Sunday, December 06, 2015

The Endless Parade of Recession Calls

by Bill McBride on 12/06/2015 10:53:00 AM

Note: I've made one recession call since starting this blog.  One of my predictions for 2007 was a recession would start as a result of the housing bust (made it by one month - the recession started in December 2007).  That prediction was out of the consensus for 2007 and, at the time, ECRI was saying a "recession is no longer a serious concern".  Ouch.

For the last 6+ years, there have been an endless parade of incorrect recession calls. The most reported was probably the multiple recession calls from ECRI in 2011 and 2012.

In May of this year, ECRI finally acknowledged their incorrect call, and here is their admission : The Greater Moderation

In line with the old adage, “never say never,” [ECRI's] September 2011 U.S. recession forecast did turn out to be a false alarm.
I disagreed with that call in 2011; I wasn't even on recession watch!

And here is another call today via CNBC: US economy recession odds '65 percent': Investor
Raoul Pal, the publisher of The Global Macro Investor, reiterated his bearishness ... "The economic situation is deteriorating fast." ... [The ISM report] "is showing that the U.S. economy is almost at stall speed now," Pal said. "It gives us a 65 percent chance of a recession in the U.S.
Here is the report Pal is referring to from the Institute for Supply Management: November 2015 Manufacturing ISM® Report On Business®

ISM PMIClick on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

The manufacturing sector has been weak, and contracted in the US in November due to a combination of weakness in the oil sector, the strong dollar and some global weakness.  But this doesn't mean the US will enter a recession.

The last time the index contracted was in 2012 (no recession), and has shown contraction a number of times outside of a recession.

Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view).  Someday I'll make another recession call, but I'm not even on recession watch now.