ECRI Weekly Leading Index drops to near negative 10%

According to David Rosenberg (on June 14):

The smoothed ECRI leading economic index fell in the opening week in June for the fifth week in a row and now down in nine of the past ten. The index, went from +0.3% to -3.5%, the weakest it has been in a year. After predicting the V-shaped recovery we got briefly in the inventory-led GDP data when the index soared off the bottom in late 2008, at -3.5%, we can safely say that this barometer is now signalling an 80% chance of a double-dip recession. It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data).

www.creditwritedowns.com...

ECRI is down to negative 9.8% growth

Source: www.businesscycle.com...
Excel file: www.businesscycle.com...

ECRI Weekly Leading Indicators (WLI) Growth
Date . . . . Level . . . Growth
7-May-10 131.9 12.3
14-May-10 127.0 9.0
21-May-10 125.3 5.0
28-May-10 123.7 0.1
4-Jun-10 122.8 -3.8
11-Jun-10 122.1 -6.0
18-Jun-10 122.5 -7.2
25-Jun-10 121.4 -8.2
2-Jul-10 120.6 -9.1
9-Jul-10 120.6 -9.8

Seed article: www.businessinsider.com...

reply to post by dbriefed


Can you link to historical data?

Only shows limited amount of time. After that if you want to see if this is truly significant we can check the correlation with the SP500.

[edit on 16-7-2010 by GreenBicMan]

reply to post by GreenBicMan


You seem to know your way around the markets pretty well. Does this information have legitimate ties to a drop in the markets? If it's true it would be nice to jump into some short positions.

reply to post by dbriefed


Sadly this coincides with the Baltic Dry Index....

It would appear we could be facing another horrible Autumn for the markets, right after so many people re-deposited their savings into the markets too.

GBM:

www.businesscycle.com...

Not the best of graphics, but the second graph down goes back to the 1970's..

The severity of the downturn in the ECRI reflects the severity of the recessions.. You'll see as much by observing the 1970's, late 80's and early 90's, as well as the current Depression.

The graphic is a little confusing because it's shaded for growth vs decline, but even if the ECRI declines by 5%, and it's still positive, it shows economic growth just "slower" economic growth, but is still considered a decline, thus, shaded.

As far as I can tell only when it is actually negative is there true economic contraction, hence it being at it's lowest points during our worst historic recessions.

It is amazing what the stimulus did to the ECRI though, blew it through the roof..

reply to post by SpaDe_


I can't find a detailed enough chart to see if the index falls before or after or during market crashes.. I would presume it being an index of "leading indicators" that it would be before.. but I can't find a really good historic chart.. GBM might be able to, he loves charts, lol, I'm sure he will find one.

Looks like in the end they try to sell you on the "pro membership". These indicators are proprietary to them, and them only (this "institute"). Basically they are selling advice on the basis of their scheme.

Whichever index is lagging you would buy when low and short leading indicators when their index starts to turn into a negative slope.

Their is no chart though I suppose until you pay. I am going to guess the membership is not worth it. It is getting pimped by ZH, but they have never been good in actual trading, just lengthy sarcasm.

All indicators suck sometimes, and sometimes they work. Without historical information you don't have a large enough sample to come to any conclusion. To me it is just another pay membership for stock tips on the internet. Like so many others. Have you seen Lenny Dykstra's?

I found this but if you look at the chart provided, it doesn't seem to be leading to me - also on the last run up it looks like the SP500 made the move first (in green). So I dont know, in the end everyone has an opinion.



[edit on 16-7-2010 by GreenBicMan]

Here's a bit more historical data and a chart...


