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Recession, or not?


My guest tonight has been bearish on the economy: He warns we are already in recession, despite the fact that we have not yet seen that classic definition of two consecutive contracting quarters of growth. Lakshman Achuthan of the Economic Cycle Research Institute joins us now. Lakshman, it's good to have you with us.

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Good evening.

DOBBS: We have heard enough bad news already tonight. Give us some good news.

ACHUTHAN: Well, I think people are starting to realize the situation we're in, and beginning to take actions to deal with it. Policy makers took action already and now businesses and finally consumers are doing their thing.

DOBBS: In those actions -- specifically, you're talking about the tax rebate, of course, you're talking about the monetary policy, now we have seven interest rate cuts.

ACHUTHAN: Right.

DOBBS: What actions are we seeing in terms of restructurings and consolidation? Is that what you're referring to?

ACHUTHAN: Right. The businesses have led this downturn. They've been pulling back, trying to get to profitable business plans as quickly as they can. Some faster than others. And now, we see the impact of that, where businesses have pulled back on spending -- including employment -- hitting the consumer to some degree.

DOBBS: The consumer -- this confidence report against the housing report yesterday, we're starting to see some suggestions -- and certainly they're not definitive in any way, but some suggestions -- that the consumer, who's been strong and resilient throughout this year, is starting to say, "Hey, wait a minute. Something is going on here."

ACHUTHAN: Sure. I think the lower interest rates, the aggressive policy earlier this year shored up the consumer. It can only go so far, especially when employment is eroding as it is. The recurring claims numbers have gotten almost to an eight year high.

DOBBS: The jobless benefit claims.

ACHUTHAN: The jobless benefit claims. They come out every Thursday morning. And so that means that there's some uncertainty out there among the consumer that's starting to gain some traction.

DOBBS: Let's get to it. Are we going to have a recession or not?

ACHUTHAN: Yes. We've said very clearly on this show that I think we are in a recession. It began sometime in the first half of this year. I don't know when. I do know it will end at some point. That's the good thing about cycles. The problem is -- and I think there's a real problem -- that Japan is in recession. That Germany reported last week second-quarter annualized growth at a -.1 percent. The last time Japan, Germany and the U.S. at the same time were heading down was 25 years ago.

DOBBS: In the '70s. And what does that portend? Is this going to be -- when I ask is this going to be a recession, what I should have said more carefully, artfully, was will it be two consecutive quarters of contracting economic growth?

ACHUTHAN: The third quarter is shaping up a little shaky already, from the readings we're initial readings we're getting.

DOBBS: We're going to have that revision tomorrow. What's your best guess?

ACHUTHAN: My best guess is, I'll guarantee it's down. Now, if they actually...

DOBBS: Negative?

ACHUTHAN: Down from .7. If it's minus .2, or plus .2 percent -- I don't think it really matters.

DOBBS: Who cares?

ACHUTHAN: Who cares? I mean, we all know what's going on.

DOBBS: Well, you know who cares. Everybody is going to be looking at that. If it's negative, it's a big deal.

ACHUTHAN: Well, it's a headline. It's a headline. But I don't think it changes the reality of what the companies are telling you, or the reality of the layoffs, or the reality of the pull back in the consumer. And that global cyclical downturn, at the same time, it just puts a bigger headwind in front of us as we try to kickstart the economy.

DOBBS: What should the consumer do? What should the investor -- as we look at this. We can talk in macroeconomic theory, we can look at the individual statistics emerging -- they emerged, they're not really delivered -- from Washington, as it would appear. What should the investor, what should a consumer, a saver, be doing here?

ACHUTHAN: Keep your powder dry. Be ready for it to get a little worse before it gets better. A recovery is not imminent. I think that's the clearest thing we can say right now, is that it's not tomorrow. And it's probably not next week or next month. It may be a little bit further off. And we should be prepared for that, and you'll be healthier and better for the up turn if you can do that.

DOBBS: So you're saying this is not necessarily the time to be buying stocks. It's not necessarily the time not to be saving some of that green stuff.

ACHUTHAN: It's probably better. You sleep better.

DOBBS: I know certainly I do.

ACHUTHAN: OK.

DOBBS: Thanks very much. Lakshman Achuthan. Thanks.