Are we in a recession?
The Economic Cycle Research Institute (ECRI) is renowned for their independent research and reporting on economic and business cycles. The Economist magazine noted in 2005, â€œECRI is perhaps the only organization to give advance warning of each of the past three recessions; just as impressive, it has never issued a false alarm.â€
ECRI’s U.S. Weekly Leading Index (WLI) is a composite leading index that anticipates cyclical turning points in U.S. economic activity by 2-3 quarters. The ECRI Weekly Leading Index (WLI) is interesting because it doesnâ€™t just look at the same backward-looking indicators Wall Street relies on. The ECRI WLI includes more pertinent data like mortgage applications and money supply data. The index is calculated weekly and estimates annualized economic growth rate.
In September 2011 ECRI announced their anticipation of a new recession estimated to start in early 2012, later revised to mid 2012, and revised again to the end of 2012. While there remains some debate regarding the classification as a recession, there’s no question the economy has been soft and growth is not ramping as it has after previous recessions. The following chart shows recent WLI data.
ECRI Weekly Leading Index. Source: www.ecri.com
Further to the ECRI WLI index, the Weekly Coincident Index (CI) is a comprehensive measure of the economy’s current state, tracking indicators of production, employment, income, and sales.
In a January CNBC interview, Lakshman Achuthan, cofounder of ECRI, said â€œWhatâ€™s bothersome is that right now the consensus is that we are ‘taking off,’ we are approaching â€˜escape velocityâ€™ … We just donâ€™t see that when weâ€™re looking at the data… in the forward-looking indicators, in the coincident data on jobs, itâ€™s not there.
ECRI states “It is now quite clear that the economy is decelerating, not accelerating, with growth in ECRI’s Weekly Coincident Index (see chart below) falling rapidly.”
ECRI Weekly Coincident Index. Source: https://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-failure-to-launch.
This data provides another perspective on business planning as it relates to future economic conditions. The ECRI indicators do not suggest it’s time to dive into the storm cellar, but rather keep an eye on the weather and not make business decisions on the economic recovery rhetoric that is continually surfacing in the media.
At WiredRE we use this type of unique market data in the Situation Analyses we develop for our clients in our various research and consulting engagements.