Sunday, July 18, 2010

ECRI WLI Growth: Wild Times

As I commented in the July 12 post:

"For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.

However, I do think the measures are important and deserve close monitoring and scrutiny."

Along those lines, I would like to make comments on the ECRI WLI Growth chart, as seen from a long-term perspective.  This chart is from Doug Short's blog post of July 16:

(click on chart to enlarge image)

As one can see, the chart shows the history of the ECRI WLI Growth vs. GDP and recessions from 1965.

I believe the wild swing from 2008 to the present is very significant for many reasons, of which five are discussed below:

First, as one can see, this swing dwarfs others from a long-term historical perspective.

Second, as many have commented, this depth of negative readings has a high incidence of presaging recessions.

Third, as I have commented extensively, this is yet one more economic statistic that is showing a highly atypical reading, especially if one believes we are in an economic recovery.  This is especially evident when one looks at the currently ECRI reading vs. the GDP reading.  As such, it is a "(negative) outlier" as I have referred to such (most recently in the July 14 post.)

Fourth, another question to ask is how one should interpret such a pronounced spike and then decline?  One thought is that the index may be exhibiting more volatility than in the past - which may distort any historical comparisons, correlations and/or conclusions one may make with regard to its movements.

Fifth, I find the long-term chart (not shown) of the ECRI WLI (Weekly Leading Index) itself to be rather interesting.

Given the above, the ECRI WLI Growth Index, in conjunction with overall economic conditions, certainly should be interesting to watch going forward...

back to home

SPX at 1064.88 as this post is written

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