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No Double-Dip


DYLAN RATIGAN: WELCOME BACK. WE HAVE LAKSHMAN ACHUTHAN, THE MANAGING DIRECTOR WITH THE ECONOMIC CYCLE RESEARCH INSTITUTE. THEY HAVE BEEN VERY GOOD AT PREDICTING OR AT LEAST GIVING US INDICATIONS OF PREDICTION AS TO ECONOMIC ACTIVITY. I WELCOME YOU TO THE PROGRAM.

LAKSHMAN ACHUTHAN: THANK YOU.

RATIGAN: YOU CALLED THE RECESSION IN 1990 AND 1991. YOU DID IT IN 2000 AND 2001. YOU NOW SIT WITH US NOT ONLY SAYING THAT THE RECOVERY IS REAL BUT THAT THE FEARS OF A DOUBLE DIP OR CONCERN ABOUT ITS SUSTAINABILITY ARE NOT SOMETHING YOU SHOULD BE WORRIED ABOUT.

ACHUTHAN: RIGHT AND THE REASON WE ARE ABLE TO SAY THIS IS BECAUSE WE ARE WATCHING A WIDE ARRAY OF VERY GOOD LEADING INDICATORS OF THE ECONOMY - LEADING INDEXES.

THEY ARE RISING IN A PRONOUNCED -- THEY ARE RISING IN A PRONOUNCED AND PERVASIVE WAY TELLING US WE WON'T HAVE A DOWNTURN ANYTIME SOON. THAT MEANS THE REST OF THE YEAR.

THE FEARS OF A DOUBLE DIP AND A RETURN TO NEGATIVE GROWTH AFTER A POSITIVE FIRST QUARTER ARE UNFOUNDED. WE BELIEVE THE RECESSION IS OVER. THE RECOVERY IS HERE. AND IT'S LIKELY TO POSSIBLY GAIN STEAM TOWARD YEAR END.

RATIGAN: WHAT ARE THE INDICATORS?

ACHUTHAN: THESE ARE LONG LEADING INDEX OF THE ECONOMY. THE WEEKLY LEADING INDEX WHICH COMES OUT EVERY FRIDAY.

RATIGAN: BUT WHAT ARE THE CONSTITUENTS OF SOMETHING LIKE THAT?

ACHUTHAN: MONEY, PROFITS. WE HAVEN'T SEEN TOO MUCH OF THOSE YET. THOSE ARE A LEADING INDICATOR OF BUSINESS CONFIDENCE OR SPENDING. AND HOUSING. ALL OF THESE THINGS.

THE IMPORTANT THING IS THEY ALL HAVE CERTAIN STRENGTHS. WE TARGET THEM, TO DIFFERENT ASPECTS OF GROWTH AND ABLE TO HAVE LEADING INDICATORS OF THE MANUFACTURING SECTOR WHICH IS COMING ON STRONG. LEADING INDICATORS OF THE SERVICE SECTOR WHICH HAS STOPPED WEAKENING AND TURNED UP. NOT AS STRONGLY, BUT THE DIRECTION IS RIGHT.

SO WE'RE HAVING A PERVASIVE RISE IN ACTIVITY IN DIFFERENT SECTORS OF THE ECONOMY WHICH ALLOWS US TO SIT HERE AND SAY NO DOUBLE DIP.

RATIGAN: THE OTHER CONCERN OR ONE OTHER CONCERN HAS BEEN THE EXTRAORDINARY STRENGTH IN THE HOUSING SECTOR. AND THE FACT THAT THAT -- AND A ROLLOVER IN THAT MARKET STILL COULD BE IN THE OFFING. THAT POTENTIALLY IT'S A LAGGING ENVIRONMENT AND WE HAVE A BUBBLE IN HOUSING.

