The risk of recession is rising, warned Lakshman Achuthan, managing director Economic Cycle Research Institute, in an interview today. But it’s not yet clear if the risk is the real deal or an idle threat.

What’s clear is that the rate of growth in the economy is slowing, according to ECRI’s weekly leading index, which slumped 5.7% last week and 3.7% the previous week. The downturn is pronounced and pervasive, Achuthan explained today on Yahoo Finance’s Tech Ticker. What’s missing to seal the deal in terms of making a clear forecast of recession is persistence in the trend, added the co-author of Beating the Business Cycle. It’ll take a few months of watching ECRI’s leading index to determine if there’s a new recession ahead vs. a slowdown in growth. Of course, the clues may be obvious by then to even a casual observer.
In the meantime, there’s only speculation, along with a reasonable range of opinion about what’s coming, he advised. Although ECRI’s brand of leading index has a good forecasting record, it’s not perfect, he admitted. The future, in short, is still uncertain. So it goes with all economic forecasting techniques that have the thankless task of divining the future with yesterday’s numbers.
As for the latest reports, the fact that economic growth is slowing isn’t all that surprising. As we’ve been discussing on these pages for some time, a downshift was probably inevitable. Yes, we’ve had a “V” recovery, but it couldn’t last, at least not at the pace over the past year. Unfortunately, the labor market has only recently joined the expansion, and only marginally. A downturn in the overall growth rate may threaten the nascent rebound in jobs. But as troubling as that will be if growth continues to slow, an outright recession would compound the problem.
But we’re getting ahead of ourselves. The recession risk, although higher today than it was a month or two back, still isn’t so severe that the threat is now destined to go viral. Nonetheless, the markets are predicting a higher risk of trouble ahead, as last month’s selling suggested.
How worried should we be? As usual, Achuthan brings some much-needed perspective on the current reading of the business cycle. Let’s go to the videotape…