Fasten your seatbelts, for we are slipping into a whole new downturn. Not a double-dipper, burp-like extension of the last one, but a whole new recession worthy of it's own dating.
Hope you've enjoyed the recovery of this last two years, because the next year will be worse, according to the Economic Cycle Research Institute, which announced today, that "the U.S. economy is headed for another recession that government intervention cannot prevent, and such downturns will occur more often."
If ECRI is correct, as they have been on their calls on the start of the last three recessions, this is a brand new recession that will last at least another year, taking us right into the 2012 elections, with rising unemployment throughout the year.
Let's start with Jonathan Burton reporting this announcement in Marketwatch.
Economy Faces New Recession.
“This is a new recession; it’s not a double dip recession,” said Lakshman Achuthan, co-founder of ECRI, in a telephone interview. “We can’t avert it.”
ECRI’s Weekly Leading Index (WLI) growth indicator, reported Friday, showed U.S. economic growth sliding to negative 7.2% for the week ended Sept. 23 from negative 6.7% the week before, continuing a trend that began in August. U.S. economic strength has been declining since May, according to the WLI. Based on WLI and other indicators, ECRI has correctly called the last three recessions and recoveries without triggering any false alarms.
“We are seeing the weakness spread widely,” Achuthan said. “There’s a contagion, like a wildfire among the forward-looking indicators that’s not going to be snuffed out. The nature of a recession is not a statistic. It’s a vicious feedback loop. Sales fall, production falls, income falls and that depresses sales. We’re in that and it’s going to run its course.”
And, don't hold out any hope we can avert this with another financial stimulus, which doesn't even seem politically possible. According to Achuthan, a stimulus now wouldn't work -- too little, too late. Sounding like Paul Krugman and Robert Reich, Achuthan says
Government’s effort to stimulate the economy, ... is a case of too little, too late, ...
“Even in the best of times, government intervention is too small; it’s dwarfed by the business cycle,” Achuthan said. ...
A second recession in as many years will lead to higher unemployment, lower tax revenue, and poses obvious challenges for stocks,
He doesn't mention "challenges" for politicians, but we will need to develop 2012 strategies that take the prospect of a dismal economy into account. I can't help but think that if unemployment starts increasing again for the next year and a half, it could be an extra challenging election.
Achuthan doesn't believe this recession is goint to be as bad as the Great Recession of 2008, but says he can't rule it out. Much will hinge on the European debt crisis, which could make this recession much worse.
Speaking of stocks, the Dow Jones Industrial Average was off over 200 points today, bringing the losses over the last 3 month to over 12% -- another historic harbinger of rough times, and a business cycle ahead.
From ECRI website
U.S. Economy Tipping into Recession
ECRI’s recession call isn’t based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down – before the Arab Spring and Japanese earthquake – to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not “soft landings.”
"But, how could this be?" you might ask, we've barely over a year to "enjoy" this last recovery? But, this doesn't surprise the folks at ECRI.
So it comes as no surprise to us that, with the latest expansion only a couple of years old, we’re already facing a new recession. Actually, such short expansions are hardly unheard of. From 1799 to 1929, nearly 90% of U.S. expansions lasted three years or less, as did two of the three expansions between 1970 and 1981. In other words, such short expansions are unusual only with respect to recent decades.
It’s important to understand that recession doesn’t mean a bad economy – we’ve had that for years now. It means an economy that keeps worsening, because it’s locked into a vicious cycle. It means that the jobless rate, already above 9%, will go much higher, and the federal budget deficit, already above a trillion dollars, will soar.
Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet. And that has profound implications for both Main Street and Wall Street.
So, don't blame the folks at ECRI if you didn't dust off your copy of Jimi Hendrix playing "Let the Good Times Roll." You had your chance.
Sorry, to make such a bad joke out of what will be tragic and difficult times for folks, some who haven't even realized yet, that we had been enjoying a recovery these whole last couple years.
I'm sort of speechless with sadness.
But, I don't want to think about it now, as I want to enjoy this last weekend of "good times," before bracing for this next downturn.
This was already shaping up to be a tough 2012 election cycle. We Democrats are going to have to try ever harder to convince the voters that they are better off with us driving the ship of state into the future.