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

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell sharply (-1.26% vs.-0.91% last week) and the six-month smoothed growth rate fell moderately (to -6.9 from -6.5), which is well below the flat line, suggesting that the economy will be struggling in the months ahead.

According to ECRI, "The way a good leading index works is that its level always turns up months before the end of the recession. With the WLI level falling to its lowest reading in nearly five years, it is clear that a business cycle recovery is nowhere in sight."

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.

Given that the WLI has deteriorated in recent weeks, I will increase my own forecast for the probability of recession...

I am revising my personal assessment upwards to a high level confidence that there is no more than a 75% chance of recession (up from 65%) and a moderate level of confidence that there is no more than a 40% chance of recession (up from 35%) based on the fact that we are seeing some hints of moderation as well as hints of some worsening 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 signaling to me, as well as ECRI's assessment and recession "call."

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