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Tuesday, March 27, 2012

ECRI's COO Re-iterates that a 2012 U.S. Recession is Imminent

Data released on Tuesday revealed a decline in manufacturing and consumer confidence, and a rise in the price of single-family homes, as shown on the graphs below.

This latest data on the increase in the price of homes is at variance with declining home sales, as noted in my post of March 26th, and a decline in the purchase price of homes with mortgages backed by Fannie Mae and Freddie Mac...one to watch to see if single-family home prices continue to rise if home sales (which are still at their 2009 lows) continue to drop.

This article published in Toronto's Globe and Mail on March 26th re-iterates ECRI's co-founder and COO, Lakshman Achuthan's call that a U.S. recession is imminent. According to the article, "ECRI predicted back in September that it would begin by the middle of 2012...and it hasn't backed down from that prediction...ECRI's bearish view is not  only backed by its data, but by its track record. The firm, founded in 1996, has correctly predicted each of the past three recessions - and has yet to be wrong in throwing down the dreaded 'R-word.' By contrast, the stock market - whose recent upswing has been credited at least in part to the improved economic sentiment - has proved a much less reliable predictor, particularly with its tendency to deliver false signals of impending turning points."

Perhaps ECRI's position is the reason for the Fed's predilection towards its ongoing monetary easing stance, coupled with its assumed "dual mandate" role. ECRI's position is in keeping with weakening global data, as reported in my post of March 23rd and numerous prior posts that I have referenced therein, as well as with the weak (still declining) housing data. Normally, housing is one of the first sectors to recover after a recession...this time it hasn't. This is obviously an area that has never been resolved by the Fed's QE1&2 and Operation Twist programs, or by the politicians (Republicans and Democrats alike), since the 2007/08 financial crisis began.

Time will tell whether ECRI's forecast does, in fact, materialize, what tools the Fed may employ to counteract a recession, and whether those tools are effective this time, particularly with respect to housing. However, in the event of further global economic, political, and social erosion, it's doubful that the U.S. can escape further softening or even a recession.