The ECRI Approach
The Forecasting Challenge
Many economists claim that recessions can't be predicted. They're partly right. Typical forecasting models used by economists can't accurately predict a recession: as the IMF concluded, in a study of economist forecasts from 63 countries, their “record of failure to predict recessions is virtually unblemished.”
But economists are wrong in thinking that accurately predicting recessions is impossible: as The Economist magazine noted in 2005, “ECRI is perhaps the only organisation to give advance warning of each of the past three recessions; just as impressive, it has never issued a false alarm.”
Forecasting turning points in economic growth and inflation is exactly what ECRI does.
Most forecasters use models that reduce a complex economy to a rigid set of largely backward-looking relationships. Simply put, they try to predict the near future based on what has happened in the recent past. This can work for a while – until the critical moment when a turning point approaches, and such models reliably fail. This is because extrapolating from the recent past is a sure-fire recipe for being surprised by the next turn.
Our Advantage: Strong Foundation, Ongoing Advances
A century-long tradition of business cycle research gives ECRI a singular perspective on the ebb and flow of the economy, even in the face of unexpected shocks. Our approach builds on the work of ECRI's co-founder, Geoffrey H. Moore, and his mentors, Wesley C. Mitchell and Arthur F. Burns.
Our track record reflects the major strides we have made since the mid-1990s, following the development of a critical mass of leading indicator systems. Our advancements include:
- The creation of a comprehensive framework of leading indexes for key aspects of each economy (economic growth, inflation and employment) and for major sectors (services, manufacturing, construction, and foreign trade)
- Broad international coverage of over 21 economies, including the first-ever leading indicator systems for China, India, Brazil and Russia
- A breakthrough in understanding and monitoring global cyclical contagion
ECRI's forecasting framework is the state of the art.
Our indicator systems are designed to predict the timing of future changes in the economy's direction. They signal those turns before the fact, and well before the consensus. ECRI's focus is on identifying when those changes in direction will occur (see chart)
The discipline and objectivity of our approach allows us to step away from the crowd at the right time, and presciently predict turning points, while most forecasters — and their clients — sit and wait.
ECRI is an independent research institution, acknowledged for its objectivity and non-partisanship: we have a broad membership base and are not constrained by dominant academic paradigms, political ideologies, or support from special-interest groups.
About Business Cycles
Monitoring Business Cycles Today
See the state of the art.
Our Track Record
Highlights of ECRI's calls.
The clarity and conviction to break from the crowd at the right time.
Over the last 15 years, [ECRI] has gotten all of its recession calls right, while issuing no false alarms.
Inflation Ahoy! We're indebted to the ECRI, that unnapping watchdog of inflation, for the FIG data.
ECRI is perhaps the only organisation to give advance warning of each of the past three recessions; just as impressive, it has never issued a false alarm.
I have to pay attention to those people and indicators that have pointed in the right direction – even when they've gone against the crowd (and my opinion at the time). One such outfit is the Economic Cycle Research Institute, whose various leading indicators actually have done just that – lead where things were headed.
In March , the month the market scraped bottom, ECRI went forth with [a] tablepounding historical observation… The implication could not have been clearer that a market rally, when it started, would be no sucker's affair but the real McCoy.
This approach works like a charm.