On July 2, the Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) registered negative growth for the 4th consecutive week, coming in at -7.7.
The rate of decline from the peak in October 2009 is unprecedented since the metric was first devised in 1967.
The ECRI WLI growth metric has had a respectable record for forecasting recessions.
A significant decline in the WLI has been a leading indicator for 6 of the 7 recessions since the 1960s. It lagged one recession (1981-1982) by 9 weeks.
The question, of course, is whether the latest WLI decline is a leading indicator of a recession or a false negative.
The index has never dropped to the current level without the onset of a recession.
The deepest decline without a near-term recession was in the Crash of 1987, when the index slipped to -6.8 versus -7.7 today.
Lowering the fed funds rate has been a primary tool for stimulating a weak economy. That tool is not available to the Fed in our current situation.
Commentary and analysis courtesy of Doug Short
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