ECRI Short Leading Falls Deeper into Recessionary Territory
According to ECRI itself, about the only reason why their own Weekly Leading Index is -not- flashing imminent recession ahead, is that their Long Leading Index has not been collapsing in kind, albeit much lower, and clearly pointing to a second-half "slowdown," itself.
Being that our current macro state of affairs arguably more closely resembles situations during the Long Depression (1870s-1890s), Great Depression (1930s), and Japan's "Lost Decade(s!)" (1990s & 2000s), it seems worth while to see what, if anything, ECRIs Long Leading Index might have been doing differently during those times, than during routine recessions. (More on this below*)
In the meantime, here are some articles from this weekend discussing the plunge in ECRI's Weekly Leading Index.
Zero Hedge:
ECRI Leading Economic Index Plunges At -6.9% Rate,
Back To December 2007 Levels When Recession Officially Started
It's getting close: the fabled -10% annualized change (see David Rosenberg) which guarantees a recession is now just 3.1% away, which at this rate of collapse will be breached in two weeks. The ECRI is now at December 2007 levels, the time when the last recession officially started. The index dropped from an annualized revised -5.8% (previously -5.7%) to -6.9%. As a reminder, from Rosie, "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)." We are practically there.
Shorter-term...
And a more dramatic longer-term chart:
Business Insider
Here Comes The Recession
The Leading Indicators Are Starting to Turn
Even while I was on vacation in Italy, I had to regularly feed my addiction for economic and investment information. Over the course of a few days I ran across several studies on the Economic Cycle Research Institute's (ECRI) Index of Weekly Leading Economic Indicators. The index has turned down of late. Chad Starliper of Rather & Kittrell sent me the following charts and analysis. (I love it when someone else does the work for me while I'm on vacation!)
"The ECRI has been getting some news of late. I did a little work on it, played with the rates of change, and found something a little ominous you might be interested in. The normal reported growth rate is an annualized rate of a smoothed WLI. However, when the 13-week annualized rate of change is used - shorter-term momentum - the decline in growth has fallen to a very weak -23.46%. The other times it has fallen this fast? All were either in recession or pointing to recession in short order (Dec. 2000)."
*ECRI's US Long Leading Index Prior To The 1950s Shows That
US Recessions Indeed Occur Even When Their Long Leading Index is Positive (PDF).
A very important question then, is whether the current environment more closely resembles the modern era, or pre-1950.
Related (A MUST Read!)
"Get Ready For More Recessions" (PDF)
Ron Insana Radio
June 25, 2010
(Insana) - ECRI's Lakshman Achuthan spoke with Ron Insana this morning about why there will be more frequent recessions in the coming decade.
The presentation of this thesis can be viewed through the two links below -- one with full slides, and one containing Lakshman's notes.
Slides with Notes
Being that our current macro state of affairs arguably more closely resembles situations during the Long Depression (1870s-1890s), Great Depression (1930s), and Japan's "Lost Decade(s!)" (1990s & 2000s), it seems worth while to see what, if anything, ECRIs Long Leading Index might have been doing differently during those times, than during routine recessions. (More on this below*)
In the meantime, here are some articles from this weekend discussing the plunge in ECRI's Weekly Leading Index.
Zero Hedge:
ECRI Leading Economic Index Plunges At -6.9% Rate,
Back To December 2007 Levels When Recession Officially Started
It's getting close: the fabled -10% annualized change (see David Rosenberg) which guarantees a recession is now just 3.1% away, which at this rate of collapse will be breached in two weeks. The ECRI is now at December 2007 levels, the time when the last recession officially started. The index dropped from an annualized revised -5.8% (previously -5.7%) to -6.9%. As a reminder, from Rosie, "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)." We are practically there.
Shorter-term...
And a more dramatic longer-term chart:
Business Insider
Here Comes The Recession
The Leading Indicators Are Starting to Turn
Even while I was on vacation in Italy, I had to regularly feed my addiction for economic and investment information. Over the course of a few days I ran across several studies on the Economic Cycle Research Institute's (ECRI) Index of Weekly Leading Economic Indicators. The index has turned down of late. Chad Starliper of Rather & Kittrell sent me the following charts and analysis. (I love it when someone else does the work for me while I'm on vacation!)
"The ECRI has been getting some news of late. I did a little work on it, played with the rates of change, and found something a little ominous you might be interested in. The normal reported growth rate is an annualized rate of a smoothed WLI. However, when the 13-week annualized rate of change is used - shorter-term momentum - the decline in growth has fallen to a very weak -23.46%. The other times it has fallen this fast? All were either in recession or pointing to recession in short order (Dec. 2000)."
*ECRI's US Long Leading Index Prior To The 1950s Shows That
US Recessions Indeed Occur Even When Their Long Leading Index is Positive (PDF).
A very important question then, is whether the current environment more closely resembles the modern era, or pre-1950.
Related (A MUST Read!)
"Get Ready For More Recessions" (PDF)
Ron Insana Radio
June 25, 2010
(Insana) - ECRI's Lakshman Achuthan spoke with Ron Insana this morning about why there will be more frequent recessions in the coming decade.
The presentation of this thesis can be viewed through the two links below -- one with full slides, and one containing Lakshman's notes.
Slides with Notes