ECRI Indicators Improve, But Beware The ''Yo-Yo Years''

Advisor Perspectives ^ | 3-23-2012 | Doug Short

[blam]

ECRI Indicators Improve, But Beware The ''Yo-Yo Years''

Advisor Perspectives (dshort.com)
By Doug Short
March 23, 2012

The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) came in at -0.4 in today's public release of the data through March 16th. This is the tenth consecutive week of improvement (less negative) data for the Growth Index and the highest level (i.e., least negative) since August 12th of last year. The underlying WLI also improved, increasing from an adjusted 125.0 to 125.7 (see the fourth chart below).

The "Yo-Yo Years"

The big news this week is the ECRI public commentary posted yesterday (March 22) with the intriguing title The Yo-Yo Years. The commentary is a version of Lakshman Achuthan's presentation at the Bloomberg Sovereign Debt Conference in Frankfurt, Germany. The commentary is a must-read for anyone following the ECRI data.

Essentially Achuthan argues that we are entering an era of more frequent recessions as a result of two things: 1) declining economic trend growth and 2) increased cyclical volatility following the end of the Great Moderation (circa mid-1980s to 2007). The "we" in the sentence above is not only the US but also much of the developed world, especially Europe. Moreover, the idea of global "decoupling" is largely a myth because of the export dependence of most economies.

Particularly interesting is Achuthan's discussion of the Bullwhip Effect, "where small fluctuations in consumer demand growth get amplified up the supply chain into big swings in demand as we move away from the consumer." Achuthan goes on to explain the mechanics of amplification of the Bullwhip effect on more frequent recessions in developed countries to the countries that supply intermediate and crude goods.

Year-over-Year Growth in the WLI

Triggered by ECRI's recent commentary Why Our Recession Call Stands, I'm now focusing initially on the year-over-year growth of the WLI rather than ECRI's previously favored, and rather arcane, method of calculating the WLI growth series from the underlying WLI (see the endnote below). Specifically the chart immediately below is the year-over-year change in the 4-week moving average of the WLI.

As the chart above makes clear, the WLI YoY is currently at a lower level than at the starting month for five of the seven recessions during the published series. Of course, the same can be said for its interim YoY trough in 2010. In any case, the behavior of this indicator over the next quarter or so will be especially interesting to watch.

The History of ECRI's Recession Call

On September 30th, ECRI publicly announced that the U.S. is tipping into a recession, a call the Institute had announced to its private clients on September 21st. Here is an excerpt from the announcement:

Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there's nothing that policy makers can do to head it off.

ECRI's recession call isn't based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down — before the Arab Spring and Japanese earthquake — to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not "soft landings." (Read the report here.)

For a close look at this movement of this index in recent months, here's a snapshot of the data since 2000.

(snip)

[Freddd]

‘growth indicator’-—

without jobs.

BWAHAHAHAHAHA

[blam]

U.S. Economy Dead Man Walking, The Crash Of 2012

"This is an illusion of recovery we're seeing – the result of our Wrong-Way Corrigan politicians continuing to encourage people to do the exact opposite of what they should do. "

[kearnyirish2]

It is probably an indicator of growth in value for “American” companies, due to growth in Asia.

No matter what Obama’s media says about indicators or indices, nothing is improving for most Americans “on the ground”. In fact, many companies see their stock jump as they unload American workers; the remainder of the increase in stock prices is simply adjusting for (true) inflation.

[Yo-Yo]

The what years?

[bert]

Growth of American assets abroad is invisible but important.

Growth in America is also far from uniform. My region is rocking along fairly well. Residential real estate is positive. Earlier this week I saw an excavator and dump trucks resuming work at a long stalled very large commercial/residential development. For that site to come out of mothballs is a very important indicator.

[kearnyirish2]

There are definitely some parts of the country that are benefiting by the flight of taxpayers and corporations from the Dem states (that is what you are experiencing); would you say your area is as well of as 4 years ago in terms of income, employment, etc.?

Here in NJ we have roads that haven’t been repaired since LAST winter, because the government is paying so much for the people that used to fix the roads until they retired 20 years ago; it is a gradual but noticeable decline, which is driving our younger professionals and companies to seek greener pastures.

[bert]

-——would you say your area is as well of as 4 years ago——

No, definitely not. Sales of our industrial engines are still down and that influences everything.

Another anecdote. I 40 runs from east to west across 500 miles of Tennessee. It is constantly repaved with an asphalt surface coat. It is accomplished on a pretty much regular schedule in say 15 mile increments. The work has begun on one of the segments down toward Knoxville.

This year there are none of the stimulus fund signs on site. The money comes from the accumulated gas tax

[kearnyirish2]

Even with things picking up, if you aren’t back where you were 4 years ago Obama will have a hard time winning your state.

Here in the northeast the decline is obvious to all; there is no masking it, and probably no reversing it for the short term.

[M1903A1]

And at the other end of the construction scale...I used to commute to work past a Chicago cement plant. The plant was supplied by regular unit trains of sand during the warm months. About 25-30 cars at a time, once or twice a week.

In 2008, the trains began shrinking, no more than twenty cars at the end of the season, and not even once a week.

In 2009, the plant was put into mothballs.

Just this past week, they put up a sign that the site’s up for sale. It’s probably not the most valuable location (no major intersection or other reasons to go there), but between zoning and the realities of urban property, it’s something they’d likely not be able to find again in the city.

I find it VERY telling that the company’s willing to give up a prime industrial site with ready rail access like that. Not only are they anticipating no call for the capacity, but they don’t anticipate needing it any time soon either.