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

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.

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 now in a confirmed downtrend of about 0.56 points per week.  The WLI annualized growth rate is about to break an unconfirmed trend of slight improvement, as its last two data points have been off trend (too low) to be considered part of a trend that appeared to be developing.

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 Dec 2 – Dec 23, 2011 – During this time time, there is a confirmed downtrend, with a 95.6% chance that the WLI has been falling by 0.56 points per week. Nov 25 – Dec 9, 2011 – During this time time, there was a 91.9% chance that the WLI growth rate was rising by 0.17 percent each week.  Two data points since then have been off trend (lower), and it is dangerously close to being a broken trend before it ever gets confirmed.
Last Confirmed Trend Oct 7 – 28, 2011 – During this time, the WLI level was rising by 0.71 points per week. Oct 14 – Nov 18, 2011 – During this time, there was a virtually 100% chance the WLI growth rate was rising by 0.60 percent each week.
Projected Next Data Point 120.31 for week ending Dec 30, 2011 -7.0 for week ending Dec 30, 2011 (based on unconfirmed trend)

Easy Take

The WLI level is now in a confirmed downtrend, so it appears that the prospects for the future are turning down again.  The growth rate appeared to show a slight level of improvement, but the unconfirmed trend from Nov 25 to Dec 9 is about to be broken, as the last two data points were clearly below trend, dangerously close to breaking it this week actually.

Regardless of whether the growth rate is getting better or not, the annualized growth rate still sits at a very low 7.55 percent, consistent with a very weak economic outlook for the next 6-9 months.  At this point, it’s safe to say that the ECRI’s weekly index is forecasting a very weak future.  That forecast improved somewhat from mid-October through mid-November, but it appears that improvement may have been temporary.

The other thing to follow is that The Conference Board’s Leading Economic Indicators (LEI) has had two solid ratings since the ECRI’s prediction of a recession before mid-2012.  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.

This showdown between the ECRI and the LEI makes for an interesting start to 2012.

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: US Economy Headed for Recession – ECRI Weekly Leading Index Growth Rate Trends (thru September 23, 2011)
  2. Easy Trends: ECRI Weekly Leading Index – Growth Rate Improving But Index Has No Direction (thru Nov 18, 2011)
  3. ECRI Weekly Leading Index – Easy Trends: Trends Are All Basically Gone (thru Dec 2, 2011)
  4. Easy Trends: ECRI Weekly Leading Index – Still Very Low But Clearly Improving (thru Nov 4, 2011)
  5. Easy Trends: ECRI Weekly Leading Index – Finally Turning Back Up (thru Oct 28, 2011)