A look at ECRI's recession predicting track record

Lakshman Achuthan at the ECRI has been making some pretty confident statements in recent months. He says leading indicators tell him that the recession ended this summer, a V recovery is now underway and no meaningful downturn in the stock market is likely ahead. I would love to admire such confidence about an unforeseen future. If I knew less, I might. Unfortunately experience has taught us that over-confidence in this area is naive and financially dangerous.
A close study of the past few cycles shows that ECRI's leading indicators have not offered accurate advance warning of downturns but rather have tended to coincide with or slightly trail stock market movements. Not only did the ECRI not predict the start or depth of the present downturn but back in 2002 the ECRI was also predicting an “imminent recovery” based on a recovery in the stock market:
“At the point of ECRI's recovery forecast, the SPX was making its first post-9/11 rally highs at a January 2002 close of ~1,130 (print high of 1,177). The SPX fell thereafter from April 2002 by ~30% to the September closing low and ~35% peak to trough in October.
The SPX made a secondary higher low in March 2003 some 14 months after ECRI's “imminent recovery” call.”
For a lengthy and detailed review of their track record read: A look at ECRI's recession predicting track record

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2 Responses to A look at ECRI's recession predicting track record

  1. Anonymous says:

    Dear Ms. Park,
    To be fair, please post from ECRI: A Reply to Paul Krugman.

  2. Anonymous says:

    I take it you mean this response which ECRI posted yesterday
    The point I think is that no one has a crystal ball on the future so humble probability analysis is the only honest approach. Confident predictions are always dangerous, and so a hedged or varied outcome plan is the only reasonable course. Many of ECRI's claims and calls are indefensible on these grounds. Maybe after this they will learn to be more humble and honest about their limitations going forward. That is always refreshing.

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