LITTLE NOTICED RECESSION UNDERWAY
Mount Kisco, NY - February 27, 2001 - The US economy is in the early stages of a recession that will prove unusually severe and long, according to the Levy
Institute Forecasting Center. Further, the financial community’s confidence about rebounding second-half profits and a mere economic "slowdown" are misplaced.
"Once business activity begins to decline, it takes months for most people to recognize the decline and to become convinced that it will continue long enough to
qualify as a recession," notes the current Levy Institute Forecast and Macroeconomic Profits Analysis, the monthly report published by the Levy Institute
Forecasting Center.
"The difference between our view and the assessments of most observers of the economy stems from the fundamental differences between the profits
perspective and other approaches," maintains David A. Levy, director of the Levy Institute Forecasting Center. The profits perspective was derived in 1914 by the
late economist Jerome Levy, founder of The Levy Institute Forecast. The equation holds that changes in profit sources - the components of investment and
nonbusiness saving - will be matched by changes in profits. The profits perspective has broad applications and reveals dynamics of the business cycle as well as
misconceptions about saving, investment, and profits.
"Forecasting with the profits perspective involves analyzing all the flows of funds that determine the net flow of new wealth to the business sector. The
combination of the flows causing profits to rise or fall in one period of history need not be the same in another," the publication asserts. The Levy Institute
Forecasting Center points to 1990 as an example of how the recession could be predicted by using the profits perspective but not by following rigid rules and
looking for conventional signs of recession. "The present recession is, in many ways, out of the mold of earlier postwar slumps, and the mix of factors reducing
profits is different."
The Levy Institute Forecasting Center also contends that the profits perspective it uses to make economic prognostications gives greater insight because it is
inherently a financial view which focuses on businesses’ nominal profits, not on firms’ contribution to real GDP (their unit sales). Financial factors such as
leverage, asset values, interest obligations, and cash flow, do not fit in many common theoretical frameworks and are too often included only tangentially in
economic analysis if not ignored outright, Levy maintains.
Improving long-term productivity growth is often cited as how the economy will avoid recession. Although it is an important phenomenon it is not useful in
determining whether the economy will expand or contract. Six recessions occurred during the booming productivity growth between 1946-1972, the publication
asserts. The Levy Institute Forecasting Center maintains that the expansion probably peaked in the fourth quarter of 2000, and that the decline is underway,
accelerating, and will increasingly affect business decisions, labor markets, the financial environment, and the political climate.
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In this month's Levy Institute Forecast...
The Levy Institute Forecast, formerly known as the Industry Forecast, was established in 1949 by Jerome Levy and S Jay Levy and has been published since
January 1, 1991 by The Jerome Levy Economics Institute of Bard College. The Levy Institute Forecast is produced 12 times per year by David A. Levy, S Jay
Levy, and the research staff of the Levy Institute Forecasting Center.
The Levy Institute Forecasting Center
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Mount Kisco, New York 10549
Research: 914-666-0641
Information: 1-888-244-8617 (toll free)
Press Contact: Martha Cid, 212-481-7000 (Ext. 165) cid@levy.org
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