ECRI Weekly Leading Index indicator falls modestly and suggests a sluggish outlook

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell modestly (-.34% vs. +0.50% last week) and the six-month smoothed growth rate fell slightly (from -0.3 to -0.4), remaining very modestly below the flat line, suggesting that the economy will be somewhat lackluster and rather sluggish in the months ahead, neither booming nor busting.

According to ECRI, "With WLI (annualized) growth now hovering near one-year low, a broad-based slowdown in U.S. economic growth is likely but a recession is not."

A WLI growth rate of zero (0.0) would indicate an economy that is likely to run at a steady growth rate, neither accelerating nor decelerating. A WLI fluctuating in a range from +1.5% to -1.5% would seem to forecast a relatively stable "Goldilocks" economy.

The WLI smoothed growth rate had registered above zero in recent weeks, but some unknown adjustment(s) (possibly money supply growth) shifted the past six weeks to very modestly negative, with a low point in the first week of September.

The current reading for the smoothed growth rate is too close to zero to discern with any great confidence whether the economy is really trending downwards or upwards. We may need another month or even two before the trend becomes clear.

If I were looking at this one indicator alone, I would say that the Fed is succeeding at its goal of moderating the economy to a sustainable growth rate.

I will offer the caveat that the Weekly Leading Index and its smoothed growth rate do not tell us how strong the economy will be six or nine months from now, but do tell us whether whether weakness or strength is more likely a few months from now. It works best to tell us whether a "gathering storm" might be lurking just around the corner, but presently indicates relatively "clear weather" for the next few months, even if the interval is occasionally punctuated with financial market "gyrations."

-- Jack Krupansky