ECRI Weekly Leading Indicators (WLI) Growth
Date . . . . Level . . . Growth
4-Jan-08 . . . 135.5 . . . -7.4
11-Jan-08 . . . 136.9 . . . -7.0
18-Jan-08 . . . 135.2 . . . -6.7
25-Jan-08 . . . 130.9 . . . -7.8
1-Feb-08 . . . 133.2 . . . -8.4
8-Feb-08 . . . 133.1 . . . -9.6
15-Feb-08 . . . 131.8 . . . -10.5
22-Feb-08 . . . 132.2 . . . -9.9
29-Feb-08 . . . 133.0 . . . -9.8
7-Mar-08 . . . 132.4 . . . -9.9
14-Mar-08 . . . 131.0 . . . -9.9
21-Mar-08 . . . 131.7 . . . -9.9
28-Mar-08 . . . 130.1 . . . -10.6
4-Apr-08 . . . 131.9 . . . -10.6
11-Apr-08 . . . 132.3 . . . -9.9
18-Apr-08 . . . 132.3 . . . -9.5
25-Apr-08 . . . 132.3 . . . -8.6
2-May-08 . . . 133.8 . . . -7.7
9-May-08 . . . 134.0 . . . -6.9
16-May-08 . . . 133.4 . . . -6.2
23-May-08 . . . 133.4 . . . -5.6
30-May-08 . . . 132.9 . . . -5.7
6-Jun-08 . . . 133.0 . . . -5.8
13-Jun-08 . . . 132.7 . . . -5.8
20-Jun-08 . . . 131.7 . . . -6.1
27-Jun-08 . . . 131.4 . . . -6.3
4-Jul-08 . . . 132.0 . . . -6.4
11-Jul-08 . . . 130.9 . . . -6.7
18-Jul-08 . . . 129.6 . . . -7.2
25-Jul-08 . . . 128.2 . . . -8.0
1-Aug-08 . . . 127.5 . . . -9.2
8-Aug-08 . . . 127.0 . . . -10.2
15-Aug-08 . . . 126.2 . . . -11.0
22-Aug-08 . . . 125.7 . . . -11.6
29-Aug-08 . . . 126.6 . . . -11.5
5-Sep-08 . . . 126.3 . . . -11.4
12-Sep-08 . . . 125.4 . . . -11.3
19-Sep-08 . . . 122.6 . . . -12.1
26-Sep-08 . . . 122.8 . . . -13.1
3-Oct-08 . . . 120.9 . . . -14.5
10-Oct-08 . . . 117.0 . . . -17.0
17-Oct-08 . . . 113.8 . . . -19.5
24-Oct-08 . . . 112.5 . . . -22.4
31-Oct-08 . . . 110.2 . . . -25.3
7-Nov-08 . . . 110.7 . . . -26.8
14-Nov-08 . . . 108.1 . . . -28.1
21-Nov-08 . . . 106.6 . . . -29.3
28-Nov-08 . . . 109.2 . . . -29.0
5-Dec-08 . . . 106.8 . . . -29.7
12-Dec-08 . . . 107.2 . . . -29.4
19-Dec-08 . . . 107.8 . . . -28.4
26-Dec-08 . . . 108.8 . . . -27.9
2-Jan-09 . . . 110.1 . . . -26.2
9-Jan-09 . . . 109.4 . . . -24.8
16-Jan-09 . . . 108.4 . . . -24.0
23-Jan-09 . . . 108.0 . . . -23.7
30-Jan-09 . . . 107.4 . . . -24.0
6-Feb-09 . . . 107.1 . . . -24.2
13-Feb-09 . . . 107.8 . . . -23.8
20-Feb-09 . . . 106.4 . . . -23.8
27-Feb-09 . . . 105.8 . . . -23.7
6-Mar-09 . . . 105.5 . . . -23.7
13-Mar-09 . . . 105.9 . . . -23.7
20-Mar-09 . . . 106.4 . . . -23.1
27-Mar-09 . . . 106.7 . . . -22.2
3-Apr-09 . . . 107.7 . . . -20.8
10-Apr-09 . . . 107.7 . . . -19.5
17-Apr-09 . . . 107.9 . . . -18.3
24-Apr-09 . . . 108.5 . . . -17.0
1-May-09 . . . 110.0 . . . -15.6
8-May-09 . . . 111.7 . . . -13.3
15-May-09 . . . 111.9 . . . -11.1
22-May-09 . . . 112.9 . . . -8.7
29-May-09 . . . 114.5 . . . -6.2
5-Jun-09 . . . 116.6 . . . -3.5
12-Jun-09 . . . 117.5 . . . -0.5
19-Jun-09 . . . 118.1 . . . 2.3
26-Jun-09 . . . 118.1 . . . 4.3
3-Jul-09 . . . 119.3 . . . 6.0
10-Jul-09 . . . 118.2 . . . 6.8
17-Jul-09 . . . 118.8 . . . 7.6
24-Jul-09 . . . 120.3 . . . 9.0
31-Jul-09 . . . 122.3 . . . 10.8
7-Aug-09 . . . 124.8 . . . 14.1
14-Aug-09 . . . 125.6 . . . 17.5
21-Aug-09 . . . 125.2 . . . 20.0
28-Aug-09 . . . 125.8 . . . 21.7
4-Sep-09 . . . 126.6 . . . 22.6
11-Sep-09 . . . 126.9 . . . 23.2
18-Sep-09 . . . 128.7 . . . 24.9
25-Sep-09 . . . 128.4 . . . 26.1
2-Oct-09 . . . 129.3 . . . 27.3
9-Oct-09 . . . 128.5 . . . 27.8
16-Oct-09 . . . 128.5 . . . 27.4
23-Oct-09 . . . 129.0 . . . 27.3
30-Oct-09 . . . 129.2 . . . 26.7
6-Nov-09 . . . 127.9 . . . 25.8
13-Nov-09 . . . 127.3 . . . 24.5
20-Nov-09 . . . 128.9 . . . 23.7
27-Nov-09 . . . 129.4 . . . 23.0
4-Dec-09 . . . 130.1 . . . 23.2
11-Dec-09 . . . 130.8 . . . 24.0
18-Dec-09 . . . 130.4 . . . 23.8
25-Dec-09 . . . 130.6 . . . 23.4
1-Jan-10 . . . 131.1 . . . 23.0
8-Jan-10 . . . 131.6 . . . 22.5
15-Jan-10 . . . 131.9 . . . 22.4
22-Jan-10 . . . 131.2 . . . 21.8
29-Jan-10 . . . 130.7 . . . 20.8
5-Feb-10 . . . 129.9 . . . 19.1
12-Feb-10 . . . 128.2 . . . 16.6
19-Feb-10 . . . 128.3 . . . 14.5
26-Feb-10 . . . 129.6 . . . 13.3
5-Mar-10 . . . 130.5 . . . 12.8
12-Mar-10 . . . 130.9 . . . 13.1
19-Mar-10 . . . 131.3 . . . 13.6
26-Mar-10 . . . 131.8 . . . 13.6
2-Apr-10 . . . 131.8 . . . 13.3
9-Apr-10 . . . 131.3 . . . 12.6
16-Apr-10 . . . 133.0 . . . 12.5
23-Apr-10 . . . 133.7 . . . 12.4
30-Apr-10 . . . 134.7 . . . 12.9
7-May-10 . . . 131.9 . . . 12.3
14-May-10 . . . 127.0 . . . 9.0
21-May-10 . . . 125.3 . . . 5.0
28-May-10 . . . 123.7 . . . 0.1
4-Jun-10 . . . 122.8 . . . -3.8
11-Jun-10 . . . 122.1 . . . -6.0
18-Jun-10 . . . 122.5 . . . -7.2
25-Jun-10 . . . 121.4 . . . -8.2
2-Jul-10 . . . 120.6 . . . -9.1
9-Jul-10 . . . 120.6 . . . -9.8

