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Moneyline interview


The Federal Reserve will likely consider those reports, along with several others, including producer prices and consumer prices, when it meets June 26th and 27th. Many analysts predict the Fed will decide to lower interest rates yet again. But my next guest says rate cuts won't save us from a recession.

Joining me now is Lakshman Achuthan, who is managing director of the Economic Cycle Research Institute. And it is great to have you with us...

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Good evening.

DOBBS: ... despite your forecast.

ACHUTHAN: Calling it like the numbers say.

DOBBS: You absolutely believe that recession is inevitable?

ACHUTHAN: I think that we've moved from forecasting a recession to having an recession. It's not even a forecast any more. The indicators that define recession are acting in ways that are only seen during a recession.

DOBBS: Let's step back to the classic definition of a recession, two consecutive quarters of declining GDP. And in the first quarter, the government, with its revision, says 1.3. The second quarter, you think, is at what level?

ACHUTHAN: Maybe end up being a bit positive. But that's really a rule of thumb. It's the -- the actual definition is a pronounced, pervasive and persistent decline in industrial production, employment, manufacturing and trade sales, and income.

And the first three areas are all moving in ways that are similar to how they move in recessions. Often, the first quarter, when a recession begins in that quarter, it might actually be positive, but the recession could still begin.

DOBBS: It could?

ACHUTHAN: That happens.

DOBBS: Point in fact, one could argue, that after seeing a dramatic revision in first quarter GDP growth, it wouldn't be unreasonable to expect another revision even more dramatic?

ACHUTHAN: Government statistics have been known to be revised.

DOBBS: But let's look at the economy in other ways, in terms of unemployment, we're at basically 4.5 percent, which is basically where we were two years ago. We still have constrained inflation, we have five interest rates cuts, 250 basis points. We have tremendous vitality on the part of the consumer in the face of all negativity surrounding consumers. Doesn't that surprise and in any way, gladden your heart as you look at these things?

ACHUTHAN: There's many things that gladden my heart. I like to see the consumer spending. I like to see the Fed cutting. I like to see tax cuts.The last two, Fed cutting and tax cuts, will mitigate the downturn. It would be a lot worse if that was not happening.

However, in five of the past nine recessions, personal spending never turned down. So, but the broader measures like manufacturing and trade sales, those are going down. So, that's what's of concern, and if we are in a recession now -- if we're not, it's the worst non-recession I've ever seen. But if we are in a recession, what's troubling is that we also have a lot of weakness overseas, we have overseas big economies contracting.

DOBBS: But isn't overseas, as you point out, particularly -- particularly Mexico and Japan declining. In the case of Japan, it looks as though a recession is a forgone conclusion, perhaps we can add Mexico to that. But those economies are relied upon this, not we upon theirs, in the final analysis, our market will remain despite the huge declines last year,strong, this economy remains vital, it is not growing at anything like a runaway rate.

Give me an idea when to go to that classic definition of two quarters of negative GDP?

ACHUTHAN: You may have to wait until the end of the year, maybe early next year. (CROSSTALK)

ACHUTHAN: Yes, the dust will settle, and you'll see it. They never really date a recession when it's happening. They do it well after the fact. And it's true that this economy very often could stand on its own, but when we've had persistent recessions, ones that are longer than average, those are like 73, 75, 81, 82, those are international in nature, and that backdrop has us a little worried, too.

The second part that has us worried is that the leading indicators that anticipated the current weakness in the economy have yet to decidedly turn up, save the financial markets, those are the only ones that have turned up so far.

DOBBS: With some aberration, I guess what you would call aberration in the index, the leading economic indicator?

ACHUTHAN: Those are one set of indicators. I think we watch a much broaderset, and even those are acting recessionary at this point in our view.

DOBBS: I respect greatly your work and that of your institute, and I know your sophistication and I hope in this case, the sophistication doesn't turnout to be correct.

ACHUTHAN: This will just set us up for the next discussion.

DOBBS: Good to have you with us.

ACHUTHAN: Thank you very much.