The U.S. economy is headed for another recession that government intervention cannot prevent, according to the Economic Cycle Research Institute. Such downturns will occur more often.
Lakshman Achuthan, co-founder of ECRI says: “This is a new recession; it’s not a double dip recession…We can’t avert it.”
Last Friday, ECRI’s Weekly Leading Index growth indicator reported U.S. economic growth sliding to negative 7.2% for the week ended Sept. 23 from negative 6.7% the week before, continuing a trend that began in August. U.S. economic strength has been declining since May.
“We are seeing the weakness spread widely,” Achuthan confirms. “There’s a contagion, like a wildfire among the forward-looking indicators that’s not going to be snuffed out. The nature of a recession is not a statistic. It’s a vicious feedback loop. Sales fall, production falls, income falls and that depresses sales. We’re in that and it’s going to run its course.”
Expect more frequent recessions
A second recession in such short period of time will pose obvious challenges for stocks, but investors should get used to more frequent up-and-down cycles. They will have to adjust their thinking about trading – how to buy and sell stocks.
“We are in an era of more frequent recessions,” Achuthan comments. The long, benevolent expansions of the 1980s and 1990s that created a generation of stock investors and an equity culture in the U.S. are relics of the past, he said. Business cycles will be shorter and sharper — as was true in the 1970s and in fact for much of the country’s history.
Accordingly, since economic recoveries will be more fragile and easily derailed, investors should expect continued heightened volatility for stocks, as a mild- or medium- intense recession can affect it badly.