ECRI Weekly Leading Index indicator rises sharply but still suggests high risk of recession

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose sharply (+1.84% vs. -3.38% last week) but the six-month smoothed growth rate fell moderately sharply (to -7.9 vs. -7.1 last week), well below the flat line, suggesting that the economy will be struggling in the months ahead.

The bottom line is that the ECRI WLI is "flashing red." Alas, even the ECRI WLI is not a guaranteed, fool-proof economic indicator.

I will keep my personal assessment of the chance of recession at 55% (where I put it after the weak ISM Non-Manufacturing report this week). The ECRI data is mixed this week. If the WLI falls next week I will likely raise my assessment to a 60% chance of recession. The economy still has a good chance of avoiding a recession, but only if we can repeat some of the better news that the WLI saw this week.

To be clear, there is no certainty as to whether we are currently in a recession. It will take another four months to confirm, if we are in fact in a recession. The current, weekly, high-frequency economic data strongly suggests that we are in fact not in a recession.

Although the fiscal stimulus ("Economic Stimulus Act of 2008", passed by both houses of Congress and to be signed into law by President Bush on Monday) rebate checks may take awhile, the good news is that the the congressional legislation raised the limit for "conforming" mortages that Fannie Mae and Freddie Mac and can securitize, and that FHA can issue, so jumbo mortages will become available once again very shortly.

Give the economy another month or so to see if the the weakness starts to "snowball." Without "snowballing" we will simply have a slowdown and not a true recession.

-- Jack Krupansky