call which has been fully borne out as manufacturing data from Asia and the Eurozone have dropped away in concert with the United States.

Some organizations, like the IMF, the OECD or any of the world's central banks whose pronouncements garner so much publicity, never have and never will predict a recession.  For understandable reasons, these great turkeys of economic analysis refuse to contemplate Christmas, a fact which by definition renders most of their other forecasts worthless.  

Other independent analysts rushed prematurely to issue recession warnings during the modest slowdowns of 1987, 1993, 1998 and 2005.  ECRI however, called the recession of 1990 and since then have never given a false alarm.

This morning, Lakshman Achuthan appeared on CNBC to announce that ECRI is forecasting a new recession in the United States.

(Flash player required)

Separately, widely-respected money manager and economist John Hussman, whose own combination of leading indicators led him to make equally timely calls in 2000 and 2007, has come to the same conclusion: recession is upon us.   

Unless both these analysts have made a major error, it seems that the renewed downturn I have long anticipated in these columns is finally here.  

It's conceivable that the coming recession will turn out to be a brief and shallow affair, or that another huge burst of monetary steroids will be injected by central banks in time to blunt its effects.  If not, the ramifications are major - not just for the US but for the future of Europe, for Asia, for all of us.  I'll be examining the potential fallout, plus the implications for our investments, in upcoming posts.

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