Saturday, December 24, 2011

ECRI Weekly Leading Index declines, still holding our breath on potential recession for 2012

The ECRI Weekly Leading Index (WLI) declined sharply this week, and although not directly indicating a recession, it does at least highlight weakness that could easily deteriorate into recession in the coming months. ECRI is still forecasting that we are "tipping into recession", although they are still vague on when exactly such as recession did or will start and how long and how bad it might be. ECRI uses additional, longer leading indexes than only their own "short" leading Weekly Leading Index. In other words, the WLI is simply a "teaser" for the full ECRI story, which is available by subscription only.
 
There is significant weekly volatility in the WLI weekly changes, but the smoothed growth rate which dampens that volatility did decline modestly this week, although it had risen the previous two weeks.
 
So, this one report was a negative report, but doesn't yet (by itself) indicate that a recession in 2012 is a slam dunk.
 
The real risk is that the WLI shows that the overall economy is relatively weak (despite a decent Q4) and that a weak economy tends to be prone to falling into recession if even a modest economic shock (e.g., problems in Europe getting worse) comes along.

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