Blogs & Comment

The decade ahead

One of the more trenchantoutlooks for the decade ahead is to befound in an Advisor Perspectives interviewof Lakshman Achuthan, managing director of the Economic Cycle Research Institute (ECRI). Here arekey excerpts form the interview also available here:
Greater volatility inthe business cycle
“The so-called great moderation of business cycles since the mid-1980s is over. Not only is this because of the Great Recession, but especially because of how hard it is going to be to withdraw the stimulus smoothly. If you withdraw a little too early, the risk of another recession goes way up. If you withdraw a little too late, the risk of a really surging inflation cycle goes way up.”
More frequent recessions
You will see more frequent recessions in the coming decade than in the last two or three. Separate and apart from what I just described, the pace of growth of the US economy during each expansion has been falling for decades. In you combine lower trend growth expansion with higher cyclical volatility, it dictates more frequent recessions. Japan, with a 1% GDP trend growth rate for the last 20 years, has seen four recessions, about one every five years. ”
U.S. unemployment to stay high
Its the long term where you have quite bad news. With unemployment at 10%, the U.S. economy — even when everything is going right — on average can reduce unemployment by about half a percentage point per year. This is something that is true going back over many decades, not just recently. If you do the math, and you want to get back to 5% to 7% unemployment you would need roughly a 10-year expansion to get the unemployment rate down to what we desire it to be and to what it was just a couple of years ago. That ten-year expansion is likely to be very elusive.