ECRI Index – Weekly Leading Index (WLI) and Year-Over-Year Change (thru Week Ending March 8, 2013)

ECRI Index (also known as the ECRI Weekly Leading Index) is published weekly.  It is designed to predict the direction of economic growth in the next 6-9 months.  On this page, 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.

NOTE: You may be reading an outdated analysis.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

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.  We will use two ways of examining the index: 1) the weekly level of the index and 2) a smoothed version of how much the index has changed over the last year.

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, we will focus on two components of the indicator:

  • Weekly Leading Index (WLI) 4-Week Moving Average – This is average of the four most recent values of the index released each week.  I prefer to look at this “smoothed” rate because the individual weekly readings have too many ups and downs for which to discover any meaningful trends.
  • Weekly Leading Index Year-Over-Year Change in 4-Week Moving Average – Rather than using the ECRI’s complicated calculation for an annualized growth rate, which ECRI admits doesn’t do a great job of adjusting for seasonal patterns, it is easier to compare the level of the index to its level one year prior.  To smooth things out, we will do this using a four-week moving average.  So, it will be like asking, “What’s the difference between the average of the 1st four weeks of the index in 2012 versus the 1st four weeks of 2011?”
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 is a graph of the ECRI Index (WLI) for the past year from ECRI:

ECRI Index - ECRI Weekly Leading Index Level Mar 8 2013

Source: BusinessCycle.com

ECRI Index Trends and Projections

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

ECRI Index Trend Analysis

Quick ‘n Easy

The ECRI Weekly Leading Index (WLI) 4-wk moving average is in a confirmed downward trend, but that may be coming to an end as the latest two figures were too high to include in it.  The year-over-year change in the 4-wk moving average is in a confirmed downward trend since Feb 1.  The bottom line: the ECRI is suggesting the outlook for the upcoming 6-9 months isn’t too bad, but the direction of the change in that outlook is somewhat negative.

Here is a chart of the recent trends in both the 4-week moving average of the index and the year-over-year change of the 4-week moving average:

ECRI Index - Weekly Leading Index 4wk MA Mar 8 2013 - Trends

Source Data: BusinessCycle.com

ECRI Index - Weekly Leading Index YoY 4wk MA Mar 8 2013 - Trends

Source Data: BusinessCycle.com

ECRI Index 4-Week Moving Average ECRI Index Year-Over-Year Change of 4-wk Moving Average
Current Trend Feb 8 – Feb 22, 2013 – During that time, there was a confirmed downward trend, with the 4-wk moving average of the WLI falling by 0.32 points per week.  The latest two readings were too high to include in that falling trend, which is good news. Feb 1 – Mar 8, 2013 – During that time, there was a confirmed downward trend, with the Yr-over-Yr Change in 4-wk moving average of the WLI falling by 0.34 percent per week.
Last Confirmed Trend Nov 23, 2012 – Feb 8, 2013 – During that time, the 4-wk moving average of the WLI was rising by 0.44 points per week. Jan 18 – Feb 1, 2013 – During that time, the WLI Yr-over-Yr Change in 4-wk Mov Avg was rising by 0.06 percent each week.
Projected Next Data Point (assumes recent trend extends perfectly, excluding any off trend data points) Week ending Mar 15, 2013: 4-wk moving avg of WLI to be 128.50 (down 0.80 from latest) Week ending Mar 15, 2013: Yr-over-Yr Change in 4-wk moving avg of WLI to be positive (+) 3.88 percent (down 0.32 percent from latest)

Easy Take

This week, the ECRI Weekly Leading Index is headed in a mostly negative direction using both methods I analyze.  The 4-week moving average of the ECRI Index is in a confirmed downward trend, but the good news is that the latest two readings were too high for that trend – maybe signaling an end to that trend with next week’s report?  Meanwhile, the year-over-year change of the 4-week moving average is in a confirmed downward trend.

The consensus view of these two analyses suggests that the outlook for the next 6-9 months is not bad, while the direction of the change in outlook is somewhat negative.

The ECRI has gone on record as saying that a recession has already begun.  They predicted that one would have started by mid-2012, so this is consistent with their earlier stance.  However,  that notion flies in the face of numerous other indexes and recession prediction models.

Share