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Friday, June 25, 2010 1:23 PM

ECRI Weekly Leading Indicators at Negative 6.9; How Likely is a Double Dip?

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Inquiring minds have been watching the ECRI Weekly Leading Indicators go into a veritable freefall all since the beginning of the year.

On January 29, the WLI was at +21.3
On February 26, the WLI was at +13.6
On May 28, the WLI was at +0.1

That was the last positive reading.

The three readings for June have all been negative: -3.7, -5.8, and the reading on June 25 (for the week of June 18) has dropped to -6.9

Monthly Leading, Lagging, Coincident Indicators

Here is a detail look of a chart I created from their public data.

Weekly Leading Indicators 2007-2010

The weekly index has gone negative with the monthly index to soon follow. Typically when the index goes to -5 or lower for a couple weeks the economists at the ECRI start howling for more Keynesian stimulus.

How Likely is a Double Dip?

On June 22, 2010 the ECRI addressed the question How Likely is a Double Dip?

(ECRI) - With coincident indicators, ranging from GDP, employment, income and sales, all showing simultaneous improvement, the U.S. economy is undoubtedly in a recovery, which ECRI predicted in the spring of 2009. Still, amid growing worries of the impact of the debt crisis in Europe, weaker-than-expected data on jobs and retail sales have disappointed many, renewing fears about a double-dip recession.

ECRI’s latest analysis examines the cyclical trends of a large array of leading indexes, designed to anticipate U.S. business cycle recessions. Its conclusions give a clear answer to whether a new recession is now on the horizon.
Unfortunately the complete report is available only for subscribers but it appears the ECRI is still trumpeting recovery nonsense.

The interesting thing is the ECRI claims to have predicted every recession, but the reality is they are typically late. The last recession (assuming we are not still in it) started in November of 2007. It appears the ECRI was on time, but the only reason it appears that way is the NBER was even slower in declaring the recession.

The ECRI was actually months late in "predicting" the last recession.

1st Quarter GDP Revised Lower

First quarter GDP has been revised lower twice, this time to 2.7%.

Please consider Economy Grew Slower in First Quarter than Expected, Up 2.7%
In its final estimate, the Commerce Department said gross domestic product expanded at a 2.7 percent annual rate instead of the 3 percent pace it reported last month.

Growth in the January-March period was held back business spending, which only rose at a 2.2 percent rate instead of 3.1 percent as reported last month.

Weak investment in home building chipped away at growth in the first quarter. The decline in home construction followed two-straight quarters of growth and underscored the fragility of the housing market's recovery from a three-year slump.

However, real final sales to domestic purchasers, considered a better measure of domestic demand, rose at a 1.6 percent rate instead of the 2.0 percent pace reported last month.

Growth was also supported by business inventories, which rose $41.2 billion rather than the $33.9 billion reported last month. The change in inventories contributed 1.88 percentage points to first quarter GDP.
The report shows weak business investment, anemic housing investment, and weakening consumer demand. Please note this unexpected development happened before the disruptions in Europe and while there were housing tax credits still in place. More recently, housing has once again collapsed.

Please note that inventory restocking contributed 1.88 of the reported 2.7.

Second quarter GDP may very well be flat or even negative and it is increasingly likely third quarter GDP will be negative.

Meanwhile the ECRI is still spouting "With coincident indicators, ranging from GDP, employment, income and sales, all showing simultaneous improvement, the U.S. economy is undoubtedly in a recovery".

Mike "Mish" Shedlock
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