U.S. Economy Tipping into Recession Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there\u2019s nothing that policy makers can do to head it off. ECRI\u2019s recession call isn\u2019t based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down \u2013 before the Arab Spring and Japanese earthquake \u2013 to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not \u201csoft landings.\u201d Last year, amid the double-dip hysteria, we definitively ruled out an imminent recession based on leading indexes that began to turn up before QE2 was announced. Today, the key is that cyclical weakness is spreading widely from economic indicator to indicator in a telltale recessionary fashion. Why should ECRI\u2019s recession call be heeded? Perhaps because, as The Economist has noted, we\u2019ve correctly called three recessions without any false alarms in-between. In contrast, most of those who\u2019ve accurately predicted a recession or two have also been guilty of crying wolf \u2013 in 2010, 2005, 2003, 1998, 1995, or 1987. A new recession isn\u2019t simply a statistical event. It\u2019s a vicious cycle that, once started, must run its course. Under certain circumstances, a drop in sales, for instance, lowers production, which results in declining employment and income, which in turn weakens sales further, all the while spreading like wildfire from industry to industry, region to region, and indicator to indicator. That\u2019s what a recession is all about. But how can we have a new recession just a couple of years after the last one officially ended? Isn\u2019t this too short for an economic expansion? More than three years ago, before the Lehman debacle, we were already warning of a longstanding pattern of slowing growth: at least since the 1970s, the pace of U.S. growth \u2013 especially in GDP and jobs \u2013 has been stair-stepping down in successive economic expansions. We expected this pattern to persist in the new economic expansion after the recession ended, and it certainly did. We also pointed out \u2013 months before the recession ended \u2013 that because the \u201cGreat Moderation\u201d of business cycles (from about 1985 to 2007) was now history, the resulting combination of higher cyclical volatility and lower trend growth would virtually dictate an era of more frequent recessions. So it comes as no surprise to us that, with the latest expansion only a couple of years old, we\u2019re already facing a new recession. Actually, such short expansions are hardly unheard of. From 1799 to 1929, nearly 90% of U.S. expansions lasted three years or less, as did two of the three expansions between 1970 and 1981. In other words, such short expansions are unusual only with respect to recent decades. It\u2019s important to understand that recession doesn\u2019t mean a bad economy \u2013 we\u2019ve had that for years now. It means an economy that keeps worsening, because it\u2019s locked into a vicious cycle. It means that the jobless rate, already above 9%, will go much higher, and the federal budget deficit, already above a trillion dollars, will soar. Here\u2019s what ECRI\u2019s recession call really says: if you think this is a bad economy, you haven\u2019t seen anything yet. And that has profound implications for both Main Street and Wall Street.<\/p>\n