Economy flashing hard-landing warning with 100% accuracy

• Only once in the last 120 years has a false recession alarm been issued.
• Top Economist Laxman Achuthan said ECRI's leading economic index has started to decline over the past year.
• GDP growth and the job market are weakening in some areas, which could spell trouble for the U.S., he added.

According to top economist Laxman Achuthan, the US economy is flashing a classic recession warning that has shown a false positive only once in the past century.

The business cycle expert and co-founder of the Business Cycle Research Institute pointed to troubling signs of weakness in the U.S., with warning signs of a downturn in many areas of the economy.

ECRI's leading economic index — an economic index with an almost perfect track record — has started to decline over the past year, Achuthan said in a webcast with Rosenberg Research on Wednesday.

The decline in the index has started to level off in recent months. However, a decline in the index has followed a recession every time in the past 120 years, he noted, with the exception of the index decline after World War II.

„That, while not a guarantee of a recession, is certainly a sign that it is vulnerable to multiple shocks,” Achuthan warned. „For the most part, it really speaks to cyclical vulnerability.”

This was compounded by other signs of an increasingly sluggish US economy. GDP will slow dramatically in the first quarter, with the Atlanta Fed forecasting expansion of just 2.5% in the most recent three-month period. Meanwhile, the US Coincident Index, a growth measure that includes GDP, jobs and retail sales data, has been near 0% for the past two years, down from a peak of 20% in 2021.

Hiring conditions have also begun to weaken dramatically. While job growth appears strong on the surface, the unemployment rate has steadily risen, reaching its highest level in 2 years in February.

Meanwhile, ECRI's Cyclical Labor Conditions Index, a measure of „cyclical labor impulses” in the economy, has fallen nearly 50% in the past few years. The steep decline mirrors the 2001, 2008 and pandemic-era recessions, ECRI shows.

Hiring strength seems to be in non-preferred areas of the market — which usually happens before a recession, Achuthan said, as consumers prioritize wants over wants. Job growth in education and health increased by 4% last year, although job growth in all other sectors was close to 0%, ECRI data showed.

„Without it, we probably would have been in a recession,” Achuthan said of the involuntary hiring growth.

According to Achuton, those warning signs point to a „tug-of-war” in the economy, with the US growth cycle being pulled back and forth between external support such as stimulus spending and labor hoarding during the pandemic and weakness. If those supports fade, he warned, „that could spell some trouble.”

Other economists have sounded the alarm of an impending downturn, particularly as inflation could remain sticky and the central bank risks keeping rates high for longer. According to top economist David Rosenberg, a recession will occur four times faster than an economic expansion, and a recession with steep job losses could arrive by the end of the year.