ECRI Weekly Leading Index weakens and hovers near flat line

Another weak unemployment insurance initial claims report, slowing of mortgage applications, and a declining stock market finally took their toll on the Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) which declined and gave up most (but not all) of its gains of the previous two weeks. But, the WLI annualized growth rate did manage to eek out a modest gain, although that is really a modest decline from the level of a week ago before it was revised lower. 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 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 remains moderately below zero, but modestly higher than a week ago. At -10.0%, it is now right at the -10.0% threshold that some pundits view as indicating a recession on the way, but ECRI does not concur. Actually, what ECRI says is 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 "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