ECRI Weekly Leading Index continues to hang in there
I know, this sounds like a broken record, but it is true. The recovery from the recession continues to poke along a bit too slowly for most people, but at least the trend is still positive. The Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) continues to be relatively weak, but also continues to show incremental improvement, rising moderately this week from 124.2 (revised up from 123.9) to 124.3, it's highest level since May, and the WLI annualized growth rate rose moderately, from –5.5% (revised up from –5.7%) to –4.5%, its highest level since June, and 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 roughly 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 has "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."
The WLI is well below its peak in April, and modestly lower than the level of a year ago (127.3) when the recovery was just getting underway in earnest.
We had a massive bulge of stimulus, which peaked and is now somewhat dissipated. The moderately 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 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."
Four big wildcards for the economy:
- Will income tax rates rise in 2011 and provide a new drag on 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?