ECRI Leading Index Suggests Strong Growth

From the conversations I have had with investment professionals over the past while, it is my belief that the biggest surprise in the market would be if economic growth was strong and sustainable for some time. 

It would surprise the heck out of me.  Though I believe economic growth will beat estimates over the next few quarters as inventories are rebuilt and companies re-hire as demand picks up, I expect growth to be substandard for several years. 

However, that is not what the ECRI's index of leading economic indicators is suggesting.  In fact, it is saying that growth will be better than what most investment professionals believe.

With the economy still mired in a rut and consumer confidence struggling to rebound, the words “record high” are not something we hear very often (unless, perhaps, in reference to the job market). Which makes the surge in the growth rate of the Economic Cycle Research Institute’s Weekly Leading Indicator, the WLI, all the more impressive. “Rocketing is the word,” said Achuthan in an email. ...

“Given the growing strength in ECRI’s objective leading indexes, the odds are rising that at least the early stage of this economic recovery will be the strongest since the early 1980s.”

The purpose of the market is to confound the most people, most of the time.  A strong economic recovery would be most confounding to market professionals, in my opinion. And that would include me.

Comments

[Mark G.]

Money supply, SP 500 and the Fed funds/10 year treasury spread comprise over 50% of the LEI. This report is nothing more than artificial noise created by unsustainable Fed policies, nothing more.

[jag]

What always concerns me is when "professionals" like ECRI make really arrogant statements.

Maybe ECRI is special and has a unique grasp on data. However, my experience has been that arrogance regarding markets is foolish. Why do I get the feeling that ECRI is making an "all in" bet with their extremely bullish posture?

Who knows how many extreme prognosticators out there are desperate to get A call right? If you were on the verge of going under, what risk would there be to take an extreme, any extreme and flog it?

[RunningAmokInFantasyland]

Mark G:

ECRI does not publish the LEI, the Conference Board does. The components for the ECRI Weekly Leading Indicator are proprietary but I doubt they are based on anything so naive as you suggest...or ECRI would not have been so accurate for the last 60 years.

jag: ECRI does not make arrogant market calls. They do not make extremely bullish all-in bets.

Toro knows all this. It's why he did this piece on their latest findings, even though he may have his doubts.

And that is why we who wish he would post more often visit his site... and not those of snowblind market bears who reject evidence that does not justify their sitting on cash during bull markets, or going short until they are bled dry when the economy does go in the tank again.

[Mark G.]

Thanks for correcting me. Hear is the reason given for the surge "The risk of a double dip (recession) is very low,"
Achuthan added. The index was pushed up by stronger housing activity, he
said.

So it is the FTHB program winding down, easy financing provided by the govt doing over 80% of all new mortgages, Ben's purchase of over $1 trillion of MBS, etc. Basically the same points I made early, the Fed and Treasury are the US economy and their actions are unsustainable. I have no snow blindness, perma-bull or bear, just spend many hours every week looking for facts and truths, it's a very difficult task

[psychodave]

@r.amok
Rats! Your moderate and succinct comment made me go and read the cited article.

I hate that.

"The index was pushed up by stronger housing activity, he [Acuthan] said."

@Mark G.
Fed's purchase of Treasuries is due to wind down this month.

Purchase of agency MBS ... not so much. End of 1Q2010, if then. I think my whole country depends on handouts from the U.S. Gov't and the Fed. I'm not confident they'll ever be able to stop pumping.

Finally, I'm a "snowblind market bear sitting on cash during a bull market" and started going short 9/17, and I take a look at Toro at least once a day.

I do concede that dodging Toro's conclusions has led to inferior performance, compared to his.

[dacian]

Here is an in depth look at ECRI's indicators (there is a link in there looking at the stock market as a leading indicator). The conclusion for both is they are at best coincident indicators.

http://globaleconomicanalysis.blogspot.com/2009/10/look-at-ecris-recession-predicting.html

A critical look at these indicators hurts no one.

PS: I posted this already yesterday but somehow it doesn't show up here.

[RunningAmokInFantasyland]

In the article you cite, Shedlock nitpicks ECRI. Mostly over their horn-tooting. Such are the vices of marketing.

As for Shedlock's "foolproof indicator," he acknowledges Kasriel was wrong in '60. No indicator is foolproof. But Paul Kasriel is another excellent weather vane.

I disagree that the ECRI WLI 3/09 and comments about an economic upturn were merely coincident. The market rise that month was viewed as just another bounce. ECRI has coincident and lagging indicators and they have been turning up.

What is asked of economic research is reliable assessment of probabilities. ECRI shines there.

And that is all I have to say about that.