ECRI: Economic Growth in Positive Territory

According to the U.S. Weekly Leading Index (US WLI) released on 26 June 2009 published by Economic Cycle Research Institute ((ECRI)), there are continuing signs of economic improvement. Lakshman Achuthan of ECRI states:

Following a 28-week upturn, WLI growth has broken into positive territory for the first time in over 22 months – an affirmation that an end to the recession is at hand.

The US WLI has a slight lead over business cycles.

As a leading indicator, the WLI is forecasting economic conditions approximately six months in the future. I have simultaneously published a complete economic analysis.

Disclosure: None

Comments

[Prudent Man...:]

Who are these people. Most business owners cannot foresee what their business will be in six months but these people can.

I am pretty certain interest rates and taxes will be higher in six months. Are these components of WLI? The "toxic assets" will decrease because the independent auditors are going to value them at zero so they won't be sued by stockholders and though companies can finesse their financial statements during the year when it comes to the year end those nasty little overstatements of assets have to be realistically valued.

Jun 28 02:42 PM

[Steven Hansen:]

Prudent man

the economy is one big machine which does not turn on a dime. ECRI and other leading indicators can view their own proprietary economic markers and predict the future.

the points you make about toxic assets and taxes are valid - but mostly not in play yet. there are many forces in play, and thousands waiting in the wings. the forces in play are dynamic. the economy has many streams and micro weather conditions. they are hardly ever going in the same direction.

it is easy to find negative economic elements. if you focus only on the bad ones, you will only see a negative future.

i share your pessimism, but i accept what ECRI is predicting. they are in business to predict the future. they have a proven track record.

Jun 28 08:40 PM

[BrentB:]

First, all prediction assumes the future is like the past. Right now, the present is not much like the past (different economic drivers seem to be dominant). Can their model be as accurate now as it has been in the past.

Too bad Seeking Alpha - which seems to be bear territory these days - has not been around for long enough to use posting here as input to an economic model. Right now sentiment here certainly points down. If ECRI is right, Seeking Alpha sentiment is negatively correlated with the market!

As you say, there is a lot of bad news out there and many readers of Seeking Alpha may be focusing on that news and ignoring the positive indicators.

However, the ECLI report does contain a lot of bad news that they seem to be ignoring - the February low in their indicator. If this is a 6 month indicator should we expect a market/economy low in August? That would be followed by improvements indicated by the more recent up trend in their indicator.

How do they explain the shape of the curve and the shape of the recovery? Do we have one bear market to work through before the next long term bull?

Thanks Steve for reporting an important source of overall market trend information. I think I will still short the broad market today, but perhaps not as aggressively.

Jun 29 08:25 AM

[Alphameister:]

No offense to Seeking Alpha, which is a valuable marketplace of ideas of interest to investors, but it should surprise nobody that sentiment reflected in the articles and comments found in SA are negatively correlated to market trends. Thanks for your objective assessment of the evidence, Steve, even when it runs counter to your intuition.

Jun 29 01:41 PM