Saturday, June 07, 2008

ECRI Weekly Leading Index indicator falls modestly and remains deep in recession territory

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell modestly (-0.27% vs. -0.19% last week) and the six-month smoothed growth rate fell modestly (to -6.2 vs. -6.0 last week), which is still well below the flat line, suggesting that the economy will be struggling in the months ahead.

According to ECRI, "With the WLI falling for the fourth straight week, its smoothed growth rate slipped from the 22-week high. Thus, U.S. growth prospects remain gloomy."

The bottom line is that the ECRI WLI remains "flashing red." Alas, even the ECRI WLI is not a guaranteed, fool-proof economic indicator, especially when the data is mixed and there is a lot of stimulus as well as potential problems in the pipeline.

I will keep my personal assessment at a high level confidence that there is no more than a 65% chance of recession and a moderate level of confidence that there is no more than a 35% chance of recession based on the fact that we are seeing some hints of moderation mixed in with all of the gloomy news.

I am somewhat optimistic that the U.S. economy will escape a full-blown recession, but I do have to recognize what the data itself is signalling to me, as well as ECRI's assessment and recession "call."

I would note that slightly more than half of the most recent 24 weeks of WLI data (13 out of 24) are higher than the current level. That means that even if the WLI remains flat, within three months the very negative readings on the smoothed growth index will have risen to 0.0. Alas, that is more an artifact of how the smoothed growth rate is calculated than an indicator of economic strength. But, that rise cannot occur if the so-called recession "worsens." The smoothed growth rate rising to 0.0 presumes that the economy does not weaken further.

The bottom line is that the economy remains at "the edge" of a recession, but persists in refusing to overtly "fall" into recession.

-- Jack Krupansky


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