ACHUTHAN: VERY INTERESTING POINT ABOUT THIS RECESSION. WE HAVE A LEADING INDICATOR OF HOME PRICES, AND CONSTRUCTION. HAS ALWAYS TURNS DOWN GOING INTO RECESSIONS. EVERY SINGLE RECESSION WE'VE WATCHED IT'S DONE THAT.

THIS TIME IT DIDN'T. CORRECTLY ANTICIPATING THE SURPRISING STRENGTH IN THE HOUSING SECTOR. WHAT IT'S ALSO TELLING US, LOOKING FORWARD, IS THAT IT'S NOT LIKELY TO COLLAPSE. SO THIS FEAR OF A BURST IN THE HOUSING MARKET THAT HAS RUN OUT OF STEAM IS NOT SOMETHING THAT IS SHOWING UP IN OUR CYCLICAL INDICATORS WHICH HAVE CORRECTLY ANTICIPATED THE HOUSING CYCLE.

IT ALSO SAYS THAT THERE IS NOT -- IT DOESN'T SEEM TO BE MUCH OF A BUBBLE THERE YET. IT DOESN'T SEEM TO BE THIS BUBBLE EFFECT. WE DIDN'T GO TOO FAR. AND WHEN WE LOOK AT WHAT HAPPENED WITH -- WITH THE SUPPLY OF HOUSING GOING INTO THE RECESSION, FOR SOME OR ANOTHER THERE WASN'T THAT MUCH OVERSUPPLY.

MAYBE THE BUILDERS WERE SMARTER OR UNDERESTIMATED THE DEMAND. AND IF WE LOOK AT SOME OF THE CENSUS NUMBERS WE SEE, THEY WERE EXPECTING A BABY BUST. AND THEY HAVE THAT. BUT IT WAS ALMOST FULLY OFFSET BY IMMIGRANTS BUYING HOUSING. SO THAT THE SUPPLY WAS NOT TOO GREAT GOING INTO THIS DOWNTURN.

RATIGAN: IF YOU FLIP IT OVER, THE OTHER CONCERN, IF THERE IS NO HOUSING BUBBLE, SO HOUSING REMAINS STRONG, AND NO DOUBLE DIP AS YOU ASSERTED BEFORE, THAT INFLATION BECOMES A CONCERN.

ACHUTHAN: IT'S SOMETHING WE SHOULD KEEP A CLOSE EYE ON. THE WAY WE DO THAT IS WATCHING THE FUTURE INFLATION GAUGE. THIS HAS FALLEN TO A 26-YEAR LOW. IT HAS BOUNCED UP IN THE LATEST READING FOR ONE MONTH. THIS FRIDAY WE'LL GET ANOTHER READING. IF IT BEGINS TO PERSIST, THE RISE IN THE FUTURE INFLATION GAUGE, WE WOULD START TO MAYBE BRING OUT THE YELLOW FLAG.

WE'RE NOT SCREAMING INFLATION HERE. BUT IT'S SOMETHING TO WATCH. I THINK THAT IT'S UNLIKELY TO REALLY TAKE OFF UNLESS YOU'RE EXPECTING A SYNCHRONIZED GLOBAL UPTURN. AND WHILE WE SEE THAT HAPPENING IN THE MANUFACTURING SECTOR, WE DON'T SEE IT HAPPENING FOR THE OVERALL WORLD ECONOMY BECAUSE REALLY JAPAN AND PARTS OF EUROPE REMAIN UNDER SOME PRESSURE. THEY'RE NOT CLEARLY RECOVERING JUST YET.

RATIGAN: I'M GOING TO LEAVE IT RIGHT THERE AND TELL YOU IT'S A PLEASURE.

ACHUTHAN: THANK YOU VERY MUCH.

RATIGAN: IT WAS A PLEASURE. HAVE A GOOD DAY, ALL RIGHT?

ACHUTHAN: YES.

RATIGAN: LAKSHMAN ACHUTHAN. I PRONOUNCED THAT CORRECTLY. WE'RE BACK WITH "MONEY FLOW" RIGHT AFTER THIS.
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