ECRI Weekly Leading Index continues to show modest improvement

Continuing my ongoing but true "broken record": The recovery from the recession continues to poke along a bit too slowly for most people, but at least the trend is still positive and has almost started showing signs of life lately. The Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) continues to be relatively weak, but also continues to show modest improvement, rising moderately this week from 126.5 to 127.4, it's highest level since the first week of May, and the WLI annualized growth rate rose moderately, from –1.4% to –0.1%, its highest level since the last week of May, and more than moderately above the psychologically important -10.0% level that some pundits (but not ECRI) view as the threshold for a recession. The bottom line continues to remain that the WLI has remained fairly flat since the beginning of July (a low of 120.4 in mid-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. In fact, ECRI recently "officially" made the call that there will not be a double-dip recession in the near future, saying that "With the WLI steadily gaining ground since the summer and now hitting a 24-week high, the much-feared 'double dip' has turned out to be a mirage." And just last week they said that "With both the WLI and its growth rate rising to their best readings since May, a 'double dip' back into recession remains off the table, notwithstanding self-serving recession warnings that feed fear itself."

The WLI is well below its peak of 134.7 in April, and modestly lower than the level of a year ago (130.8) when the recovery was underway in earnest.

A year ago we had had a massive bulge of stimulus, including the hiring of census workers, which peaked and is now rather dissipated. The slightly 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 for a couple of 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 remain weak for awhile, but 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."

Four big wildcards for the economy:

• Will unemployment initial claims finally fall off to a non-recessionary level?
• To what extent will Fed quantitative easing give the economy a boost?
• How big a drag on the economy will come as the original congressional stimulus package (two years old in mid-February) winds down?
• How much more will state and local spending and employment decline as these governments continue to shrink down to sustainable levels?

Last week I had fifth wildcard at the top of that list, "Will income tax rates rise in 2011 and provide a new drag on the economy?", but with the tax deal signed, sealed, and delivered that is no longer a lingering problem.

Still, even with all of those clouds hovering over head, the outlook for the U.S. economy is at least reasonably positive.

BTW, all of the financial turmoil in Europe (which is mostly just talk of financial trouble) will result in very little negative impact on the U.S. economy.

-- Jack Krupansky