ECRI Weekly Leading Index indicator falls moderately and still suggests high risk of recession

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell moderately (-0.60% vs. -0.26% last week) and the six-month smoothed growth rate fell sharply (to -10.2 from -9.2 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, especially when the data is mixed.

The Philadelphia Federal Reserve Business Outlook Survey declined in a worrisome manner and mortgage applications declined, but the weekly unemployment insurance initial claims number is still not showing any more than a hint of sluggishness. One of the difficulties here is that unlike the predictable nature of the traditional manufacturing economy, the larger services economy seems to have a mind of its own and continues to be relatively inpenetrable to traditional economic analysis.

I will keep my personal assessment of the chance of recession at 60% based on the magnitude of the negative level of the WLI smoothed growth index and the mixed nature of the data. The economy still has a fair chance of avoiding an outright recession, but only if we can repeat some of the better news that the WLI saw two weeks ago.

According to ECRI, "With WLI growth deep in negative territory, due mainly to weakness in the financial and construction sectors, the U.S. economy is on the verge of a recession. However, due to unusual factors affecting the manufacturing sector, it may still be possible for quick stimulus to avert a recession."

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.

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