Larger image: files.abovetopsecret.com...
Shows right side of image hidden by forum software.

[atsimg]http://files.abovetopsecret.com/images/member/e4c282c8a6cf.png[/atsimg]

And a graph for 2007 to present. Note that the red line is YoY Growth, and last year was not great at all.

[atsimg]http://files.abovetopsecret.com/images/member/3aa6cdcdbccf.png[/atsimg]

[edit on 17-7-2010 by Dbriefed]

reply to post by Dbriefed


The dates and magnitude of movement do coincide with upturns and downturns in the economy.. I don't know if id call it "leading" yet however. But when it was at its lowest, like in Jan of 09, we were seeing 500-700k people loosing their jobs a month..

Then wen its at +20 we have the highest stock levels since the crash..

Then as it enters negative we have been seeing 40-50 week lows on the Dow and S&p and higher volatility, 500+ point weekly swings on the Dow, much like before the last major downturn.

Too hard to tell, to me looks like a coincidental indicator. I guess if you really studied it though it might just give you added information to make a decision.

Even if the general public leaves the large banks will keep pumping money into the market...it's now been demonstrated that the freaking thing can run on fumes volume-wise and still hold its own to a better extent than even previously imagined.

I'm not saying there arent dangers and potentials for all sorts of "issues" (flash crash May 6 anyone?), but right now I am imagining a radically decoupled market "doing its own thing" in the face of escalating credit creation, even as the broader economy continues to languish for some time. As noted by rockpuck, the baltic dry figures are probably the most worrisome stats right now (plus real unemployment and public-sector bonds IMHO), but even the fairthful old baltic dry is showng some signs of decoupling.


