Prolonged U.S. Economic Slowdown Underway

By: Trader_Mark

While there are many pundits and economists out there making calls, what I've observed from the Economic Cycle Research Institute over the past half dozen years or so has been quite impressive.  Whatever quantitative tools they are using, they seem to be creating a very nice mosaic in terms of forecasting the future. 

While many (hands up) thought we'd be heading relatively quickly into a double dip last year (totally underestimated the power of the federal government and Fed to flood the system with liquidity), the ECRI remained bullish on the economy - almost in arrogant fashion.  However, they seem to be changing their tune now as this 10 minute video shows. Courtesy of WSJ, email readers will need to come to site to view

• The U.S. economy is “not yet” headed for a double-dip recession, but a sharp and prolonged downturn is underway and may make jobs growth even tougher to come by, an influential analyst said Monday.
• In an interview with The Wall Street Journal, Lakshman Achuthan, the co-founder of the Economic Cycle Research Institute, said that over the last few months key indicators of long-term economic growth have all begun pointing in one direction: downward.
• “We’re talking about a cyclical turn that’s pronounced pervasive and persistent, not a one or two month affair,” Achuthan said. He added that the slowdown is likely to last a couple of quarters at least — even as he stopped short of calling it a formal recession, which is defined by two quarters of economic contraction.
• “This isn’t a story about one country driving [growth] down: China didn’t do this, and the U.S. didn’t’ do this,” he said. “It’s very big…and not something you can deny.”
• “The broad economy is going to slow alongside the industrial sector starting in the middle of this year, so in that sense it may feel like last year,” Achuthan said, adding that closely watched gauges of economic growth will all begin slowing at the same time. “It’s all going to be synchronized.”
• Achuthan told The Journal that even before Japan’s wrenching nuclear disaster and turmoil in the Middle East created tumult in the global economy, ECRI’s longer-term leading indicators had already begun to soften. Some of those factors may have led to a more pronounced pullback in global growth, he added, which may bode for a temporary rebound.
• ECRI sees jobs growth as “slower” in the months to come, Achuthan says.  “You’re not going to see the quarter of a million jobs [created] on average anytime soon,” the economist said, referring to the figure of employment growth that many analysts cite as a benchmark for sufficient growth in employment. “We’re going to get back into that 100 plus or minus range through the summer.”

By Trader Mark

http://www.fundmymutualfund.com

Mark is a self taught private investor who operates the website Fund My Mutual Fund (http://www.fundmymutualfund.com); a daily mix of market, economic, and stock specific commentary.

See our story as told in Barron's Magazine [A New Kind of Fund Manager] (July 28, 2008)

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