Recession May Have Begun --Research Firm

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Wednesday May 23 4:49 PM ET

Recession May Have Begun --Research Firm By Daniel Sternoff

NEW YORK (Reuters) - The Economic Cycle Research Institute, which tracks business cycles in the world's leading economies, said on Wednesday that its prediction of the first U.S. recession in a decade was moving from forecast to fact.

The private research firm in March forecast the economy was headed for recession after a broad array of composite indexes it has designed to predict recessions and recoveries began to warn that the economy was in more than a mild downturn.

ECRI last made a recession call in February 1990, several months before the official onset of recession later that year.

This week, after comparing the current performance of top economic indicators with their behavior during every U.S. slowdown and full-blown recession of the past half century, ECRI concluded: if history is any guide, recession is likely already here.

``The indicators which define a recession are now in patterns seen only in recessions,'' ECRI research director Anirvan Banerji told Reuters in a telephone interview.

``There is no spin or room for interpretation here at all. It is completely factual. We are not talking about where the economy will be in the future, but in the determinants of where we actually are in a business cycle,'' he said. While most textbooks define recessions as two straight quarters of shrinking gross domestic product (GDP) -- that has not yet happened -- ECRI said the economy has met nearly all criteria under the definition used by the National Bureau of Economic Research (NBER), the nation's arbiter of the start and end of recessions.

Viewing a recession as a ``pronounced, pervasive and persistent decline in output, income, employment and sales,'' Banerji said the numbers bore out the bad news.

PRODUCTION, JOBLESSNESS SLUMP; GDP TO FOLLOW

As far as output is concerned, Banerji said that industrial production has declined for seven consecutive months.

``When is the last time that happened without a recession in progress? Never. Never at all,'' Banerji said.

While the broadest measure of output -- quarterly GDP -- has not contracted in a decade, Banerji noted that GDP growth was positive in the first quarter of the past four recessions as defined by NBER.

That is because a recession dated as starting in, say, March, would show GDP expanded in the first quarter as whole.

``The fact that GDP was positive in the first quarter (of 2001) doesn't say anything about whether a recession is already in progress,'' Banerji said.

The government on Friday is expected to revise down its estimate for first quarter GDP from a preliminary annualized gain of 2.0 percent to 1.5 percent, according to a Reuters poll. Second quarter figures will not be released until July.

As for employment, Banerji said the loss of 276,000 jobs in the past two months decreased total employment by 0.2 percent.

``A two month drop of 0.2 percent has never been seen in the last four decades except in a recession,'' Banerji said.

Furthermore, he said that the unemployment rate, which has risen 0.6 percentage point from a decade low of 3.9 percent in October to 4.5 percent in April, has never risen that much except when the economy was in a recession.

Banerji said the fact unemployment remains low by historic standards cannot preclude a recession.

He noted the jobless rate was also low at the start of six recessions between the 1940s and 1970s, including a rise from 2.5 percent during the 1953-54 recession to a cyclical peak of 6.1 percent.

``A low initial unemployment rate has never prevented a recession from occurring. There are a lot of fallacies being propounded by the spinmeisters,'' he said.

SALES IN PRONOUNCED SLUMP

As for sales, he said a composite measure of manufacturing, trade and retail sales was down 1.6 percent in the six months through March.

``Such a large drop has never been seen without a recession in the last half century, except in July 1956 and July 1989, when recessions followed a year later,'' Banerji said.

And as for incomes, another piece in the NBER definition of recession, Banerji noted that while U.S. personal incomes have not posted significant declines of late, they did not fall much during five of the last nine recessions either.

ECRI was founded by the late Geoffrey Moore, a former Research Director at the NBER. http://dailynews.yahoo.com/htx/nm/20010523/bs/economy_recession_dc_1.html

-- Carl Jenkins (smewherepress@aol.com), May 23, 2001

Answers

I'm glad that somebody of note can clearly see the obvious.

-- Wellesley (wellesley@freeport.net), May 23, 2001.

There is no doubt in my mind that this is exactly what is happening.

-- LillyLP (lillyLP@aol.com), May 23, 2001.

Reading the tea leaves on this one should not be all that difficult. When industrial production is down for so many months in a row there can only be one ultimate outcome.

-- Wayward (wayward@webtv.net), May 23, 2001.

I think California will be the trigger that pushes us over the edge....I'm afraid, but good.

-- R2D2 (r2d2@earthend.net), May 23, 2001.

Doesn't anybody have a cheery note to give us? Here n Texas everything is still going slam bang, ding-dong good.

-- Buck (bigbuck@trailways.net), May 23, 2001.


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