Are we in another recession?
Just when we all thought it was nearing time to begin breathing again, Lakshman Achuthan, Founder of Economic Cycle Research Institute analyzed the top economic indicators on the Kudlow Report on MSNBC, stating that the nation entered another recession this July. While other economists argue about how far along we are in a potential recovery, leading economists Achuthan warns we may be in the midst of a completely new recession.
How can this be, the stock markets are rallying? Achuthan asserts that the stock market does not equal the economy. “Indicators used to define a recession are not cherry picked,” he said, adding that industrial production, personal income, sales, and employment have been the four leading indicators studied for recession status. “When they peak collectively, that is a tell tale sign that you have turned the corner on the business cycle and are headed down,” and all four peaked simultaneously in July.
Achuthan notes that production and income have not seen the simultaneous decline that we have now in over half a century, and that simultaneous decline has not ever been seen outside of a recession.
What about unemployment? A lax Federal Reserve?
What about news that unemployment is improving, now falling to 7.7 percent? “It’s still rising,” Achuthan said.”I grant you that that’s your best argument [against being in a recession]. So job growth is still positive, now that is not inconsistent with a recession – in three out of the last seven recessions, it has happened, and we had a really weird one in the 70’s, when jobs growth went on for eight months after the recession began.”
MSNBC’s Kudlow asked if there can really be a recession if the GDP is still rising, the Federal Reserve has kept interest rates historically low, and a big tax hike may be in America’s future.
Regarding the GDP, Achuthan said, “A lot of people don’t know that it is very common for the first quarter that a recession begins to be positive. On average, it’s about 2.0 percent, and after the recession begins, you get massive revisions to the GDP, and the last couple of recessions, the quarterly revisions after the recession began was between two and four percentage points; huge revisions.”
While it is true that the Federal Reserve has been lax, Achuthan noted, “You’ve never seen the kind of attempt to pump money into the economy that you’re seeing, both by the Fed, led by the Fed, and worldwide; and that’s the result, those four indicators are the result.” Achuthan summarized, “It hasn’t worked.”
The stock market is not the economy
“Look, the stock market going up,” Achuthan said, reiterating that the stock market is not the economy, “and we’ve seen in 20 percent of the last 15 recessions, the stock market went up through the recession.”
Although his argument is that the U.S. entered a recession in July and Americans should beware, he adds, “We survive these.”