Monday, September 21, 2009

ECRI Weekly Leading Index rises modestly and indicates an imminent economic recovery

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose modestly by +0.16% vs. +0.48% last week, and its annualized growth rate rose modestly from +22.5 to +22.9 and has surged to "a fresh record high", and its distinct upturn strongly suggests that recovery is on the way.

This was the thirteenth consecutive positive reading for the WLI growth rate.

The WLI has risen for 24 of the past 27 weeks.

The WLI has now recovered to its level in mid-September 2008. That is a major recovery, but also highlights that the economy has a long way to go to get back to "normal", whatever the "new normal" really is, especially given all of the economic distortions of the years that led up to the financial crisis.

According to ECRI, "We have never wavered on our call precisely because at this stage of the cycle there are no relevant roadblocks", referring to concerns over rising unemployment, the lack of job growth, debt levels of consumers, and worry about a possible double dip in the economy. They also said that "Variations of these fears have existed at this stage of the last 20 business cycle recoveries spanning over a century."

Last week ECRI said that "We expect non-manufacturing employment -- which is where 91 percent of us work -- to be positive by year end", and "We are talking about recovery that includes jobs growth in the non-manufacturing sector, and we are talking about a recovery that includes increases in consumer spending. So, in spite of the fact that many people look at this recession as being unprecedented and unlike any other, what we're seeing in our indexes is that there are a lot of similarities to previous recessions and recoveries."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery will be firmly underway within the next few months.

Although a double-dip recession or "W" recovery cannot be completely discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

I did watch a recent video in which ECRI insisted that a double-dip was definitely not in the cards based on the strength of the bounce in the leading indicators.

Although quite a few, but not all, of the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky

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