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Friday, September 24, 2010

ECRI's WLI Growth Rate Up - Premature to Predict New Recession

ECRI's WLI Down but WLI Growth Rate Continues Higher
The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI)
For the week ending September 17, 2010
  • WLI  is 122.2, down from the prior week's reading of 122.6.  
  • The lowest reading for WLI this year was 120.4 for the week ending July 16.
  • WLI growth moved higher to minus 8.7% from a revised minus 9.3% a week ago.  
  • The last positive reading for WLI growth was for the week ending May 28, 2010 when it stood at positive 0.1%. 
Commenting on the data, Lakshman Achuthan, managing director at ECRI said, " After a brief plunge in the late spring, the WLI has been fairly stable throughout the summer and into September, suggesting that it is still premature to predict a new recession." 

Chart of WLI and WLI growth vs GDP Growth
Click to view full size chart
Since ECRI releases their WLI numbers for the prior week and the stock market is known in real time, you can often get a clue for next week's WLI from the weekly change in the stock market.
Chart of S&P500 vs ECRI's WLI
 
More Charts:
Notes: 
  1. The WLI for the week ending 9/24/10 will be released on 10/1/10.
  2. Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
  3. ECRI uses the WLI level and WLI growth rate to HELP predict turns in the business cycle and growth rate cycle respectively. Those target cycles are not the same as GDP level or growth, but rather a set of coincident indicators (including production, employment income and sales) that make up the coincident index. Based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below negative ten, but no recessions resulted (although there were clear growth slowdowns).
Before you claim understanding of ECRI's WLI, make sure you read the article  "ECRI Weekly Leading Indicators Widely Misunderstood."
"Bottom line, neither the “experts” predicting that the sky is falling based on the WLI, nor the other “experts” indulging in misinformed WLI-bashing in an effort to discredit the super-bears, have a real clue to what the WLI is all about...  A slowdown in U.S. economic growth is imminent, but a new recession is not." 
Disclosure:  I am long the exchange traded fund for the S&P500, SPY charts and quote, in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

2 comments:

  1. glendaleFriday.com9/24/2010 08:35:00 AM

    KL,

    Bragging.

    I opened a Fidelity Brokerage Acct. sending them $50,000 on April 27, 2010 to get airline miles on a promotion they had with Delta.

    Today, as of this morning Sept. 24, my account is at $55,000.11.

    I am pleased needless to say. What will the acct. be valued at later? More I hope.

    Some of the stocks I purchased with the $$$ were your stocks...LRCX, FNSR, GGR, etc.

    Thanks,

    glendaleFriday.com

    ReplyDelete
  2. Congratulations glendaleFriday.com!
    Thanks for sharing news of YOUR success too!

    To others, we buy and sell around core positions in these stocks. These are the dates and email titles (sent to subscribers) from my most recent buy announcements for the stocks glendaleFriday.com mentions:

    8/24/10: LRCX Auto Buy Alert 100 @ $36.50 - New Auto Sell
    8/24/10: FNSR Auto Buy Alert: 125 bought @ $12.50
    8/27/10: GGR Buy Alert 1,000 @ $0.80

    Today (9/24/10)
    LRCX = $41.44
    FNSR = $17.67
    GGR = $0.95
    Click tickers for graphs and current quotes

    Warning: I have "take profits" levels for all these stocks listed in my current newsletter. I have plans to sell these shares when those levels are reached.

    Note: "New Auto Sell" means I announced a price to sell those shares in the email buy alert.

    ReplyDelete

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