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

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell very sharply (-2.95% vs.-1.29% last week) and the six-month smoothed growth rate fell sharply (to -17.1 from -14.8), which is well below the flat line, suggesting that the economy will be struggling in the months ahead.

According to ECRI, "With its biggest weekly plunge in 37 years WLI growth has dived to a new 33-year low. This data objectively shows that financial market turmoil is rapidly worsening an already-grim recessionary outlook."

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 some amount of stimulus as well as potential problems in the pipeline.

Given that the WLI has continued to deteriorate dramatically lately, I will increase my own forecast for the probability of recession, again...

The U.S. economy is currently in a recession that started somewhere between June 2007 and August 2008, and currently shows no sign of an imminent end.

Some believe that the recession started in January or even last November, but there were pockets of strength even as recently as June GDP. By the same token, there were roots of weakness popping up in June 2007 and a financial mini-crisis in August 2007 related to housing clearly indicated that at least significant portions of the economy had already begun to crumble.

Although the current economic reports show significant weakness, there is also a vast amount of potential stimulus in the pipeline that could kick-start the economy within the next couple of months. The big bank bailout should start showing some fruit within a month.

Also, once we get past all of this election year posturing in just a couple of weeks, we will start seeing a lot more clarity in perspectives on the economy. Congress looks likely to pass a new stimulus bill in November.

-- Jack Krupansky