Did the US Fall Into Recession During 2012? Are We in Recession Today?

In September 2011 the Economic Cycle Research Institute (ECRI) made a bold forecast of a recession in 2012 for the US economy, unlike the late 2012 boom expected by most economists. The boom never arrived, but perhaps neither did the recession. Today ECRI updates their forecast. Much depends on what the US economy does in 2013.

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  1. Introduction
  2. The latest ECRI report
  3. About the ECRI
  4. Leave a Comment!
  5. For More Information

(1)  Introduction

Here is an important report, somewhat technical but deserves reading in full: “The U.S. Business Cycle in the Context of the Yo-Yo Years“, Lakshman Achuthan, Economic Cycle Research Institute, 5 March 2013 — It’s a brief, less-technical version of the report provided to subscribers (it’s a very expensive service, well-worth the money). Summary:

We are now in the Yo-Yo Years as described by ECRI early last year. Meanwhile, even though some economic data seems stronger on the surface, U.S. Nominal GDP growth is recessionary and we are below a “stall speed” measure highlighted by the Fed.

But first some context about economic forecasting, experts, and the role of consensus thinking in science.

(a) We know where the economy was 3 – 6 months ago, not where it is today. Accurate real time data (eg, new unemployment claims) tends to cover only fragments of the economy. Broad macro data has large error bars and often gets drastically revised — especially at inflection points.

(b)  Accurate economic forecasting lies beyond the current state of the art due to immature theory and the low quality of current data. Plus the rapid evolution of monetary economies makes building reliable models a moving target.  But we need forecasts, and economists do the best they can with available tools.

(c)  Experts’ forecasts tend to come from deeply biased sources, usually optimistic. Government officials value moral-building over truthfulness. Industry sources, such as realtors and investment banks, use bullish reports to boost their business.  The highly political nature of economic policy-making produces more strongly biased forecasts (often contrary to current economic theory).  Hence the value of independent sources like the ECRI (and their peers at the Conference Board and OECD).

(d)  Peoples’ need for certainty and the unreliability of experts fuels the crowd of amateur forecasters, most armed with more self-confidence than knowledge. It’s sad that this junk food for the mind finds such large audiences, since the Internet makes excellent analysis so accessable.

(e)  The monetary and fiscal stimulus applied during the past 5 years has no precedent during peacetime US history, and few precedents anywhere among the developed nations. The size of the stimulus has overwhelmed many market-based indicators of economic health, and perhaps introduced as yet unseen distortions and stresses. This had reduced the effectiveness of the traditional indexes of leading indicators (the ECRI’s WLI, the OECD’s CLI, and the Conference Board’s LEI).

(f)  As often in the sciences (and life) powerful insights often arise not in the consensus but among the fringe of expert opinions. Which brings us to the ECRI. In September 2011 they boldly predicted a US recession in 2012. They’ve repeated that forecast (see links at the end). Today they have updated their forecast, taking a stand against the consensus forecast of a strong recovery late this year and more rapid growth next year (just like the similar wrong consensus forecasts for 2011 and 2012).

(2)  Excerpts from the latest public ECRI report


It is now well known from the Reinhart and Rogoff work that, following financial crises, economies tend to experience unusually weak growth. But what this pattern suggested, even before the financial crisis, is that we were set to see a weak economic recovery, in any case.

Because the weakness of the revival from the Great Recession is almost universally blamed on the financial crisis, there is a broad consensus that the economy will return to much stronger trend growth after the deleveraging phase ends. But the implication of “the yo-yo years” thesis is that there is no clear reason for this longer-term pattern of weak growth to go away, even when deleveraging does come to an end. Indeed, the current evidence suggests that we are already in the yo-yo years for the U.S. and most other major developed economies.

It was against this backdrop, in late September 2011, that ECRI made a recession call. A couple of months later, in December 2011, we clarified our view of the likely recession timing, saying that we thought it would begin by mid-2012, but not be recognized before the end of 2012.

