Economist who called recession's end sees recovery

Lam sees little chance of relapse, long period of mild growth ahead

Sep 26, 2010 @ 12:01 am

By Bloomberg News

Economist Thomas Lam, who accurately forecast 16 months ago when the worst U.S. recession since the Great Depression would end, now is predicting that chances of a renewed slump in the coming year are no more than 20%.

“The main risk to the U.S. economy today is really a prolonged period of mild growth rather than an imminent recession,” said Mr. Lam, the Singapore-based chief economist at OSK-DMG, a joint venture between Malaysian securities firm OSK Holdings Bhd. and Frankfurt-based Deutsche Bank AG.

His May 2009 call that the United States would emerge from recession the following month — confirmed last week by the National Bureau of Economic Research — drew “quite a bit of heat because it was a time when things were still uncertain,” the 35-year-old analyst said. “Some thought the call too optimistic.”

Mr. Lam, who published his prediction while working for his previous employer, United Overseas Bank Ltd., studied peaks in the number of U.S. jobless claims using a proprietary weighted-average formula to remove statistical “noise” and found a correlation to economic turning points.

“The model actually predicted it would be 394 weeks from the prior trough in November 2001” before the economy would begin growing again, Mr. Lam said.

“It was actually 395 weeks. It was a cocktail of luck and chutzpah,” said Mr. Lam of his forecast.


The NBER, which is charged with dating business cycles, said last Monday that the U.S. recession ended in June 2009 even as a slowdown in economic growth stokes speculation of the possibility of another downturn.

Stephen Roach, chairman of Morgan Stanley Asia, told Bloom-berg Television last week that the U.S. economy is in a “very sluggish, anemic recovery” and remains vulnerable to fresh shocks.

“With the American consumer largely on ice for the next several years, we're going to be having this so-called double dip debate on-again, off-again,” he said. “Don't think you've heard the last of this argument.”

Ranked the second-best U.S. economic forecaster by Bloomberg for 2008-09, Mr. Lam said that there is “an empirical tug of war going on right now” between analysts and investors trying to fathom whether another recession is likely.

“On the one hand, history shows that by the time we get into the latter part of 2011, we should be getting a respectable recovery in final demand” that boosts economic growth, he said. “But on the other hand, incoming data suggests things will be pretty mild in the near term.”


The S&P 500 has gained about 8.6% this month, while yields on two-year Treasury notes fell to a record low last week, reaching 0.41%, after the Federal Reserve signaled that it will act to preserve the economic recovery.

The chance of another recession within six months is about 10% and a “statistically insignificant” 15% to 20% over the coming 12 months, Mr. Lam said.

Economic growth will average between 2% and 2.5% in the next few quarters, he said.

Mr. Lam said that though he is still gauging jobless claims, he is now also focused on a proprietary leading index that gauges implied risk premiums and future expected yields.

“One of the most intriguing things today is that aside from just looking at the available indicators, you have to tease out the implicit message from some of the financial indicators,” he said.


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