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Thursday, March 28, 2024

ECRI WLI Growth Confusion & Forecast

Courtesy of Doug Short.

Note from dshort: Here is an excerpt from another commentary in the ongoing effort to deconstruct ECRI’s notorious recession call.


More recently, ECRI has switched from the use of smoothed 6-month growth rates (as calculated by their WLIg growth metric) to annual (52-week) growth numbers of its Weekly Leading Index (WLI) to prop up a recession scenario. The reason cited is “…a widespread seasonal adjustment problem that economists have known about for some time.” Another native Capetonian, Prieur du Plessis, who regularly tracks the WLI has posted an excellent analysis of the rationale behind this decision that highlights some interesting subtleties between the smoothed growth rate and the annualized growth rate.

In a nutshell, Prieur concludes that even if the smoothed growth rate were to start falling, the 12-month growth rate will continue to rise as it “lags” the smoothed growth rate. This would in part seem to debunk ECRI’s statements that 12-month growth rates are foretelling a recession. To further illustrate Prieur’s analysis, we performed a correlation optimization between WLIg growth figures and 52-week growth figures shifted back in time by x-months. We found the highest correlation of 0.916 when the 52-week growth was shifted back by 7 weeks (conversely the WLIg shifted forward by 7 weeks). The exercise was performed over the entire history of the WLI since 1967 and proves that statistically at least, the WLIg leads the 52-week growth rate by about 7 weeks.

See the remainder of Dwaine’s article and charts at his RecessionAlert.com website.


Dwaine van Vuuren is CEO of PowerStocks Investment Research, a South African-based provider of investment research. If you would like to receive the next 4 weeks SuperIndex Recession Reports for free, just email us at research@powerstocks.co.za with FREE SUPERINDEX in the subject line.

? PowerStocks Investment Research
powerstocks.co.za

 

 

 

 

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