Pragcap asks a good question: what is the value of a leading indicator that lags the market? – Ilene
ECRI LEADING INDEX RETRENCHING – NOW AT 3 WEEK LOW
Courtesy of The Pragmatic Capitalist
After weeks of denying the potential of a recession and missing the entire stock market decline it now appears as though everyone’s favorite leading indicator is pointing to a double dip in the US economy. Lakshman Achuthan, managing director of ECRI, has consistently maintained that there was no double dip coming for the US economy and that this was merely a typical mid-recovery slowdown. He also emphasized the fact that a retrenchment in the ECRI would in fact be a warning signal of a double dip. With the ECRI’s leading index at a three week low and a retrenchment occurring Achuthan is sticking to his guns saying it is premature to say there could be a double dip (via Reuters):
“A measure of future U.S. economic growth fell to a 3-week low in the latest week, confirming the slow pace of the recovery, a research group said on Friday.
The Economic Cycle Research
Institute , a New York-based independent forecasting group, said its Weekly Leading Index fell to 120.8 in the week ending August 20 from 122 the previous week.That was the lowest since July 23, when it was 120.7. The index’s annualized growth rate rose to minus 10 percent from minus 10.2 percent a week earlier. That was the highest since July 9, when it stood at minus 9.8 percent.”
“With the WLI staying essentially flat for the last six weeks, following a nine-week plunge, it is premature to predict a new recession, though risks remain,” said Lakshman Achuthan, managing director of ECRI.
Unfortunately for equity investors, the admission that a double dip is on the table likely won’t come until well after the losses in stocks have occurred. At some point you have to wonder about the usefulness of a “leading indicator” that lags all market action…
