ECRI WLI: Growth rate clearly bottoming

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The latest smoothed annualized growth rate of the ECRI Weekly Leading Indicator of 1.7% published last week was unchanged from a downward-adjusted growth rate of the previous week. This was marginally better than the 1.6% I expected. The decline was in line with the marginal changes in the growth in most of the variables I use and which seem to explain the growth in the ECRI WLI fairly accurately. (Please note that I do not have knowledge of the proprietary ECRI WLI constituents and simulate the Index purely on the basis of my own research.)

The smoothed annualized growth rate of the S&P 500 over the same period extended its marginal decline from 11.8% to 11.4%, while the decline in the growth rate of the 10-year bond yield again eased slightly from -4.7% to -4.8%. The Economist Metals Index’s growth rate fell from 10.1% to 9.7%. The adjustment of the previous week’s initial jobless claims to 427 000 from 418 000 and the latest significant improvement to 405 000 meant the smoothed annualized growth rate of initial jobless claims declined from -2.9% to -4.4%. That had a positive rub-off on my simulated ECRI WLI growth figure.

By closing at 1 316 last week the S&P 500‘s growth rate moderated further to 11.1% from 11.4%.

Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.

The closing yield of 2.91% on the 10-year bond index meant the growth rate fell to -5.6% compared to the previous week’s -4.8% and points to contraction.

Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.

My estimate for last week’s closing level of the Economist Metals Index also points to a further moderation in growth to 9.1% from 9.7% previously.

Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.

If I assume initial jobless claims remained unchanged at the previous week’s 405 000, the smoothed annualized growth rate of these claims again had a positive spinoff on my simulated ECRI WLI growth rate as the growth rate of jobless claims declined to -6.9% from -4.4%.

Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.

On balance, I therefore expect last week’s smoothed annualized growth rate of the ECRI WLI (to be published on Friday) to come in little changed from last week’s 1.6%.

As I said last week, the ECRI WLI smoothed annualized growth rate is at a clear make-or-break stage. The current smoothed annualized growth rate of the ECRI WLI could herald the bottom of the downtrend in the growth rate unless the S&P 500, metal prices and bond yields continue to fall. My simulations indicate that any rise in the above-mentioned constituents will immediately be reflected in improvements in their growth rates and that of the WLI. My bets are on the latter!

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