Recently, we're been told that leading indicators are crashing, with the implication that a double-dip recession is assured. This is not the case.
First, here is a chart of the referred to data:
It is from the ECRI and it represents a chart representation of their weekly leading indicators. While it has dropped, it does not mean we are entering a double dip recession -- at least according to the people who compute, tabulate and explain the data. In an article from the Big Picture Blog, titled "Weekly Leading Indicator Widely Misunderstood", two people from ECRI wrote the following:
Bottom line, neither the "experts" predicting that the sky is falling based on the WLI, nor the other "experts" indulging in misinformed WLI-bashing in an effort to discredit the super-bears, have a real clue to what the WLI is all about. We created the WLI not to be an infallible, stand-alone recession-forecasting machine, but as one small part of a much larger array of leading indexes (each made up of many economic indicators) — like the especially prescient U.S. Long Leading Index. This array amounts to a sophisticated sequential signaling system of the economy’s cyclical turning points. The WLI is designed to be interpreted in this broader context, and its message today is quite simple: A slowdown in U.S. economic growth is imminent, but a new recession is not.
Secondly, there is a second leading indicator which is kept by the Conference Board. It is reported every month. Here is a chart of that data:
This number is computed monthly and will undoubtedly fall next month as several of its components have fallen over the last 4-6 weeks. However, this does not mean a double dip recession is in the cards. As the Conference Board states in their latest release:
"The index points to continued, though slower, U.S. growth for the rest of this year," says Bart van Ark, chief economist of The Conference Board. "Public debt and deficits weigh heavily on growth prospects on both sides of the Atlantic. We project a serious slowdown in European growth in 2011, which could further weaken the U.S. outlook."
For a more complete discussion of the current economic situation, read my story Regarding Double Dips at 538.com.
