Two of my favorite somewhat-off-the-beaten-track economic forecasters just came out with strikingly optimistic pronouncements this morning. How optimistic? The recession-should-end-in-a-couple-of-months optimistic.
First was Lakshman Achuthan, whose Economic Cycle Research Institute was founded by the patron saint of Leading Economic Indicators, Geoffrey Moore. ECRI—which has had an excellent record in recent years of calling economic turning points when they happen—compiles a Weekly Leading Index that has been trending upward since mid-March. Today Achuthan sent out an extra e-mail message to accompany his weekly numbers. It read:
With WLI growth rising to a 27-week high, U.S. economic growth, which is now at a record low, will soon begin to improve.
Well duh, I thought. Everybody, including Nouriel Roubini, agrees that the precipitous decline of the fourth and first quarters is probably about to transition into a less severe downturn. That’s not news. But Achuthan only sends out such statements on rare occasions. So I e-mailed him to ask what was up. His response:
What I didn’t say in that quote is that while most may say, “so what? we’re still in recession,” to students of the business cycle it is a big deal. This is because recessions are very likely to end in short order once a growth rate cycle upturn occurs.
Meanwhile, Harm Bandholz of UniCredit Markets & Investment Banking was even more direct:
We estimate that inventories fell at an annualized 5.5% in Q1. In the last 50 years, such a strong decline has marked not only the lower turning point of the inventory cycle but also the end of the recession! …
We expect [manufacturing] production to stabilize at the middle of the second half of the year. At that time, the recession will probably also be officially over. Since, however, personal consumption is likely to post only moderate growth thereafter, the upswing will be very lackluster.
Now both of these forecasts depend on the current recession bearing some similarity to past recessions, mostly post-war recessions, although ECRI does look at data going back to the 1920s (for a skeptical guide to the different methods of economic forecasting, click here). There’s lots of bad stuff going on overseas that could possibly affect U.S. growth in ways that are hard to predict. But Achuthan and Bandholz aren’t crazy. And if they get this call right, I say we all buy ’em a drink.