One on One with Lakshman Achuthan, Managing Director of the Economic Cycle Research Institute
Thursday, April 03, 2008
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SUSIE GHARIB: Our guest tonight believes that the U.S. economy is on track for a recession. He's Lakshman Achuthan, managing director of the Economic Cycle Research Institute. Hi Lakshman.
LAKSHMAN ACHUTHAN, MANAGING DIRECTOR, ECONOMIC CYCLE RESEARCH INSTITUTE: Hi. Good evening.
GHARIB: So do you think that today's report on that big jump in jobless claims confirms a recession forecast?
ACHUTHAN: Well, it certainly is part of the story. At the center, at the epicenter of a recession, the hallmark of a recession is this months on end of mounting job losses and we've had a couple of months of negatives jobs growth. I expect we are going to get a string of negative jobs growth reports in front of us. The key thing that shifted because we all know that recession has been going on in the construction and in the financial services sectors. It's the non-financial services sectors. That is where five out of eight Americans work. That cycle has taken a sharp turn for the worst, very recently. And that's what drove us to the first recession call we've made since early 2001.
GHARIB: So are you expecting negative jobs growth for tomorrow's March employment report?
ACHUTHAN: Yeah, I think these reports, tomorrow's reports and for months afterwards are going to be negative. They are going to be consistent with recession. You know, any one month's number has a margin of error of plus or minus at least 100,000. So let's not ascribe a false sense of precision to some of these economic data.
GHARIB: So you are calling for a recession. How long will that recession last? Will it be quick, can we get it over with or is it going to be long and painful?
ACHUTHAN: Hard to say. The last two recessions are eight months long. And herein lies the rub. I mean when you are trying to have policies to deal with recessions and to counter them and to get a recovery going, you can't have a policy debate that lasts for six months because that's practically the whole length of recent recessions. Right now we don't have any sign of an upturn. And all that says is that you know, through the third quarter or so there is no recovery. We're still going to be sliding down. There may be a recovery at the end of the year but there is no objective evidence other than Fed stimulus to suggest that.
GHARIB: So how are we going to know when the recovery begins and the recession is over?
ACHUTHAN: Well, you are going to see first off leading indicators. So we see Fed stimuluses going out there. But you need to see corporate profits begin to bottom, corporate profits growth has to bottom and begin to firm. The housing sector has to bottom, also confidence, psychology, what's going on with consumer and investor confidence. And we don't see any of those three areas other than monetary and fiscal stimulus moving things to the upside yet.
GHARIB: All right, so Fed Chairman Ben Bernanke said yesterday that he sees the possibility of recession. Should we conclude then that Fed policymakers are going to cut interest rates again at their meeting at the end of April.
ACHUTHAN: That as far as Fed chairman goes to saying there is a recession going on. And they are absolutely focused on mitigating that recession. However, I, you know, I wish they would listen to their grandmothers who said a stitch in time saves nine. If we had moved quicker, I don't think we would be having such drastic policy responses right here.
GHARIB: So do you think, where do you think rates are going to go, how low are they going to go? Are they going to get down to 1 percent, 0 percent and will that jump-start the economy?
ACHUTHAN: Well, first off they are going to go lower. We're around two now. We were at 1 percent, not that long ago in '02 and '03, we were there and it certainly jump-started the economy and got housing booming and the economy going pretty strong. So I suspect it will work again. I mean liquidity does push the economy up. We just have to watch out for where it pops up in the next bubble it creates.
GHARIB: All right Lakshman, thank you so much for coming on the program, we appreciate it.
ACHUTHAN: Thank you, Susie.
GHARIB: My guest tonight, Lakshman Achuthan, managing director of the Economic Cycle Research Institute.
