March 20, 2008 / 9:11 PM / 12 years ago

U.S. has entered "recession of choice," ECRI says

NEW YORK, March 20 (Reuters) - The United States has entered a recession that could have been avoided had policy-makers been more willing to heed warning signs and take preemptive action, according to a New York forecasting firm.

The Economic Cycle Research Institute, a firm that focuses on identifying peaks and troughs in the business cycle, made its official call on Friday, stating that the U.S. economy had “unambiguously” entered a recession.

Yet ECRI researchers believe the current troubles were far from inevitable, since a precocious wave of negative sentiment about the economy during 2007 gave the Federal Reserve, Congress, and the White House plenty of time to act.

“This is a recession of choice,” said Lakshman Achuthan, ECRI managing director. “The business cycle does not sit around and wait.”

He said both aggressive interest rate cuts last year, combined with a more immediate fiscal stimulus package than that delivered by Washington, could have prevented what may prove to be a painful downturn.

“We wasted our luck,” said Achuthan.

POOR MORE VULNERABLE THAN EVER

Perversely, this inaction is likely to hit low-income Americans even harder than usual, said Achuthan, because the Fed’s belated liquidity injections have pushed food and energy prices to record highs.

“Now they are throwing a lot of liquidity out, (but) it’s going to food and energy,” he said. “This non-discretionary consumer spending makes up the lion’s share of the low-income consumer’s budget. So the Fed is trying to help out, but it’s really hurting the low-income consumer.”

If there is one silver lining in the current economic turmoil, it’s that inflation, according to ECRI’s own gauges, is tame enough to give the central bank wiggle room to continue taking action.

“While consumers are losing the battle at the pump, they’re winning the war at the check-out counter” for goods other than food and fuel, Achuthan said, citing falling prices on personal computers and other electronics. (Editing by Dan Grebler)

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