Monitoring Business Cycles Today
Since the original index of leading economic indicators (LEI) was created by ECRI co-founder Geoffrey H. Moore and adopted by the U.S. government in the 1960s, our ability to predict turning points has advanced considerably. Still, it is a testament to the quality of that breakthrough that, nearly half a century later, many believe the LEI and its variants to be the best tools for cycle forecasting.
Building on that foundation, by the mid-1990s ECRI had developed a far more sophisticated framework for analyzing international economic cycles that remains at the cutting edge of business cycle research and forecasting.
Our Latest Major Advancements
Since the mid-1990s we have made major strides on many fronts:
- Developing economic indicator systems for most major economies, including the first leading indexes for China, India and Brazil.
- Creating a comprehensive framework of leading indexes for key aspects of each economy (economic growth, inflation and employment) and for major sectors (services, manufacturing, construction, and foreign trade).
- Making major advances in index construction, addressing serious flaws in conventional approaches.
- Pioneering sequential turning point recognition systems based on quantitative analysis.
An objective, comprehensive framework for monitoring economic cycles
Today, ECRI uses this highly nuanced “many-cycles” view to understand the complex dynamics of the global economy.
A Framework That Provides Clarity
During periods of so-called “low visibility,” confusion reigns: for every indication of one trend, there seems to be evidence of a countertrend.
The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn. But a single composite index is not enough.
- To monitor the U.S. economy alone, ECRI uses an array of more than a dozen specialized leading indexes in the context of an “economic cycle cube” – our framework for incorporating various sectors and aspects of the economy (see chart)
- To monitor each major economy ECRI uses a similar framework incorporating indexes that are designed to be comparable across borders. Collectively, these add up to well over 100 proprietary indexes.
Objective Analysis, Durable Sequences
The durable sequences linking the indicators we monitor allow us to make sense of the consistent patterns at cyclical turning points. They let us objectively sort through data about the economy, while filtering out the “noise.” Unlike econometric models, ECRI's indexes are not based on data-fitting, and do not need to be tweaked or adjusted to account for new data or events.
The cyclical sequences within our overarching framework endure, regardless of the drama or confusion that distracts and preoccupies economists at of any particular moment.
Our Track Record
Highlights of ECRI's calls.
Nothing in the world compares with ECRI’s insights into the business cycle. Those insights form a key part of our strategic and tactical management of asset class allocations. We have never been disappointed in following what ECRI’s indicators suggest is likely to occur next.
ECRI is perhaps the only organisation to give advance warning of each of the past three recessions; just as impressive, it has never issued a false alarm.
(ECRI’s) forecast of the [Great] recession helped us anticipate reduced merchandise sales; we proactively revised our inventory forecasts down months ago, and that has helped to greatly minimize the inventory swell and need for markdowns.
As an investment strategist, I need to navigate the many twists and turns in the emerging economic landscape with as much foresight as possible to know when to take or avoid risk. In this quest, ECRI’s array of leading indices, specifically designed to predict and navigate economic turning points, have been an indispensible tool.
In the opinion littered world of economic forecasting, ECRI is Mr. Spock – deeply analytical, dispassionate, and accurate.
Three generations of cycle research.