HI-TRANSFER

The latest release of the Economic Cycle Research Institute’s (ECRI) Weekly Leading Index improved slightly since last week resulting in the all important annualized “growth” component showing a value of -10.00 and continuing firmly suggest recession call on the part of the ECRI’s economics staff .

The chart above shows the ECRI’s Weekly Leading Index growth component since 2001.

Notice that this index has turned notably negative which, along with an erosion in many other key macro-economic series, appears to be signaling recession is nigh.

The latest release of the Economic Cycle Research Institute’s (ECRI) Weekly Leading Index has weakened yet again bringing the all important annualized “growth” component to a value of -10.10 and continuing firmly suggest recession call on the part of the ECRI’s economics staff .

The chart above shows the ECRI’s Weekly Leading Index growth component since 2001.

Notice that this index has turned notably negative which, along with an erosion in many other key macro-economic series, appears to be signaling recession is nigh.

The following video of Achuthan with Bloomberg’s Tom Keene is well worth the watch as Achuthan details his reasoning for his recession call depicting it as “inescapable” as “contagion in the forward looking indicators” look like “wildfire”.

With the economy weakening significantly over the last few months and the growing threat of an "double-dip" recession, let’s take a closer look at two particularly sensitive and typically accurate leading indicators of our economic health to see if we can tease out the future trends.



First, the Federal Reserve Bank of New York is known to use the yield curve (or more specifically the spread between the 10 year and the 3 month treasury yields) to calculate a probability of recession.



This method appears to have been spearheaded by Professor Arturo Estrella of the Rensselaer Polytechnic Institute and Professor Frederic Mishkin of the Columbia Business School as outlined in the June 1996 issue of Current Issues in Economic and Finance, a journal published by the Federal Reserve Bank of New York.



The yield curve probability method is said to have a nearly perfect track record at predicting recessions some two to six quarters ahead with only one false positive, a period in 1967 that many economists, most notably the late Milton Friedman, considered to have been a credit crunch/mini-recession even though the NBER does not officially recognize it as such.



Another important leading indicator with a solid track record is the Economic Cycle Research Institutes (ECRI) weekly leading indicator (WLI).



When the growth component of the WLI turns strongly negative (less then -6) it generally means a notable slowdown or recession is in the offing.



So what are these two important indicators saying about our current economic situation?



The yield curve spread indicator is indicating that the probability of recession is has climbed slightly to about 1% while the ECRI leading index is showing some weakening signs with the growth component declining to a slight negative value of -0.1.