A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.



The WLI Tug-of-War

The plunge in stock prices from early spring to the middle of summer has clearly hurt not only U.S. investor confidence, but also business confidence, and raised fears of a new recession.

Yet ECRI's Weekly Leading Index (WLI), which is already available through mid-August, is not yet pointing to that double dip because its movements balance out different forces influencing the economic cycle.

As the real-economy-related components of the WLI have actually been rising strongly this year. In contrast, the market-perception-related components have been plunging, while the policy related variables have been trending gently upward.

The upshot has been that the index has dipped a bit in recent weeks, but not dramatically so. In fact, it rose in the week ended August 16, and is a full point above the recent low seen three weeks earlier. With the index starting to stabilize instead of falling further, a double-dip recession remains unlikely this year.