ECRI WLI: Is the rot over?

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The latest smoothed annualized growth rate of the ECRI Weekly Leading Indicator of 10.2% published last week has contracted for the tenth consecutive time since July.

Sources: Dismal Scientist; Plexus Asset Management.

In light of the significant movements in investment markets over the past week I had a look at what growth rate could be expected in this important number that will be published at the end of this week for the period ended last Friday. To get to my forecast I use different variables that 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 my own research.)

The smoothed annualized growth rate of the S&P 500 Index remains my best indicator of the ECRI WLI growth rate.

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

The contraction in the S&P 500‘s smoothed annualized growth rate over the past week eased to -13.4% from -14.9% after bottoming two weeks ago at ‑16.2%.

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

The contraction in the smoothed annualized growth rate of the yield on the U.S. 10-year Government Bond Index followed the same trend as that of the S&P 500 Index. The contraction eased to -65.2% from -70.8% two weeks ago.  It is also interesting to note that the growth rate bottomed at levels similar to those of the bottom in early 2009 during the 2008/2009 financial crisis.

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

The same cannot be said of my other important indicator as my estimate for last week’s closing level of the Economist Metals Index points to a deeper contraction in growth to 34.2% from 29.1% previously.

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

Another indicator I value is the growth rate of initial jobless claims.  Assuming that jobless claims were unchanged from the previous week’s 403 000, the growth rate declined to -6.4% from -7.8%. Initial jobless claims needed to fall to 390 000 to continue to exhibit a faster decline in growth.

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 have contracted less than the previous week’s -10.2%. This week’s WLI growth rate is therefore about to be the first easing in the contraction since the end of July. Have we seen the worst growth rates of the ECRI WLI? Only time will tell, but yes, I think so.

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