trying to forget my feelings of love
Last October
I detailed the giant “economic smack down” between Warren Buffet and the
Economic Cycle Research Institute (ECRI).
ECRI was forecasting a recession and Buffet said emphatically there
would be no recession.
Here are the
GDP results since then:
Q3 = 1.8%
Q4 = 3.0%Q1 = 1.9%
Q2 = 1.8% (expert panel estimate).
So the winner
is Buffet in a rout. In the same post I
tried to split the difference between the two behemoths and forecasted a very
mild recession with GDP near 0% during the time period. And I was wrong. I based this forecast on the belief that the
best economic cycle model (ECRI) could be that wrong.
And neither
could ECRI. The Chief Operating Officer of ECRI will not
admit they made a wrong call. He instead
claims that the forecast is still correct and that the recession just hasn’t
happened yet. I think a better
explanation is that the economy is moving so slowly that it can’t even get to a
recession.
The reason
that ECRI has not backed off its recession prediction is that even though the
economy continues to grow, the ECRI model never has stopped “flashing red” and
it is flashing even brighter than it was nine months ago. Say you have a warehouse of flammable
material. You install the best,
state-of-the-art, smoke alarm system you can buy. One day the smoke alarm sounds. Firefighters rush to the warehouse, inspect
the entire facility, but find nothing unusual. So you have the system thoroughly inspected
and tested and determine that it is functioning fine. You then reactivate it and immediately the
alarm sounds again.
Something is
definitely wrong. Last year there were
logical reasons the economy sputtered after a hopeful start. This year the economy is slowing for no
apparent reason. (Unless you count
Obamacare) I would be tempted to label
this the “Molasses” recovery because it is moving so slowly. But I won’t because molasses is sweet and
this economy is anything but sweet to the millions of unemployed. The latest employment report was sickening. Forget 8.2%, the Wall Street Journal
calculates the “real” jobless rate at 14.9%.
Patti Domm
(CNBC) has labeled this the “Zombie Economy”.
I said early this year the economy was wearing ankle weights, now it
seems more like a ball and chain. Last
year I said it was the “Grocery Cart” recovery.
The wheels of this cart are now locking up.
So where are
we? We are slowing down from around an
estimated 1.8% growth rate in Q2. I
think that number is high because the recent statistics for Q2 are weaker than
Q1, so I’ll go with 1.5%. Unfortunately,
the question must be asked again: Are we now headed for recession?
Recessions
are extremely difficult to predict, and very few economists are forecasting one
now, even after the horrible jobs report. Recessions are like diseases, they begin long
before you realize something is wrong. The best model we have, the ECRI, was
unreliable last year. The ECRI still says recession. Buffet said in early June that the
possibility of recession was low (not as positive as last October).
In December
of 2007 I called my colleague Economist Pat because I thought the economy was
getting worse. I told him that it “feels”
like we are entering a recession and he agreed.
I remember this conversation because the last recession ended up
starting that month.
And I have a
similar feeling now. It feels like the
economy started to recede in late June or early July. I say feel, not think or even believe. For the record, Economist Pat does not think
a recession is imminent this time.
I do think this
recession be extremely mild. It could be
a six-month period of just under 0% growth.
This is basically the same forecast I gave last October which was in
fact “wrong”. This recession will not be
that traumatic because the economic was not growing that fast. There won’t be massive layoffs because
companies cut drastically during the previous recession and have been very careful
in adding workers. So expect very weak hiring,
sort of like the June jobs report (get it?).
The stock market will retreat, but not that much. So stay on guard and please let me know what
you think.
And now we
can say goodbye to the hopes of a strong economic recovery in 2012:
Teardrops falling down on my facew we can say goodbye to trying to forget my feelings of hope (love)
Feelings wo-o-o, feelings ....
No comments:
Post a Comment