MacroVoices #402 Lakshman Achuthan: A Soft Landing Still A Dream

Lakshman Achuthan from the Economic Cycles Research Institute discusses why he maintains his hard landing prediction despite recent strong market performance and GDP numbers. He explains that ECRI's US Coincident Index shows clear economic slowdown rather than acceleration, and argues that focusing solely on GDP can be misleading since it doesn't capture the full picture of economic activity including employment, income, and sales. Achuthan attributes the unusually long lead time of their recession indicators to post-COVID structural imbalances, particularly massive labor supply disruption and policy responses that created labor market distortions. He demonstrates how job growth is increasingly concentrated in non-discretionary sectors (education and health) while discretionary employment is weakening - a classic recessionary pattern. On inflation, Achuthan argues it will remain 'sticky' longer than markets expect, with ECRI's forward-looking inflation indicators showing underlying price pressures have stopped falling rather than continuing to decline. He suggests that even if inflation reaches near the Fed's 2% target during a recession, this could represent just a cyclical low in a new structurally inflationary era, similar to the 1970s when cyclical lows were under 3% but highs exceeded 13%. Globally, ECRI's 21-country leading indicators suggest continued weakness in world trade and economic activity, meaning the US won't be rescued by international growth. Achuthan addresses concerns about Chinese economic data reliability but argues that cyclical frameworks are robust against data manipulation since inflection points remain reliable even when levels are distorted.