The Economic Cycle Research Institute (ECRI), a New York-based independent forecasting group, released its latest readings for its proprietary Weekly Leading Index (WLI).
For the week ending April 6, 2012:
- WLI is at 125.7, down 0.6 from the prior week's revised reading of 125.7.
- The lowest reading for WLI on record was 105.3 for the week ending March 6, 2009.
- WLI growth rose to a positive 1.4%, up from last week's revised lower reading of 0.9%.
- The lowest reading for WLI growth on record was -29.9% on Dec. 5, 2008. It turned higher months before the stock market [S&P 500 (SPY)] bottomed on March 6, 2009, at 666.79.
- Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
WLI growth -- 35-week high: WLI growth has not been this high since it was positive 2.6 for the week ending Aug. 5, 2011.
Click to enlarge all images.
On Friday, April 6, I asked Lakshman Achuthan, ECRI's co-founder and chief operating officer, about the latest data on the U.S. economy -- specifically, positive WLI growth matching a three-month upturn in the Ceridian-UCLA Pulse of Commerce Index. Achuthan said year-over-year (YOY) growth of WLI has barely improved from its lows and remains "solidly in negative territory." In addition,
please note that PCI growth (YOY) is still -2.2%, and even quarter-over-quarter is -4.9%.
With YOY growth in all the coincident indicators (GDP, industrial production, personal income and sales) all staying in cyclical downturns and YOY payroll job growth, which had been the only holdout, now rolling over -- as we had predicted a few weeks ago -- it's pretty clear that for now U.S. Economic growth is worsening, not improving.
Could this downturn in WLI and the stock market be the start of the larger negative move for the economy ECRI has taken much heat for predicting?
Since ECRI releases WLI numbers for the prior week, and the stock market is known in real time, you can sometimes get a clue for next week's WLI from the weekly change in the S&P 500 or its exchange traded fund, SPY. Notably, in the lead-up to the last two recessions, the WLI turned down months before the stock market did.
Chart Of S&P 500 Vs. ECRI's WLI
Last week, I said here that "with the S&P 500 lower now than last week and only 1 point higher than two weeks ago, plus Friday's poor jobs report, the recovery in WLI may be running out of gas." Sure enough, WLI moved lower this week. With the markets lower this week, will WLI move lower again next week?
- Occasionally the WLI level and growth rate can move in different directions because the latter is derived from a four-week moving average.
- ECRI uses the WLI level and WLI growth rate to help predict turns in the business cycle and growth rate cycle, respectively. Those target cycles are not the same as GDP level or growth, but rather a set of coincident indicators (including production, employment income and sales) that make up the coincident index. Based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below negative 10, but no recessions resulted (although there were clear growth slowdowns).
- For a better understanding of ECRI's indicators, read its book, "Beating the Business Cycle."
- SPY is the exchange traded fund for the S&P 500 Index.
Disclosure: I am long SPY.