Economists as a group aren't particularly good at forecasting recessions. Perhaps Paul the Octopus, the psychic cephalopod who went eight-for-eight calling World Cup match winners, should weigh in on whether the U.S. economy is headed for a double-dip recession.
Unfortunately, in the real world of reason, an economic indicator with a perfect 40-year history of predicting recessions just said a double-dip is coming for sure.
The Economic Cycle Research Institute, an independent organization of economists, is best known for publishing the economy's "leading indicators" that we in the media sometimes like to chatter about. And on Friday, the institute said its ECRI Weekly Leading Index "growth rate" broke below -10%.
As David Rosenberg, the bearish chief economist and strategist at Canadian asset manger Gluskin Sheff, has reminded his clients repeatedly: Every time this index has hit the -10% level since its inception in 1967, a recession has followed.
Just take a look at the chart below, courtesy of Haver Analytics and Gluskin Sheff. The shaded areas are periods when the economy hit a recession.
"To little fanfare, the ECRI just hit -10.5 for the July 16th week," Rosenberg told clients Monday. "It's never been here before without there being a recession."
Now before anyone freaks out, Rosenberg himself puts the probability of a double-dip recession at 67%. That's to say, It's a likely outcome, but hardly a certain one. Which isn't very reassuring. Perhaps we should ask Paul.
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