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Kirk Lindstrom has an engineering degree from the University of California, Berkeley. Following 20 years of research and development as a scientist and engineer at Hewlett Packard, Kirk turned his attention to investments where he edits "Kirk Lindstrom's Investment Letter," that... More
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  • ECRI's WLI Growth Rate Up For Fifth Straight Week 0 comments
    Oct 8, 2010 11:15 AM | about stocks: SPY
    Original at ECRI WLI Growth Rate Up Again

    The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI
    For the week ending October 1, 2010
    • WLI  is 123.8, up from the prior week's reading of 122.5.  
    • The lowest reading for WLI this year was 120.4 for the week ending July 16.
    • Since apparently bottoming at -10.3 for the week of August 27,  WLI growth moved higher for the fifth consecutive week to minus 7.0% from minus 7.8% a week ago.  
    • The last positive reading for WLI growth was for the week ending May 28, 2010 when it stood at positive 0.1%. 
    Two weeks ago with both the WLI and its growth rate lower, Lakshman Achuthan, managing director at ECRI said, "After a brief plunge in the late spring, the WLI has been fairly stable throughout the summer and into September, suggesting that it is still premature to predict a new recession." 

    Chart of WLI and WLI growth vs GDP Growth
      Click to view full size chart
     
    Since ECRI releases their WLI numbers for the prior week and the stock market is known in real time, you can often get a clue for next week's WLI from the weekly change in the stock market.

    Chart of S&P500 vs ECRI's WLI 

     
    Notes: 
     
    1. The WLI for the week ending 10/1/10 will be released on 10/15/10.
    2. Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
    3. 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 ten, but no recessions resulted (although there were clear growth slowdowns).
    Before you claim understanding of ECRI's WLI, make sure you read the article  "ECRI Weekly Leading Indicators Widely Misunderstood."
    "Bottom line, neither the “experts” predicting that the sky is falling based on the WLI, nor the other “experts” indulging in misinformed WLI-bashing in an effort to discredit the super-bears, have a real clue to what the WLI is all about...  A slowdown in U.S. economic growth is imminent, but a new recession is not." 
    Disclosure:  I am long the exchange traded fund for the S&P500, SPY charts and quote, in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."



    Disclosure: Long SPY
    Themes: ECRI , economy Stocks: SPY
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