I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

ECRI Weekly Leading Index (WLI) and Weekly Leading Index Growth Rate

Quick ‘n Easy

The ECRI Weekly Leading Index is a weekly indicator that is designed to tell us how the economy will look 2-3 quarters (6-9 months) down the road.  There are two parts to the index: 1) the weekly level and 2) the annualized rate of growth (or decline) in this index.

The Economic Cycle Research Institute (ECRI) does something very similar to the Leading Economic Index from The Conference Board, but they are not at all transparent about how they do their calculations.  We can only wait to see what they publish as their index level and see where it leaves us.  But many people believe this is a good leading indicator for the economy.

Specifically, investors look at two components of the indicator:

  • Weekly Leading Index (WLI)  - This is the actual value of the index released each week.  It will change more rapidly than the growth rate measure mentioned below.
  • Weekly Leading Index Growth Rate – It is unclear how ECRI calculates this, but it is supposed to represent the rate of growth/decline of the WLI over a longer period of time, expressed as an annualized rate (i.e., how much it would rise/drop if it continued at that rate for a full year).
There are numerous other indicators that the ECRI uses to assess the future of the economy.  They have a paid client base for whom they reserve their most up-to-date forecasts, but the WLI is publicly available data that can provide some hints at the overall picture they are assessing.

Here are graphs of the WLI and WLI growth rate for the past year from ECRI:

Source: BusinessCycle.com

Trends and Projections

Below, I will discuss whether the indicator is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released.

Trend Analysis

Quick ‘n Easy

The ECRI Weekly Leading Index (WLI) level is currently in an unconfirmed downtrend of about 0.08 points per week.  The WLI annualized growth rate for the latest week came in too low to be considered part of the previous confirmed uptrend of about 0.61 percent per week from Oct 14 to Nov 18.  It looks like things are turning down again.

Here is a chart of the recent trends in both the index level and the growth rate:

Source Data: BusinessCycle.com

Source Data: BusinessCycle.com

 

 

ECRI Weekly Leading Index Level ECRI Weekly Leading Index Growth Rate
Current Trend Nov 11 – 25, 2011.  During this time, there is an unconfirmed downtrend.  There is a 59.7% chance that the WLI has been dropping by 0.08 points per week. Oct 14 – Nov 18, 2011 – During this time, there is a virtually 100% chance the WLI growth rate has been rising by 0.61 percent each week.  However, the latest reading for week ending Nov 25 was off trend (too low).  It was not low enough to break the trend yet.
Last Confirmed Trend Oct 7 – 28, 2011 – During this time, the WLI level was rising by 0.71 points per week. Sep 23 – Oct 7, 2011 – During this time, the WLI growth rate was falling by 0.98 percent each week.
Projected Next Data Point 120.55 for week ending Dec 2, 2011 -6.2 percent for week ending Dec 2, 2011

Easy Take

The WLI is now in an unconfirmed downtrend just about as steep as the recent upward trend that ended.  To make matters worse, the latest annualized growth rate came in much lower than trend.  It wasn’t enough to break the uptrend technically, but it is hard to see how that trend could continue with next week’s reading.  The annualized growth rate has dropped back down to minus (-7.8) percent, a level that does not bode well for the U.S. economy in the next six months or so.

The other thing to follow is that The Conference Board’s Leading Economic Indicators (LEI) came out recently at a surprisingly positive level.  It points to accelerating economic growth in the coming months.  Which of these two leading indicators will be correct?  We don’t know what the indicators are for the ECRI, but we do know that the LEI is based on several things that are affected by the Federal Reserve’s move to keep interests rate low.  That means that the LEI may be overly optimistic due to artificially positive data.

The bottom line here is that the ECRI is saying we’re headed for a recession, and it appears the recent improvements in the publicly available WLI may have been temporary.  This sets up a very interesting next month or so.

NOTE: You may be reading an outdated analysis.  Please visit my latest ECRI Index trend analysis.

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Related posts:

  1. Easy Trends: ECRI Weekly Leading Index – Growth Rate Improving But Index Has No Direction (thru Nov 18, 2011)
  2. Easy Trends: ECRI Weekly Leading Index – Still Very Low But Clearly Improving (thru Nov 4, 2011)
  3. Easy Trends: ECRI Weekly Leading Index – Finally Turning Back Up (thru Oct 28, 2011)
  4. Easy Trends: ECRI Weekly Leading Index – Index Flattening But Growth Rate Still Improving (thru Nov 11, 2011)
  5. Easy Trends: ECRI Weekly Leading Index Growth Rate Trends (thru August 26, 2011)