MacroVoices #402 Lakshman Achuthan: A Soft Landing Still A Dream
ECRI co-founder Lakshman Achuthan maintains his recession forecast despite recent market rallies, arguing that underlying economic weakness persists. He explains why the 'soft landing' scenario remains unlikely based on ECRI's cyclical indicators showing continued economic deceleration and sticky inflation.
Summary
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.
About this episode
MacroVoices Erik Townsend and Patrick Ceresna welcome back Lakshman Achuthan as this weeks featured guest. They'll discuss ECRI’s leading indicators, growth and inflation, the Hard Landing Lak still predicts and much more! https://bit.ly/49S2gBN Check out Energy Transition Crisis on YouTube: https://www.youtube.com/@EnergyTransitionCrisis1 Join OptionFinity discord: https://discord.gg/Rvnsv6Y Download Big Picture Trading Chartbook 📈📉: https://bit.ly/3SNA7Wb ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://bit.ly/2JjZR7J Please visit our website https://www.macrovoices.com to register your free account to gain access to supporting materials
Key Insights
- ECRI's US Coincident Index shows continued economic slowdown with no signs of reacceleration, contradicting soft landing narratives based on GDP growth alone
- Job growth is increasingly concentrated in non-discretionary sectors like education and health while discretionary employment weakens, creating a classic recessionary pattern masked by overall job numbers
- Post-COVID structural imbalances including massive labor supply disruption and policy responses have created unusually long lead times for recession indicators
- Forward-looking inflation indicators suggest underlying price pressures have stopped falling, making inflation stickier for longer than markets expect
- Even if inflation reaches 2% during a recession, this could represent just a cyclical low in a new structurally inflationary era rather than a return to the previous low-inflation regime
- ECRI's 21-country long leading index indicates continued global economic weakness with no international growth to rescue the US economy
- Labor hoarding due to previous hiring difficulties is preventing the typical recession signal of mass layoffs, despite managers using other adjustment levers like reducing hours and temporary workers
- Cyclical analytical frameworks remain reliable even when underlying data quality is questionable because inflection points are harder to manipulate than absolute levels
Topics
Transcript
This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna. Macro Voices episode 402 was produced on November 16th, 2023. I'm Eric Townsend. Economic Cycles Research Institute co-founder Lakshmana Chuthan returns as this week's feature interview guest. We'll discuss ECRI's leading indicators, growth and inflation, the hard landing that still predicts, whether inflation is sticky or transient, and much more. And I'm Patrick Ceresna with the Macro Scoreboard. Week over week as…
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