Host Guy Raz talks to economist Lakshman Achuthan, managing director of the Economic Cycle Research Institute, about worrying new economic data. Housing sales fell 30 percent in May to the lowest level on record, and markets are faltering on fears of a renewed recession.
July 3, 2010 | All Things Considered, NPR
GUY RAZ, host: Now if all that sounded grim, there's more. Science are pointing to a long period of slow growth and recurring recessions. That's the somber conclusion of economist Lakshman Achuthan and most of his economic predictions have been correct.
Achuthan is the managing director of the Economic Cycle Research Institute and he joins me from New York. Welcome.
Mr. LAKSHMAN ACHUTHAN (Managing Director, Economic Cycle Research Institute): Thank you.
RAZ: This week, you released a report saying that the global industrial downturn is now just underway. I thought the worst days were supposed to be behind us. But you're saying it's just underway.
Mr. ACHUTHAN: Well, yes. I mean, what goes up must come down. We did have a nice acceleration out of the depths of the recession last year. But now, along with the U.S. economy, the global economy in terms of growth rates is turning back down. And we're doing it in a fairly synchronized manner. Pretty much every country around the world is going to see its growth rates start to throttle back.
RAZ: Is this the much feared double-dip recession?
Mr. ACHUTHAN: Well, not exactly. What's happening now is some downshifting after a year of positive growth. Now, it would be a huge problem if we not only downshifted, but we actually slipped into reverse, meaning like a brand new recession next year when the jobs market, for example, here has only just begun to recover.
But when we look at our leading indicators that we maintain to monitor what's going on with the business cycle, this slow down is basically a done deal no matter what anyone says or tries to do about it.
RAZ: What do you mean it's a done deal?
Mr. ACHUTHAN: Well, it's essentially not something that any type of policy action or luck is going to reverse. Once you see the drivers of the economy that these leading indicators are measuring, once they collectively begin to ease economic activity itself, jobs growth, industrial production, sales and so on, all ease in its wake. And so when we see profits growth or money growth or inventory issues or confidence start to collectively throttle back, then actual production, actual jobs growth, actual sales and income also throttle back.
So right here at the middle of 2010, it may be pretty much as good as it gets in terms - not only of U.S. growth, but also global growth.
RAZ: So if the global industrial downturn is now underway once again and we're going to enter a, let's say, a six to eight-month period of a slowdown, you're not ruling out the possibility of a double-dip recession?
Mr. ACHUTHAN: No. You know, double-dip is kind of a pseudo-technical word. You know, we have had a real recovery in a technical sense. We've had a year of growth. So it would probably be a new recession if there was a new recession on the horizon. But it's not yet baked in the cake. The risks have certainly risen.
And the bigger concern, beyond what may happen in 2011, which is maybe like 50-50 chance of a new recession, the bigger concern is that in the coming decade, we are almost sure to see more frequent recessions than we've been used to at any time since the early 1980s. And that brings with it a huge host of problems.
RAZ: Explain why.
Mr. ACHUTHAN: Well, the business cycle is more volatile, more like booms and busts, combined with lower altitude, weaker and weaker trend growth. Ever since the 1970s, the pace of economic expansion in the U.S. has been stair-stepping down, getting weaker and weaker. And the last expansion was the weakest expansion since World War II on every single count of how strong an expansion can be.
So if you have low altitude and high turbulence, you end up crashing more frequently. And the problem with that, okay, it sounds bad, but the literal problems are that every time there's a recession, the unemployment rate goes back up. So we have unemployment, it's down from the peak last October at 10.1 percent to now nine and a half percent. But nine and a half percent is really high.
RAZ: Mm-hmm.
Mr. ACHUTHAN: And if we have a new recession anywhere near - with unemployment anywhere near these levels, it goes to new highs again and you have chronically high unemployment. The other problem is the markets can never really take off. You're always scared of a new recession.
RAZ: Lakshman, a lot of really smart economists in this country say we need another economic stimulus to sustain the recovery. Do you agree?
Mr. ACHUTHAN: It would be too late. See, the leading indicators are already turning down. So let's say, today, we debate a new stimulus package to sustain the upturn that we've enjoyed for the last year. In a best case scenario in a few months, they may agree on something.
And I think I'm being optimistic. And then it might take another quarter or two for whatever they agreed on to actually hopefully impact the economy. And really that's being highly optimistic.
The business cycle doesn't wait for any of that. By that time, we're talking about 2011 and I don't know where our leading indicators are going. It's quite possible that by then, they've already foretold of the new recession. This has been the problem with policy that it's essentially reactive; it's not in front of the business cycle.
RAZ: So, I mean, the bottom line here is that we should be bracing ourselves for a long period of economic malaise.
Mr. ACHUTHAN: Yeah, near-term what is virtually guaranteed is the slowdown that's baked in the cake. Growth will not improve from here. It will start to ease back off. There is a rising risk of a new recession just beyond the horizon, perhaps in 2011. And that's your near-term forecast.
Separately, when we look at the backdrop of the business cycle for the coming decade, it virtually dictates more frequent recessions than most people can remember. The last time we had frequent recessions in this country was from the late '60s until the early '80s. And, you know, you can kind of recall back what it felt like. We survived it, but there were a lot of ups and downs. And it was a little difficult to (unintelligible).
RAZ: That's quite sobering news from Lakshman Achuthan. He's the managing director of the Economic Cycle Research Institute. He joined me from New York. Lakshman, thanks so much.
Mr. ACHUTHAN: Thank you.
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