Friday, November 18, 2011

USA Weekly Leading Index Dips to 3-Week Low (Charts, Videos) Achuthan: "Recession call intact"

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ECRI Economic Weekly Leading Index and Annualized Growth Rate
* Updated November 18, 2011 for the week ended November 11, 2011 *

USA Weekly Leading Index

Overview The USA Economic Weekly Leading Index (WLI) dipped -0.5 to a 3-week low of 121.8 (preliminary) for the week ended November 11, 2011. This reading continues above the 116-week low of 120.0 for the week ending October 7, the lowest reading since the WLI was 118.8 for the week ended July 17, 2009. The previous intermediate-term lows had been 120.3 for the weeks ended July 9, 2010 and July 24, 2009. The WLI has increased 4 of the past 5 weeks, but has decreased 10 of the past 15 weeks.

Trend The short-term trend continues upwards. The intermediate-term and long-term trends continue downwards.

Cycle History The current 121.8 (preliminary) for the week ended November 11, 2011 is above the recent 116-week low of 120.0 for the week ended October 7, 2011. The short-term peak was 131.8 for the week ended April 15, 2011. The Weekly Leading Index reached a Post-Great Recession peak of 134.9 for the week ended April 30, 2010. A Great Recession low of 105.4 was set for the week ended March 6, 2009. 

Weekly Leading Index (Chart) Below is a chart of the ECRI Weekly Leading Index, including the post-recession peak of 134.9 for the week ended April 30, 2010, the prior intermediate-term low of 120.3 for the week ended July 9, 2010, and the 116-week low of 120.0 for the week ended October 7, 2011, through the latest week reported.

USA Annualized Growth Rate

Overview The WLI Annualized Growth Rate (AGR) increased +0.6% to -7.9% (preliminary) for the week ended November 4, 2011 to a 7-week high. This reading is above the 63-week low of -10.1% for the weeks ending October 14 and 21. That was the lowest reading since the AGR was -10.5% for the week ended July 30, 2010. The AGR has increased or been flat the past 4 weeks, but has been negative the past 13 weeks.

Trend The short-term trend has reversed to upwards. The intermediate-term trend continues downwards and negative. The long-term trend continues downwards.

Cycle History The recent short-term peak was +8.0% for the week ended April 15, 2011. The recent short-term low was -10.1% for the weeks ended October 14 and 21, 2011.  The Annualized Growth Rate reached a Post-Great Recession peak of +27.8% for the week ended October 9, 2009. A Great Recession low of -29.8% was set for the week ended December 5, 2008.

Annualized Growth Rate (Chart) Below is a chart of ECRI WLI Annualized Growth Rate, including the post-recession low of -10.9% for the week ended July 23, 2010 and the recent low of -10.1% for the weeks ended October 14 and 21, 2011, through the latest week reported. The AGR became negative in early June 2010 and remained negative for 28 consecutive weeks. The AGR was then positive for 35 weeks (from the week ended December 17, 2010 through the week ended August 12, 2011). The AGR then reversed to negative beginning the week ended August 19, 2011.

Commentary According to Lakshman Achuthan's interpretation of his indicators, a USA Recession is coming (see video below). Overall, both the Weekly Leading Index (WLI) and the Annualized Growth Rate (AGR) dropped beyond 1-year lows, but have rebounded. The WLI has been below the now distant benchmark 130.0 level for 27 consecutive weeks and the AGR has been below the 0.00% benchmark for 13 consecutive weeks. The Weekly Leading Index and Annualized Growth Rate continue at levels that indicate any future economic growth is questionable. The levels are worrisome, but the recent trend has been upwards. Per the ECRI, the Weekly Leading Index projects forward approximately 6 months and the Annualized Growth Rate is relative to the WLI and a 4-week moving average.

Recession Call Intact Steve Leisman of CNBC notes Goldman Sachs, et. al. have upped their USA GDP forecasts, but Chief Operations Officer of ECRI, Lakshman Achuthan, says an American Recession is ahead. "The business cycle has to be dealt with, no matter which way you are looking. The USA is slipping into a recession and nothing has transpired that changes our view. This is what we do, we forecast recessions. Nothing in the interim (since September) has changed our view. It's the contagion among the forward-looking indicators that we have had since September. That has not changed. The divergences between the consensus view and our view are most often resolved by the consensus view coming around to our view." Why does ECRI disagree with the Street consensus? Achuthan says the Street has "physics envy" and are looking at economic models which include coincident indicators. Meanwhile, the "contagion in the forward-looking indicators show a "pervasive decline". Regarding the stock market, "the market is looking at coincident and at best short-term leading indicators. The market is really good at 'now-casting'". Further, "now-casting is not how you forecast a recession. You have to look at forward-looking indicators, not GDP which is in your rear-view mirror." Lakshman Achuthan previously has stated this will not be a double-dip recession, but a discrete event, a discrete recession and it is too early to tell whether this recession will be shallow or deep.


U.S. Recession Ahead In a previous video, September 30, 2011, Lakshman Achuthan made the initial call for a recession. Achuthan later posted an April 2008 video when he made the call for the Great Recession. Co-Founder and Chief Operations Officer of ECRI, Lakshman Achuthan, says an American Recession is ahead. "Contagion in the forward-looking indicators" is the reason for Achuthan's recession announcement and "why it is now inescapable". Further, "it is wildfire in the leading indexes" and this includes at least a dozen indicators. "When you have that kind of contagion, it is going to be pronounced, pervasive, and persistent and you are going to have a vicious cycle down that you cannot escape". He also states this is not a double-dip recession, but a discrete event, a discrete recession. The recovery since the Great Recession has been "underwhelming". Achuthan says it is too early to tell whether this recession will be shallow or deep. Video can be seen here.

Flashback: Squaring Higher Stocks With Recession Flashback to an April 2008 interview discussing how ECRI's recession call remained intact despite a rise in stock prices and other data. Video can be seen here.

About Lakshman Achuthan Co-Founder and Chief Operations Officer of ECRI, Achuthan is the managing editor of ECRI's forecasting publications. He is also a member of Time magazine's board of economists and the Levy Institute's Board of Governors, and serves as a trustee on the boards of several foundations. He received an undergraduate degree from Fairleigh Dickenson University in 1989 and a graduate degree from Long Island University in 1991. Achuthan joined Geoffrey H. Moore at Columbia University's Center for International Business Cycle Research in 1991. In 2004, he co-authored Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy.

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