The following is a summary of our recent FS Insider podcast, which can be accessed on our site here.
Good news! After two years of slowing economic growth, leading indicators for the US have decisively turned upwards, ECRI's Lakshman Achuthan recently told FS Insider.
Achuthan is the co-founder of the Economic Cycle Research Institute where they specialize in forecasting key turning points in business cycles around the globe.
“Bona Fide Growth Rate Cycle Upturn”
“The crosscurrents that we were seeing in leading indicators — some going up, some going down — have resolved to (indicate) a growth cycle upturn,” he said.
This is seen most clearly in their weekly leading index, noted Achuthan, which has very clearly given a “pronounced, pervasive, and persistent” signal that the upturn is real.
These “three Ps” are important to indicate a trend change, he added. Their long leading index has also followed suit and has given a “three P” signal as well. Here's a short clip of what he had to say:
“We have a bona fide growth rate cycle upturn that is in the early stages right now,” said Achuthan.
He expects we’ll see at least a couple quarters — around six months — of firming growth, which is the shortest duration the cycle could be to still qualify as a cyclical upturn. And it very well may last longer than that, he noted.
Cyclical Versus Structural Changes
Most leading indicators have turned up globally, Achuthan stated, and he doesn’t see any significant recessions on the horizon. On balance, overall global growth is moving to the upside.
That being said, Achuthan makes it clear that the amount of growth we should expect going forward, and just how long it will last, will be limited.
Structural headwinds continue unabated and, for decades, each expansion has been slower than the last.
This is an issue with all mature economies, Achuthan said. Long-term components of potential GDP growth, such as demographics and productivity growth, are petering out.
“A lot of people hope for a reversion to the mean … but I see no good reason why we should,” he said. “We have a structural straight jacket that’s limiting our long-term potential trend growth. I don’t think it’s likely that we’re going to get back to 3 percent trend GDP growth anytime soon. In fact, the G7 is converging toward 1 percent.”
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