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Editor's Note: Lakshman Achuthan and Anirvan Banerji are co-founders of the Economic Cycle Research Institute (ECRI). The opinions expressed in this article are those of the authors.
(CNN) - The stock market is once again reaching its highest records driven by the hope of investors that the recession is no longer a possibility, at least for now. After all, economic data such as retail sales and the unemployment rate do not look disastrous, a trade agreement could be brewing with China and Federal Reserve Chairman Jerome Powell said Wednesday that he expects the economy to remain strong, even if the Reserve has cut its interest rates for the second time this year.
But more than half of the financial directors in the United States expect the country to enter a recession before the 2020 elections, according to a new poll published this week. Our own research shows that they are right to worry: the economic slowdown continues to lend and the risk of a recession gradually progresses.
The conventional idea today is that, while the industry has slowed by the commercial war, the consumer is fit because the labor market is strong. But verifiable data reveals a more severe reality.
While the unemployment rate remains almost at its lowest level in half a century, the growth of the payroll compared to last year - which measures the percentage of increase in non-agricultural jobs in the last 12 months - has already reached its peak high in three years of 1.9% in January. Since then, it has plummeted to its lowest level in eight years just below 1.4%.
The issue now is whether labor growth will continue to deteriorate. Growth in the Leading Employment Index in the US (USLEI) of the Economic Cycle Research Institute (ECRI) - designed to answer that question because it predicts peaks and cyclical minimum points in job growth - fell sharply to its worst reading since the Great Recession. Looking to the future, the implication is very clear: job growth is positioned to slow down more in the coming months.
Meanwhile, GDP growth compared to last year also declined from its cyclical peak in 2Q 2018, when we saw the best GDP growth in recent years: an annual peak of three and a quarter reinforced by a fiscal cut. During the past year - in 2Q 2019 - it had already dropped to its lowest level in two years, and will fall to the lowest point in three years if the “immediate forecast” of the Federal Reserve of Atlanta from the moment I write is correct: of a GDP growth of less than 2% for the current quarter.
In other words, verifiable data shows that the US economic growth slowdown. - which began more than a year ago, as predicted by ECRI - continues. And our research says it won't end in the near future.
The danger is this: if economic and labor growth continue to slow down, the real risk of these slowdowns culminating in a recession remains. In fact, the decline in labor growth to its lowest point in eight years, after the collapse in the growth of the USLEI to its lowest point in ten years, should undermine the conventional idea that the labor market will remain strong. And markedly slower job growth will not sustain the healthy consumer spending that is required for the economy to dismiss the decline in manufacturing.
But even the verifiable data available could be weaker than seen. For example, the lowest point in eight years in the growth rates does not consider the revision already announced for the drop in non-agricultural jobs, the details of which will not be published until next February. What we know is that the data currently displayed in the table overestimate by more than half a million jobs the number of jobs added between April 2018 and March 2019.
So today, in September 2019, real-time data shows that the growth of non-agricultural employment compared to last year is falling below 1.4%. The last time he made a peak and then fell to that low number - in real time - it was in August 2007, only four months before the Great Recession began in December 2007. That story is not shown in the labor data that sees a lot of people because they have been reviewed.
Many forget that, at the beginning of December 2007, the labor report showed that the economy had obtained 94,000 payroll jobs the previous month. The real-time data did not begin to show any loss in the payroll until the labor report came out in February 2008, a couple of months after the recession had already begun.
Real-time GDP data was even more misleading. At the end of November 2007, on the verge of recession, the most recent publication showed that real GDP growth in 3Q 2007 was 4.9%. After being reviewed in later years, quarterly GDP growth now stood at just 2.2%.
Taken as real, the current available data shows that both the growth of GDP and that of the payroll are in cycles downward. But the ECRI analysis - based on our forecast indicators - predicts that these depressions will persist next year.
Of course, many commentators are characterizing GDP growth or job growth as "healthy" or "strong." Even without such euphemisms, the narratives built around the most recent employment or GDP data tell us nothing about where economic growth is going.
In contrast, ECRI forecasts are not about whether growth is strong or weak, but about the cyclical direction of growth. Will it remain in a cyclic depression or will it enter a cyclical rebound in the near future?
When we clear the noise around the talks of the economic agreement and economic data, the clear message is that the economy will continue to slow down and the risk of the recession will continue to grow.
Recession