ECRI WLI: Slowdown or double-dip recession?

A significant number of pundits focus on the ECRI Weekly Leading Index (WLI) in their quest to make sense of the stock market’s most likely direction, whereas some advisors and economists are highly critical of the measure.

But what is the ECRI WLI all about? In short, the Index is a composite of seven key weekly economic indicators published in the U.S. ECRI’s website offers the following explanation: “To monitor just the U.S. economy, ECRI uses an array of 19 specialized leading indices in the context of an “economic cycle cube” covering various sectors and aspects of the economy (see chart below).”

According to ECRI a significant downturn in the WLI forecasts a recession ten months in advance, while a significant upturn precedes the end of a recession by an average of two months. In the past, when the WLI smoothed annualized growth rate fell to -7 and below, it pointed to a contraction in the U.S. economy. With the recent fall to a level of -10.5, commentators are increasingly calling for a double-dip recession in the U.S. From the graph below it seems they have a valid point.

<img class="alignnone size-full wp-image-21380" style="border: 1px solid black;" title="ECRI pic2" src="http://www.favstocks