This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Growth Signals Turn Yellow

Economic forecasts are like bellybuttons: Everyone's got one. But a few are worth more than others, and the J. Lo of U.S. economic forecasting in the past few years is Lakshman Achuthan at the Economic Cycle Research Institute in New York. He was among the few who accurately forecast the last recession and recovery.

In recent weeks, Achuthan's navel-gazing has produced a picture almost as disturbing as the movie Gigli. He says the U.S. economy is on track to slow down dramatically over the next three to six months -- an unexpected turn of events that could threaten the president's re-election bid, frustrate job-seekers and jeopardize corporate expansion plans.

The forecast is based on an abrupt downshift in his organization's venerable Weekly Leading Index, or WLI. The index forecast the 2001 U.S. recession in mid-2000 at a time when most economists and corporations saw only sunny skies ahead. It also forecast a recovery in 2002 at a time of much bear-market despair.

A Downturn Ahead?

The WLI is composed of eight signals that independently take the pulse of the economy at key pressure points. Some of those pressure points are still positive, but the majority has turned negative in recent weeks despite the upbeat outlook articulated by federal monetary and political officials, not to mention Wall Street brokerages.

The growth rate of the index, in fact, has hit its lowest level since late June 2003 -- a time when the model's expectations for economic strength were ramping up for good reason. Now the expectations are ramping down. "It's a pervasive decline," Achuthan said in an interview from his office in New York. "And there's not a lot countering it."

It's not just oil, which is a relatively minor factor in the economic forecast, weighing on the index. A host of reasons drive the ECRI's model into negative territory, among them the flattening money supply, diminishing mortgage applications, sinking industrial prices, falling stock prices and rising corporate bond yields. Rising employment and narrowing bond risk spreads are the only two positives it sees on the horizon.

Achuthan has just published an excellent book called Beating the Business Cycle with Anirvan Banerji, a contributor to TheStreet.com's sister site RealMoney. The book is about the methods ECRI uses to forecast the economy, and Achuthan says the growth slowdown is "by no means a three-alarm fire." He just wants to warn businesses and individuals that the above-trend 4.5% to 5% growth the country is now enjoying is likely to start gliding back down toward the long-term trend of 3% to 3.5% growth.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $120.77 -0.44%
FB $94.87 0.91%
GOOG $632.56 1.10%
TSLA $264.19 -0.74%
YHOO $36.82 0.41%

Markets

Chart of I:DJI
DOW 17,638.12 -51.74 -0.29%
S&P 500 2,103.83 -0.01 -0.00%
NASDAQ 5,135.5220 +7.2410 0.14%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs