ECRI Weekly Leading Index indicator falls sharply and still suggests a very sluggish outlook

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell sharply (-1.20% vs. -0.21% last week) and the six-month smoothed growth rate fell moderately (from -3.9 to -4.6, its lowest since the week of November 1, 2002), moderately below the flat line, suggesting that the economy will be somewhat sluggish in the months ahead, neither booming nor busting.

The WLI does indicate the economic outlook is rather weak, but not so weak as to suggest that a recession is imminent. The WLI growth rate has been this low before without being followed by a recession.

According to ECRI, "With Weekly Leading Index growth not far from its lowest reading since the 2001 recession, U.S. growth prospects have clearly darkened, but a recession is still not inevitable."

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 current reading for the smoothed growth rate is still 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.

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 "cloudy weather" for the next few months, but is still not forshadowing major storms in the real economy, even if financial markets and some sectors of the economy may continue to struggle.

-- Jack Krupansky