The RecessionAlert weekly leading economic index (WLEI) is a composite for the U.S economy that draws from over 20 time-series and groups them into the following six broad categories which are then used to construct an equally weighted average.
- Corporate Bond Market Composite
- Treasury Bond Market Composite
- Stock Market Composite
- Labor Market Composite
- Credit Market Composite
- Mortgage Market
Here is an excerpt from the description:
As with all weekly indices though, the data is far more volatile than monthly or quarterly indicators and the WLEI components are therefore subject to more false positives (calling recession when one does not occur.). The WLEI is heavily weighed toward financial market data, but the obvious advantage of this is that data revisions are minor and isolated to the Labor Market Composite and small portions of the Credit Market Composite.
RecessionAlert WLEI
As of November 17th, the index was at 10.531, down 0.444 from the previous week, with 4 of the 6 components in expansion territory. This is the 13th consecutive positive reading for the index and keeps the index above its all-time series average of 10.021 for a 2nd straight week.
The chart below uses data going back to 1973 and includes recession starts. It is easy to see that a recession (gray bars) corresponds with the RecessionAlert WLEI dropping into negative territory. Note that the index was negative from May 20, 2022 through June 9, 2023 (56 weeks), however no recession was called during that time.
The index's average at the start of the seven recessions shown above is -11.512 with a range of -43.772 to 40.720. We have been above the average recession start level for the past 30 weeks.
The value of the WLEI at the start of six recessions before the COVID-pandemic were negative, so its safe to say the 2020 recession could be considered an outlier. If we take out that outlier value, then the average drops to -20.218, a level we hovered around at the end of 2022 and for a brief time in March but have been above for the past 33 weeks.
Here I've zoomed into the turn of the century and added in ECRI's WLI for comparison. As you can see, the ECRI indicator has repeatedly shown conspicuous contractions between recessions, enough to make an erroneous recession call while the WLEI did not trigger such a call. Both indicators generally move in the same direction, but the WLEI less volatile.
Note: We have discontinued our weekly update for the ECRI Weekly Leading Index.
Let's look at the comparison with GDP growth since 1970. Not all negative GDP and slow growth have been matched by the WLEI, but all recessions match.
RecessionAlert WLEI: A Different Perspective
As stated earlier, the RecessionAlert WLEI is a composite for the U.S economy that draws from over 20 time-series and groups them into the following six broad categories. What happens to the index when we exclude one of the six components?
The next chart shows the WLEI however all stock market components are excluded from the index's calculation. The latest reading is at 3.773, the 11th consecutive positive reading.
How does this compare to the headline indicator? In the chart below, we see that the stock market exclusion typically pulls the headline WLEI down. In the 203 weeks that we have data on both series, the WLEI stock exclusion series has been below the headline WLEI 72% of the time.
Note: My charts have a two-week lag and are published weekly on Fridays.
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