We said this because, over the last six recessions, the median lag between the recession start date and the first negative real-time GDP print had been half a year . As it happened, in January 2013 there was a negative GDP print, consistent with our belief that the recession had begun around mid-2012.

Nominal Gross Domestic Product (GDP)



ECRI, 5 March 2013

To see through such quarter-to-quarter gyrations, it helps to look at year-over-year real GDP growth which dropped to 1.6% in Q4 – a reading rarely seen outside of recession. Let us not forget, as well, that this weak GDP growth comes after trillions in money printing by the Fed and other central banks, with increasing talk of monetary policy targeting nominal GDP growth.

Real Gross Domestic Income (GDI)

But, are we really above stall speed? About two years ago the Federal Reserve Board published a study that investigated various stall-speed measures, including GDP and Gross Domestic Income (GDI), which should theoretically be identical to GDP but for the statistical discrepancy. {“Forecasting Recessions Using Stall Speeds”, Jeremy J. Nalewaik, April 2011} The Fed study concluded that the best stall-speed measure may be the two-quarter annualized growth rate of real GDI, and when that measure fell below 2% it was a recession signal, because the economy would stall out.

… So by last summer it had already spent two quarters below stall speed .

ECRI, 5 March 2013

Here is the real growth by quarter of the US economy, seasonally adjusted and annualized (From the Fed). We were below “stall speed” in Q1 and Q2 both last year and this year. The Fed’s monetary stimulus might have kicked the economy back into slow growth. Perhaps QE3 did so as well in late Q4 or early 2013.

Quarter GDI GDP
Q1 – 2011 2.60% 0.10%
Q2 – 2011 1.40% 2.50%
Q3 – 2011 -0.20% 1.30%
Q4 – 2011 4.50% 4.10%
Q1 – 2012 3.80% 2.00%
Q2 – 2012 -0.70% 1.30%
Q3 – 2012 1.60% 3.20%
Q4 – 2012      na 0.10%


US Coincident Indicators

These “big 4″ indicators were the basis for ECRI’s (probably premature) excitement late last year, as they appeared to peak in July. Now the picture looks less clear. Income shifting at year-end to avoid taxes has distorted the trend.

ECRI, 5 March 2013

Jobs are an important but lagging indicator, still showing slow growth — but decelerating.

ECRI, 5 March 2013


  1. The Yo-Yo Years are here, rooted in long-term structural issues.
  2. U.S. economy is below stall speed by Fed’s own measure; GDP growth is recessionary; and a corporate profits recession is underway.
  3. The business cycle cannot be repealed in market economies.

(3) About the Economic Cycle Research Institute

The ECRI is one of the three best-known publishers of leading indicators, along with the Conference Board and the OECD.

The ECRI is an independent research institute. Their indicator systems predict the timing of changes in an economy’s direction, before the consensus of economists.

The ECRI’s co-founder was Geoffrey H. Moore.  From his March 2000  NY Times obituary  ”In a sense, he was the father of the leading indicators as we know them today,” said Anirvan Banerji, co-director of research with Dr. Moore at the Economic Cycle Research Institute. The successor to the forecasting tools he developed is ECRI’s Weekly Leading Index (WLI). From 1949 to 1978 Moore set the start and end dates of recessions for the National Bureau of Economic Research (NBER). When they created a committee for this, he was its senior member. Using the same approach, ECRI has long determined recession start and end dates for 20 other countries that are widely accepted by academics and major central banks as the definitive international business cycle chronologies.

For information about their approach, see their About page.

(4)  Leave a comment

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(5)  For More Information

Other posts about the US recession forecast of the ECRI:

  1. Is there a dark swan event ahead for the American economy?, 16 May 2012 — About the ECRI forecast
  2. Did the recession begin in July? If so, expect an ugly 2013!, 2 December 2012 — Their update.

This piece is cross-posted from Fabius Maximus with permission.

One Response to "Did the US Fall Into Recession During 2012? Are We in Recession Today?"

  1. jesseLiv   March 12, 2013 at 11:53 am

    ecri may be right after all