As the Cycle Turns

Moore's Disciples
Two more of Navarro's favorite forecasting tools are the weekly leading index and future inflation gauge published by the Economic Cycle Research Institute (ECRI). The forecasting firm was founded by the late Geoffrey H. Moore, a pioneer in the study of business-cycle indicators.

Today ECRI monitors some 20 indexes of leading indicators, says Lakshman Achuthan, its managing director and managing editor. Globally, the firm also maintains indexes for 19 other economies. Achuthan and Anirvan Banerji, ECRI's director of research, describe the firm's approach to forecasting in Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy (Currency Doubleday, 2004).

ECRI has an enviable forecasting record. It called the 1990 and 2001 recessions five and six months in advance, respectively. Between those downturns, the firm didn't forecast recessions in 1995 or 1998, when others did. "Not making a recession forecast is as important as making it," comments Achuthan. ECRI also divined the growth without inflation of the 1990s and the so-called jobless recovery of this decade.

Most managers' "eyes glaze over" when it comes to economic forecasting, concedes Achuthan, but they ought to take it seriously, he adds. "Whether they're doing it explicitly or implicitly, I think CFOs have different scenarios about what might happen," he says. "Recognizing that all of these economic scenarios don't have the same probability can save them money or investments or time."

What does Achuthan forecast for the year ahead? "The first half of 2006 won't be bad. In the second half of the year" — which is about as far ahead as ECRI can "see" — "home prices will put a drag on consumer spending. At the same time, we see a global industrial slowdown, across all major economies. As a result, the ride gets a little bumpier."

And what about the "R word"? "There's no recession in sight," says Achuthan. "We should make it to the sixth year of expansion at least."

Edward Teach is articles editor of CFO.

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