Friday, August 06, 2010

ECRI Weekly Leading Index recovers modestly and annualized growth rate finally bounces off low

Despite the weak unemployment insurance initial claims report this week, the Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) rose modestly for a second week in a row. Maybe more significantly, the WLI annualized growth rate reversed course and rose modestly from its recent low of last week. One week does not assure a durable trend, but this is at least not a worsening of the outlook.

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

The annualized growth rate for WLI remains moderately below zero, but modestly higher than a week ago. Some pundits view the growth rate (now -10.3%) as indicating a recession, but ECRI does not concur. It will take more than a couple of weeks to determine if the trend has indeed turned back up.

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 with a couple of flat weeks now a moderation looks more likely, to me.

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

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