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Achuthan bases his forecast for no recession over the next quarter or two on his organization's Weekly Leading Index, which accurately forecast the 1990-91 and 2001 recessions, and none in between or since. It's a composite of several indicators that have been proved to lead the economy, and thus it looks around corners in ways that strictly linear economic forecasts do not. While he warns the data could certainly suffer an exogenous shock that would move up the date of a potential recession to the first half of next year, here's how the data set currently shapes up:
- Investor confidence -- mixed. This factor is a composite of equity-, bond- and commodity-market players' level of optimism, which drives prices. Currently, equity markets are stabile, commodities are rising, and bonds are flat. The ECRI commodity index, by the way, doesn't just measure speculative items like crude oil and gold but includes industrial materials for which there are no futures market, such as tallow, rubber and burlap. When their prices are rising, industry shows confidence that they will need more raw materials for future manufacturing -- the opposite of what they'd do if they believed a recession were coming.
- Monetary stimulus -- positive. The Fed Reserve has reversed its prior stance of neutrality and is aggressively printing money and pouring it into the economy. The recent rate cut turned this factor around. 'Nuff said.
- Housing -- negative but stabilizing. Home prices are still falling but not as steeply as earlier in the year. This will probably remain negative for a year or more as foreclosures put more homes on the market, depressing prices.
- Jobs -- mildly positive. In August, a report of a jobs setback stunned the market, but the data were actually not terrible. Manufacturers weren't hiring as much as they had been, but they weren't firing people, either. Bar and restaurant hiring was actually up, showing that these service operators believed customers were still coming. Jobless-claims numbers were light and definitely positive. In sum, there have been no clear-cut stats forecasting massive layoffs.
- Corporate profit growth -- positive. Corporate earnings are the most important driver of the economic cycle, and they appear to be holding up despite tough comparisons. Last year we saw double-digit growth, and this year it's in the high single digits. "Without a recessionary plunge in profits, it's hard to have a recession," Achuthan says.
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He reports that the Weekly Leading Index growth has been softening, though not in a pervasive, profound way. It forecasts the potential for a slowdown to below-trend growth of about 1% to 2.5% over the next six months, but not a three-alarm fire. As long as creditworthy individuals and companies can still get loans, showing that debt markets are functioning normally without the extreme levels of distrust shown in August, then the economy can muddle through at least through the second quarter.
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After that, a lot of homeowners' adjustable-rate mortgages will reset higher, and asset-based corporate commercial paper must be rolled over, and the Weekly Leading Index's forecast may change. Achuthan promises to keep us posted.
Dr. Doom
And what about Roubini, sometimes called "Dr. Doom" by friends and detractors alike? In a speech to the International Monetary Fund this week, the Istanbul-born, Milan-educated, New York-based international-finance expert said the real problem in the world is not illiquidity but insolvency.If you feel the need for a dose of total despair, read the transcript or watch the video. He explains his view that home prices are in for a 20% to 50% decline, that subprime-mortgage woes will spread to subprime-auto and consumer-credit setbacks, that the decline in the availability of debt to low-income consumers will trigger a material decline in overall retail consumption and that these will combine to trigger massive job losses.
Continued: A lot of 'ifs' and 'coulds'
READ MORE: JON MARKMAN - RECESSION - TOP STOCKS - INVESTING - THE FED
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