U.S. Weekly Leading Index Indicates Economic Growth Downturn Continues

According to the U.S. Weekly Leading Index (US WLI) released on 10/03/08 published by Economic Cycle Research Institute (ECRI), economic growth continues to remain solidly in recession territory.

The US WLI has a slight lead over business cycles.

Disclosure: None.

Comments

[Shiv Kapoor:]

Makes sense. We are well into a recession.

Consumer confidence appears to have bottomed recently. Unemployment has been rising the past year. And continues to rise; during August, the rate rose to 6.1%. In terms of where we are in the present cycle, GDP growth has been 2.3%, 3.5% and 4.1% in current $ and -.2%, .9% and 2.8% in chained 2000 dollars. During 2007 and thus far during 2008, annualized inflation levels have remained elevated at over 4%; thus GDP growth (Current$) adjusted for inflation has been negative 3 quarters running.
Industrial production showed signs of stabilization during June and July, but contracted sharply during August; on an August 07 to August 08 basis it is down 1.5%.
Real interest rates are in negative territory while the yield curve has steepened with short term yields nearing 0%.
In normal circumstance, rising consumer confidence after a significant fall is indicative of an economy in full recession. Industrial output continuing to fall indicates early recession; it will typically bottom out during full recession. Three quarters of GDP contraction is indicative of being in full recession. Real interest rates falling are also indicative of an economy in full recession. A normal yield curve (short term yield less than long term), is indicative of full recession. A steep yield curve such as we see today, is normally indicative of early recovery; I suspect that the steep yield curve today, is more a function of sheer terror in the financial services sector than of the stage of recession. People will accept no yield on a short maturity, not so much in anticipation of better upcoming opportunities; the instinct is capital preservation. On balance, I would conclude that the economy is in full recession. It is likely well past the beginning and early contraction and into the middle late contraction; perhaps poised to enter the late stage of contraction.The late stage of contraction within an economic cycle will typically last six months. This time around I believe that it could take considerably longer. For an economy to recover, the first sector which must heal is financial services. With the bail-out package now enacted, the healing process has begun. The length of time spent in the healing process will be influenced by the effectiveness in implementation. In addition the problems are of such historic significance, that despite the bail-out package, I cannot contemplate a quick turn around. All said and done, I expect the late contraction to continue with the economy emerging from it during q2 09.

2008 Oct 06 10:15 AM