[edit on 7/17/10 by silent thunder]

Decoupling. You've summed up why I've lost confidence in the market. Nearly all normal indicators and the market have decoupled. This tells me the market is artificially manipulated. Before there was merely head feints by funds traders to pull in and profit from small investors. Now the market often appears to do completely the opposite what it appears should be happening.

Originally posted by Dbriefed
[atsimg]http://files.abovetopsecret.com/images/member/e4c282c8a6cf.png[/atsimg]

Looking at the recessions during this dataset, we see:

Dec 1969 – Nov 1970,
ECRI WLI drop began in May of 1969, and returned to positive growth in January of 1971.

Nov 1973 – Mar 1975,
Growth went negative in August of 1973, returned to positive in May of 1975.

Jan–July 1980,
Growth went negative in October of 1979, returned to positive in September of 1980.

July 1981 – Nov 1982,
Growth went negative in September of 1981, returned to positive in September of 1982.

The growth goes mildly negative from June-November of 1984, and again from October 1987 to June 1988.

July 1990 – Mar 1991,
Growth went negative in June of 1990, went positive in February of 1991.

Goes mildly negative for multi-week periods during 94-95.

Goes mildly negative from August of 1998, to June of 1999.

Mar–Nov 2001,
Growth went negative in May of 2000, return to positive growth in December of 2001.

Again goes mildly negative from August 2002 until January 2003.

It really spends the entire Bush Presidency dipping negative briefly, and then recovering, until the start of the "Great Recession" when we see it go hugely negative. It turned negative in August of 2007, and went positive in June of 2009.

The index has never been as low as -10% during non-Recessionary times, and 1987 and 2003 were the only times it's gone lower than -4.5% growth during a non-Recessionary cycle (the 1987 low was -6.8% growth, the 2002 low was -5%).

The data seems to indicate that this index anticipates recessions (growth usually going negative several months in advance of the official begin of a recession), and goes positive again within two months of the recessions end.

So, this does seem hugely indicative of the much-discussed "double-dip". The extent to which it's fallen off the cliff in the past few weeks is sort of shocking.

I'll save the spreadsheet and see if I can find some week-by-week stock market numbers to compare it to, and I'll see if I can some actual regressions. I wouldn't expect to find any significant correlations though (the stock market != the economy).


[edit on 17-7-2010 by theWCH]

reply to post by theWCH


Ultimately then whether or not it anticipates anything is determined by.... well, the determination as to when a recession actually begins? .. some would say recessions begin and end through technical terms only, relating specifically to GDP.. others say its a broader culmination of jobs, production and general deflion of the economy..

But depending on what method is used would decide if it coincides with decline or predicts decline.

Personally I see it as coinciding.. since it doesn't use every leading indicator it mostly uses consuming power (cpi and home prices) I cannot see how it predicts anything. If its negative now, imo, we've already slipped into the double dip recession. It may take the gov 2 more Q's to officially decide that... but that's what I see.

The Baltic Dry index, a true leading index, has been anticipating this for a while now.

Nice analysis theWCH, you put some work into that. I look forward to any correlations you find. It would be nice to find .csv files with correlating dates and run some charts / pivot charts off that.

I know Rockpuck and a few others are skeptical of the ECRI WLI, but this group of analysts must be calling this the WLI (Weekly Leading Index) for a reason. They must have some basis for believing it makes a good index made of a collection of leading indicators.

I found this on ECRI, seems ECRI was founded by Alan Greenspan and Geoffrey Moore, the creator of the original leading indicators:
www.thestreet.com...

Weekly Leading Index

What exactly? A high-frequency leading index of U.S. economic growth. The Weekly Leading Index directly addresses concerns about the freshness of data that forecasters have with existing leading indicators, including the monthly Index of Leading economic indicators

Source: Economic Cycle Research Institute. The ECRI was founded by the late Geoffrey H. Moore, creator of the original leading economic indicators index and, as it happens, Fed Chairman Alan Greenspan's stats professor at New York University in the 1940s.

Frequency: Weekly

Released when? Friday at 10:30 a.m. Eastern. Data for week ended prior Friday.

