ECRI forecasts downturn in US economic recovery

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Q: These disappointing numbers have seen a loss of jobs in the government sector but actually an addition to jobs in the private sector. On balance this is probably encouraging or at least status-quo is not as bad as it looks? Is that correct?

A: It's a mixed bag. We would like it to be a lot stronger. An important positive from today's report is private sector hiring continued for another month. That has been happening all year and that is absolutely critical. If that was not happening I would be much more negative on the outlook.

Another positive from today's report was that the work week got a little longer for everybody who is working and that is a bit of a leading indicator of the jobs market. However it is a mixed bag and I think you are right. Another leading indictor inside the jobs report is the number of temporary workers who are hired because that tends to lead a full time hiring position and those actually fell. We lost jobs there. So the recovery continues but it's slowing already and that's disappointing.

Q: What would you attribute to the slowing of this recovery? You said that you forecasted that there would be slowing in the middle of the year. Why did you expect that, what are the contributing factors, why are we seeing so much divergence in the data whilst one consumer confidence index saying there is increasing confidence amongst consumers and the other one saying quite the opposite?

A: First to why we were forecasting a downturn is simply based on leading indicators. That is what we do in studying recession and recoveries is use indicators like the weekly leading index, to forecast growth rates in the economy and recessions and recoveries as well. Our weekly leading index hit a two and a quarter year high back in April. Then it plunged for two months and that had a lot of observers saying there is a double dip recession out there but not so fast. If we go by our objective methodology that we have used for three generations, we did not make it up today.

It is premature to forecast a new recession because the decline in the index has only been for a couple of months and in the latest month it actually stop declining. It has gone flat. When we look at the pattern of growth coming out of recessions you always have a spurt of growth from the depths of the recession and then a throttling back. About half of the time when you have the throttling back in growth it turns into a new recession and half of the time it's a soft landing. That is why there is so much tension and so much mixed messages in the data is because it probably hasn't been decided which one of those outcomes is going to happen.