ECRI Posts Drop On WLI Growth To -10.5

WLI stayed even with last week after a minor revision, but WLI Growth dropped once again from -9.8 to -10.5. The drop in ECRI’s Growth Index today will further the view we are heading towards a double dip recession. WLI Growth index is the more important index. It will be interesting to see how bears like Dave Rosenberg react to this data. Recall, he originated the idea if that index falls to -10 then it would signal a recession, even without the blessing of the ECRI team.

It can now be argued that it is easier to make the recession call with the Growth index alone, now that it is clearly below the level when we have always had recessions in the past.

Taking into account the the interrelatedness of the data that drives both the LLI, the other index ECRI uses to make their calls, and the WLI it is reasonable to assume that LLI is continuing to trend downward as well. Assuming this likely case, LLI has now trended down more steeply and longer than it did in making the call for the 2001 recession.

It would be disingenuous for ECRI to continue to suggest LLI meet the same standard now as it did in 1982 because they are both double dips. There is no basis in economic theory to distinguish between a double dip recession and one more typically spaced. The standard for the call today should be the 2001 recession, and if so, it now appears that ECRI’s model is looking for a double dip recession.

BarryZee

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