The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) made a strong advance in the numbers released today. It is now at 127.7, up from last week's 126.2 (revised from 126.3). See the WLI chart below. The WLI growth indicator (WLIg) now marks its eighth week in expansion territory at 5.7, up from last week's 4.6. WLIg has now posted fifteenth consecutive weeks of improvement and is at its highest level since May 27, 2011.
The indicators ECRI shares with the public simply aren't supporting the company's repeated recession forecasts, which have, since mid-summer, escalated into assertions that we are already in a recession.
Here is a chronology of selected interviews with Lakshman Achuthan, ECRI's chief operations officer, on Bloomberg TV since its first public recession forecast on September 30th of last year. As I type this, the last item in this list below is still the headline feature at the ECRI website, including a stern visaged Achuthan:
- September 30, 2011: Recession Is "Inescapable" (link)
- February 24, 2012: GDP Data Signals U.S. Recession (link)
- May 9, 2012: Renewed U.S. Recession Call (link)
- July 10, 2012: "We're in Recession Already" (link)
- September 13, 2012: "U.S. Economy Is in a Recession" (link)
Is it time for ECRI to consider recanting its recession call?
The most concise explanation of how ECRI continues to justify its recession call in light of weak but not recessionary economic data is this recent post on the company's website: The 2012 Recession: Are We There Yet? In particular this commentary explains in more detail the July claim that key economic indicators were "rolling over".
In the current cycle retail sales have already peaked back in March 2012 and, according to the household survey, employment has declined for the last two months, and for four of the last six months. Mind you, the household data is revised a lot less than the payroll jobs data and also tends to lead it a bit at cycle turns. (While the jobless rate, calculated from the same data, is yet to turn up in this cycle, that is mostly due to people dropping out of the labor force.)
Since July, when we highlighted the weakness in personal income growth, there have been revisions showing even weaker income growth going back a few months, followed by some apparent recovery recently. As with some of the other coincident data, this series will come under significant revision in the months (and years) ahead. Nevertheless, the weakness in income growth is showing through in retail sales data, which, as mentioned, has actually declined since March.
Are We Now Seeing Signs that a Recession Is Underway?
The most recent Big Four Economic Indicators was the release of the September Nonfarm Employment data last week. Here is one of my Big Four charts with ECRI's 2011 recession call annotated. And note especially the table below.
The latest Nonfarm Employment data point shows growth, but at a slowing rate. The table above shows a series of three 0.1% MoM increases, but if rounded to two decimal places, the trend from July through September is slowing: 0.14%, 0.11% and 0.09%. In fact, the average of the Big Four (the gray line in the chart above) has been flat or contracting in three of the last six months. ECRI also reminds us that the recent months for these data series are subject to revision -- downward revision, in their view.
Next Tuesday we'll get two Big Four indicators: Real Retail Sales and Industrial Production. Actually the Retail Sales report is released on Monday, but I'll hold off updating until we have the latest Consumer Price Index to make an accurate real adjustment.
In time the NBER may determine, based on downward revisions to data, that a recession began at some point in 2012. ECRI would see that as a vindication of its call. But the question I continue to ask is: How much lead time is too much lead time?
Note: For more another perspective on the Big Four economic indicators, see the following article by Dwaine van Vuuren: The NBER Co-incident Recession Model: "Confirmation of Last Resort".
For a less deterministic view on the US economy from another independent economic "think tank", see this commentary on the Conference Board's latest Leading Economic Index update.