Market importance:Some. Occasionally moves market. Very timely. On Friday, the Weekly Leading Index is updated with data through the previous week with only a one-week publication lag. Considered a leading index of overall economic conditions, particularly in light of its real-time record of predicting recessions and recoveries. Has a moderate lead over business cycles.

Other notes:The Weekly Leading Index supplies the information for its monthly equivalent, The Weekly Leading Index -- Monthly, which is a high-frequency leading index of U.S. economic growth available very promptly. The monthly data is available on the first Friday of the following month.

[edit on 18-7-2010 by Dbriefed]

reply to post by Dbriefed


It may anticipate the "economy", but more importantly does it anticipate the market? Then it would be a true leading indicator.

A leading indicator, like the market, is anticipating the economy 6-18 months ahead of time. So if you can figure out a way to correlate this to the SP500 minus 6-18 months and figure that all out then I think you can start to make assumptions.

People always forget the market is continually adjusting risk looking 6-18 months forward. Different sectors of the economy have different views associated with risk and timetable.

If you put in the work you will be rewarded though. Either by knowing this is totally bunk or it indeed has merit.

reply to post by GreenBicMan


The stock market is not just a leading indicator, its also a lagging indicator. The market CAN reflect the economy several months in afvance simply by the movement of capital will reflect amount the corporations can or need to expand or contract production, employment, expeditures etc..

However..

Like in 2007, the stock market crashed FOLLOWING nearly a year and a half of actual economic slow down.. the economy its self crashed before the stocks, then the stocks crashed pushing the economy down further.

It can't predict as a leading indicator in this fashion all the time either.. in 2002-2004 the markets continued to fall while unemployment, production and corporate health all improved. Likewise in 2000 dot com crashed, the economy tanked preceeding the markets.

View it like a train of cause and effect.. the stock market is a car half way down the line. It gets hit in the ass before it strikes the car infront of it. A lagging and leading indicator, some of the time, not all the time, and I would think predicting it before an event happens is next to impossible. But all things are naturally clearer in hind sight.

reply to post by Rockpuck


It will never be right or wrong, only in hindsight yes.

The most important part is figuring out if this leads the Sp500 or not though. Nothing else matters.

After looking again at charts it seems coincidental, but works worst in a trending stock market and works best in a volatile market. I still can't tell though without a look at a daily chart matched 1:1 with ECRI

[edit on 18-7-2010 by GreenBicMan]

reply to post by GreenBicMan


Personally I think there are better tools.

Baltic dry index, which isn't included in this average is to important to leave out

As is inflation in general

And then retail sales

Followed closely by consumer sentiment

All of which are very poor at the moment, it was retail sales news that jolted the markets recently. And the crash in Europe was following a major crash in consumer spending.

It appears no matter how much ccapital is injected, how much stimulus is spent, or how healthy the banks are... there's just not enough activity in the real economy. THIS will be the predictor of where the markets will move. I say, from what I see, we will slip into the deflationary spiral we were in 2007.. consumer spending will fall, foreclosures will rise, lending will fall, retail will tank .. all of these effect company performance on the S&P.

By this fall, October, or before Feb 2011.. we should see a major stock market decline, not just a volatile volt .. a shat your pants 2007 all over again shtf movement across the entire economy. According to fundementals.. the "recovery" has to end eventually since nothings actually changed the very workings of the economy..

reply to post by Rockpuck


Wouldn't be the first time we disagreed on market movements. Give me a string of better than expected initial claims (which has to come) and I doubt "double dip" will be in the vocabulary anymore.

All the sudden after a couple volatile jobless reports it is enough to turn everyone the other way again.

Too many people leaning towards being short. Too many retail people thinking this, in fact I would say over 80-90%. Gotta go the other way. SP 1350 year end.

If Euro is ever allowed to let fall again it many be a different story.

There will be no "double dip" with 0% fed fund rates. No reason to raise rates either. 0 inflation.

I think you are crazy personally, but I can't shake this - Fed Funds Rate, IMO is a far greater historical indicator than BDI etc..

reply to post by GreenBicMan


Perhaps we should wager?? .. ah.. but alas.. we are both poor lol. I simply cannot see sustained recovery past this years shopping season with minimal inflation, among other reports.. I don't doubt the spin army of msm will be out in full force, but I believe there is to much momentum to be stopped. I would hazzard a guestimation that all indexes will finish the year -9% year over year. its always hard to predict christmas so soon, but if its a fail christmas, the negative momentum will carry right through to March.