ECRI Recession Watch: Weekly Leading Index Down To 133.9
Doug Short | Jan 24, 2014 02:43PM ET
The Here are some notable developments since ECRI's public recession call on September 30, 2011, now well beyond its second anniversary:
- The S&P 500 is up 56.7%, slightly off its 58.2% gain at the end of 2013.
- The unemployment rate has dropped from 9.0% to 6.7%.
- GDP has risen to 4.1% in the latest update.
Why ECRI's Recession Forecast Was a Blunder
ECRI's recession forecast was doomed from the very day (September 21, 2011) that company alerted its private clients. On that same day the Fed announced Operation Twist, which was shortly thereafter followed by QE3.
See also Dwaine Van Vuuren's latest RecessionALERT indicator snapshot:
- RecessionALERT Weekly Leading Index Update
Despite the increasing irrelevance of the ECRI's recession indicators in recent years, let's check them out. The first chart below shows the history of the Weekly Leading Index and highlights its current level.
The History of ECRI's Latest Recession Call
ECRI's weekly leading index has become a major focus and source of controversy ever since September 30, 2011, when ECRI publicly announced that the U.S. is tipping into a recession, a call the Institute had announced to its private clients on September 21st. Here is an excerpt from the announcement:
| Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there's nothing that policy makers can do to head it off. ECRI's recession call isn't based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down — before the Arab Spring and Japanese earthquake — to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not "soft landings." (Read the report here .) |
Year-over-Year Growth in the WLI
Triggered by another ECRI commentary, link )
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Note: How to Calculate the Growth series from the Weekly Leading Index
ECRI's weekly Excel spreadsheet includes the WLI and the Growth series, but the latter is a series of values without the underlying calculations. After a collaborative effort by Franz Lischka, Georg Vrba, Dwaine van Vuuren and Kishor Bhatia to model the calculation, Georg discovered the actual formula in a 1999 article published by Anirvan Banerji, the Chief Research Officer at ECRI: "The three Ps: simple tools for monitoring economic cycles - pronounced, pervasive and persistent economic indicators."
Here is the formula:
"MA1" = 4 week moving average of the WLI
"MA2" = moving average of MA1 over the preceding 52 weeks
"n"= 52/26.5
"m"= 100WLIg = [m*(MA1/MA2)^n] – m
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