Monday March 26 6:17 PM ET Research Firm ECRI Forecasts Recession

By Daniel Sternoff

NEW YORK (Reuters) - A U.S. economic research firm that tracks business cycles in the world's leading economies said on Monday that the United States was clearly heading into its first recession in a decade.

``We have passed a fork in the road and have switched to a recession track,'' Anirvan Banerji, director of research at the Economic Cycle Research Institute in New York, told Reuters in a telephone interview.

He said the private firm, which has designed an array of composite indexes to predict recessions and recoveries, had last forecast a U.S. recession in Feb. 1990, several months before the onset of recession later that year.

Virtually all of ECRI's indexes were now flashing recessionary warning signs, although a leading index of the services sector -- the lion's share of U.S. economic activity -- has yet to unambiguously signal a recession in that sector.

But a negative employment suggested the services index would also turn recessionary in coming months, spurring the firm to venture its forecast.

``We don't make these calls lightly. It has been more than 11 years since we called the last recession,'' he said.

He said the call followed a string of months in which it had been unclear whether ECRI's indexes were signaling a sharp slowdown in growth or a formal recession, defined as a ''pronounced, pervasive and persistent decline in output, income, employment and sales.''

Many financial market players define recessions as two consecutive quarters of declining gross domestic product (GDP (news - web sites)).

``You can't tell in the first 6 or 7 months of a slowdown whether it will head into a recession. We were approaching a fork in the road early this year,'' Banerji said. ``Fresh data is telling us we have passed the point of no return.''

He said three of the firm's indexes which separately track weekly, short-term, and long-term economic trends were all pointing to recessionary levels.

Separate sectoral indexes showed manufacturing and construction activity were in or headed for recession.

The firm's leading employment index, a gauge of the labor market outlook, dropped in February to a 19-year low, indicating that the 4.2 percent unemployment rate will steadily rise in coming months.

Only ECRI's leading services index remains ambiguous as to whether the sector is headed for recession or merely in a sharp slowdown.

But the deteriorating employment outlook signaled that faltering consumer confidence would stumble further in coming months, impacting consumer spending, which accounts for some three-quarters of service sector activity, Banerji said.

``The fundamental element of confidence is jobs. If you do not have jobs for a few months, your confidence is going to suffer,'' Banerji said.

``If the employment index is right, then the most important determinant of consumer confidence, which is what drives the service sector, is going to drive the services index into a recessionary path,'' he said.

ECRI was founded by the late Geoffrey Moore, a former Research Director at the National Bureau of Economic Research. http://dailynews.yahoo.com/h/nm/20010326/bs/recession_ecri_dc_1.html

-- Carl Jenkins (somewherepress@aol.com), March 26, 2001