ECRI Weekly Leading Index: "2016 Shapes 2017 Cyclical Outlook"

Today's release of the publicly available data from ECRI (Economic Cycle Research Institute) puts its Weekly Leading Index (WLI) at 144.9, up 0.2 from the previous week. It is currently at an all-time high. Year-over-year the four-week moving average of the indicator is now at 10.49%, up from 10.14% the previous week. The WLI Growth indicator is now at 12.2, up from 12.0 the previous week and its highest since 2010.

"2016 Shapes 2017 Cyclical Outlook"

ECRI's latest feature article lists their 2016 track record and notes the trends will continue in 2017. Predictions for 2017 include continued inflation and growth. In 2016, ECRI claimed continued slow growth and inflationary pressures. In 2016, core inflation repeatedly hit the Fed's 2% target, while headline inflation jumped in the latter half of 2016, but is still under the 2% target. ECRI had no such inflationary pressure call in late 2015 when headline inflation had a similar jump. Read the full ECRI article here.

The ECRI Indicator Year-over-Year

Below is a chart of ECRI's smoothed year-over-year percent change since 2000 of their weekly leading index. The latest level is above where it was at the start of the last recession.

WLI since 2000

RecessionAlert has launched an alternative to ECRI's WLIg, the Weekly Leading Economic Indicator (WLEI), which uses 50 different time series from various categories, including the Corporate Bond Composite, Treasury Bond Composite, Stock Market Composite, Labor Market Composite, and Credit Market Composite. An interesting point to notice — back in 2011, ECRI made an erroneous recession call, while the WLEI did not trigger such a premature call. However, both indicators are now generally in agreement and moving in the same direction.

Appendix: A Closer Look at the ECRI Index

The first chart below shows the history of the Weekly Leading Index and highlights its current level.

WLI Complete Series

For a better understanding of the relationship of the WLI level to recessions, the next chart shows the data series in terms of the percent off the previous peak. In other words, a new weekly high registers at 100%, with subsequent declines plotted accordingly.

WLI Percent off Peak

As the chart above illustrates, only once has a recession ended without the index level achieving a new high -- the two recessions, commonly referred to as a "double-dip," in the early 1980s. Our current level marks a new all-time high. We've exceeded the previously longest stretch between highs, which was from February 1973 to April 1978. But the index level rose steadily from the trough at the end of the 1973-1975 recession to reach its new high in 1978. The pattern in ECRI's indictor is quite different, and this has no doubt been a key factor in their business cycle analysis.