econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 22 October 2016

Early And Late Cycle Verdicts Are Baseless

from Lakshman Achuthan, Co-Founder and Chief Operations Officer of ECRI

The current U.S. expansion, now in its eighth year, has lasted a year longer than the previous expansion and is substantially longer than the historical average. This has led to many pronouncements that we are in the "late cycle" phase of this economic expansion, which must therefore end soon. In other words, despite the truism that "expansions don't die of old age," there is a widespread belief that expansions have natural expiry dates.

But business cycle expansions not only vary greatly in duration, they also do not follow standard statistical distributions, such as a well-behaved bell curve, that could provide a simple basis for predicting the duration of future cycles. In fact, in order to attempt such a forecast, it is critical to know how they are distributed historically. Using ECRI’s chronologies of recession dates for 21 countries, we calculated the durations of 120 business cycle expansions across all of these economies.

The chart shows a histogram of the durations of these expansions, presented as percentages of the total. While the range of durations is quite wide, lasting from under a year to well over a decade, business cycle expansions are not clearly clustered around any particular duration.

This is evident from the distribution of expansions, which is not unimodal, and certainly not bell-shaped. Instead, since the empirical distribution looks rather flat and has no real peak, it resembles a uniform distribution. Indeed, a chi-square test comparing it with a uniform distribution showed no significant difference.

Unfortunately, with such a distribution - where the length of expansion looks just as likely to be a year or less as it is to be in the three- to four-year range or the eight- to nine-year range - it is illogical to assert that the duration of an ongoing expansion would be around six to ten years merely because the last three U.S. expansions lasted that long. Thus, the notion that economists can tell whether we are in the early, middle, or late stage of an expansion is unreasonable, and unsubstantiated.

Some years ago, the IMF concluded from a 63-country study that economists’ “record of failure to predict recessions is virtually unblemished." Keeping in mind this near-perfect record of failure to predict recessions - even a few months in advance - how could economists have any clue as to whether a recession is one or five years away?

In the end, the mid-cycle / late-cycle talk is based on the implicit assumption that expansions last between six and ten years, but this is based on just three data points, i.e., just the last three U.S. expansions. Even disregarding the fact that trend growth is noticeably lower in the current expansion than it used to be, this is hardly a big enough sample to draw any statistical inferences from.

Rather, what matters most is whether an economy has entered a cyclical window of vulnerability, making it susceptible to recessionary shocks. Here ECRI’s leading indexes, which have demonstrated significant leads in real time at cycle turning points, continue to provide crucial insight.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Big Mess in Italy
Are You Feeling the Economic Surge?
News Blog
December 5, 2016 Weather and Climate Report - December Update - Zonal Prevails
Irish Births And Baptisms Visualised
What Happens In The Smartphone Afterlife
Water Intoxication: Are We Drowning In Advice To Drink More Fluids?
The Worldwide Virtual Reality Market Is Set To Be Huge
Average Gasoline Prices for Week Ending 05 December 2016 Rose Over 5 Cents
What We Read Today 05 December 2016
Why We Have Different Blood Types
November 2016 Conference Board Employment Index Improved.
November 2016 ISM and Markit Services Index Mixed
Are All Collateralized Loan Obligations Equal?
A Third Of Homes Sold For The List Price Or More In August 2016
It Is Still Not Too Late To Find A Seasonal Job
Investing Blog
Momentum Issues A Warning
The Great Bond Crash Of 2016: 05 December Update
Opinion Blog
The Shale-War Is Over
Fake Science
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
05Dec2016 Market Close: US Markets Close Higher, WTI Crude Settles At $51.09, US Dollar Drops Below 100 Temporally
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved