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.



WLI Widely Misunderstood

The following discussion is by Lakshman Achuthan and Anirvan Banerji, co-founders of ECRI:


There’s been much attention to our work of late, culminating in a report this Tuesday from Bank of America listing several critiques of our Weekly Leading Index (WLI). Apparently, the clinching argument is that “If a single indicator always accurately predicted the trajectory of the economy, the demand for Wall Street economists would be significantly reduced.”

To some Wall Street economists, it may seem self-evident that there should be strong demand for their views. But this is not at all clear to us as far as their recession-forecasting function is concerned. After all, a 63-country IMF study on economists’ recession-forecasting prowess concluded that “The record of failure to predict recessions is virtually unblemished.” In contrast, the IMF subsequently noted that ECRI “has actually had a very stellar record” of recession forecasting.

Continue reading...