ECRI Watch: Further slight improvement, but tread carefully

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The ECRI Weekly Indicator for the week ended August 6 came in at 122.4 compared to the previous week’s 121.7. The closely-watched ECRI WLI Smoothed Annualised Growth Rate came in at -9.8% compared to the -10.3% of the previous week. That compares to our forecast of “unchanged/slight improvement”.

The marginally improved growth rate can largely be attributed to the improvement of the S&P 500 growth rate from -0.7% to 2.4%.

Sources: ECRI (various internet sources); I-Net; Plexus Asset Management.

The 10-year bond yield detracted from the ECRI growth rate as the growth rate of the former deteriorated to -32.9% from -32.0%.

Sources: ECRI (various internet sources); I-Net; Plexus Asset Management.

A further deterioration in growth in initial jobless claims from -8.0% to -4.9% hampered growth in the ECRI WLI.

Sources: ECRI (various internet sources); FRED; I-Net; Plexus Asset Management.

The numbers led to the following comment by the Dismal Scientist: “The ECRI WLI has begun to look more positive over the last several weeks, encouraging considering the fragility of the recovery.”

The ECRI WLI smoothed annualised growth rate for the week ended August 13 (to be released on Friday, August 20) is likely to disappoint, though. Although the smoothed annualised growth rate of the S&P 500 continued to be positive based on last week’s closing level, the growth rate dropped to 0.6%. The sharply weakening smoothed annualised growth rate of the 10-year bond yield, and if initial jobless claims remain unchanged at 484 000, the rapid strengthening of the smoothed annualised growth rate of initial jobless claims may render the ECRI WLI smoothed annualised growth rate weaker.

Gauge of this week’s ECRI WLI Smoothed Annualised Growth rate based on the week ended 13 August 2010:

ComponentLast week

13 August

Previous week 6 AugustMomentum
Smoothed Annualised Growth
S&P 500+0.6%+2.4%Weakened slightly
10-year bond yield-38.2%-32.9%Weakened sharply
Initial jobless claims-0.8%-4.9%Increased rapidly
Conclusion
ECRI WLI Weakened-9.8%

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