Recession guru says we’re almost there

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The Economic Cycle Research Institute, a forecasting firm in New York, did a better job of calling the start of the last recession than just about anybody else, so I checked in last week with ECRI managing director Lakshman Achuthan to see where he thought things stood. He still doesn’t think we’re quite in a recession, but says we’re very close:

[I]n a word I’m saying the economy’s state is “precarious.” Specifically, the self-reinforcing downturn that leads to recession has begun, but it can still be averted by prompt policy action.

We talked about the key indicators that define recession, and we’re now seeing Sales decline in a way that reduces Production, in turn weakening Employment which them reduces Income. Lower Income then goes full circle to reduce Sales and so on… This negative feedback loop, once it gains momentum, will have to run its course regardless of any policy attempts to the contrary. Recall that in January 2001 the Fed started to cut rates sharply lowering them by 200 basis points in three or so months yet we still had a recession because the effort came too late.

The current window of opportunity for policy stimulus is limited to a couple of weeks, or maybe a month. The reason for the opportunity is that we do not have an inflation spiral in front of us, high energy prices notwithstanding.

And in a subsequent e-mail:

I don’t know the exact numbers but we’ll either spend 100 billion or so now, or 500 billion or so later trying to mitigate a full-blown recession which will also bring months of job losses on end.

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