ECRI Weekly Leading Index hangs in there and even rises a little

A little recovery on the unemployment insurance initial claims front, a slight improvement in mortgage applications, and a growing money supply helped the Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) recover a little bit this week and the WLI annualized growth rate did manage to eek out a slight gain, to -9.9%, bringing it a hair above the psychologically important -10.0% level that some pundits (but not ECRI) view as the threshold for a recession. The bottom line is that the WLI has remained roughly flat since the beginning of July. That is not great, but this is at least not a worsening of the outlook. The much-feared double-dip recession is being kept at bay.

The WLI is well below its peak in April, and modestly lower than the same level as a year ago when the recovery was just getting underway in earnest.

The annualized growth rate for WLI of -9.9% remains moderately below zero, but modestly higher than its low of -11.0% reached in July. It is hovering near the -10.0% threshold that some pundits view as indicating a recession on the way, but ECRI does not concur. Actually, what ECRI said last week was that "With the WLI staying essentially flat for the last six weeks, following a nine-week plunge, it is premature to predict a new recession, though risks remain" and a week before they said that "if it turns down once again, that would signal heightened recession danger." That's an "if" and we're not currently headed in that direction. Still, it will take more than a couple of weeks to determine the true trend now that the trend is essentially flat.

We had a massive bulge of stimulus, which peaked and dissipated. The big negative WLI growth rate is simply telling us that we are well down from that peak bulge. If the WLI were to deteriorate significantly further from here (the level of a year ago) for a couple more months, that would be a problem, but  we're not headed in that direction at the present time.

The WLI suggests that the economy is likely to slow a bit further, but as of this week a double-dip recession is still not in the cards from the WLI perspective. Still, the outlook does remain, as Ben Bernanke has said, "unusually uncertain."

-- Jack Krupansky