A century-long tradition of business cycle research gives ECRI a singular perspective on the ebb and flow of the economy, even in the face of unexpected shocks. Our approach is informed by the fundamental drivers of economic cycles. It is an approach pioneered by ECRI's co-founder, Geoffrey H. Moore, and his mentors, Wesley C. Mitchell and Arthur F. Burns.
In 1950, Moore built on his mentors' findings to develop the first leading indicators of both revival and recession. In the 1960s he developed the original index of leading economic indicators (LEI). It is a testament to the quality of that breakthrough that, nearly half a century later, many still believe the LEI and its variants to be the best tools for cycle forecasting.
However, building on that foundation, by the late 1990s ECRI had put together a far more sophisticated framework for analyzing international economic cycles that remains at the cutting edge of business cycle research and forecasting.
Business cycles consist of the alternating periods of expansion and contraction in the level of economic activity experienced by market-oriented economies.
Even during periods when such economies do not exhibit business cycle contractions, an economy will exhibit growth rate cycles – alternating periods of upswings and downswings in the economy’s rate of growth.
Inflation cycles consist of alternating periods of rising and falling inflation. Inflation cycle downturns have a degree of correspondence with economic slowdowns, but sometimes begin before, rather than after, the start of a slowdown.
A composite index allows a wide range of data to be summarized without using an econometric model.
An essential component of our understanding is our ability to identify leading, coincident, and lagging indicators of the business cycle. As a result, we are not distracted by 99% of the economic data that does not fall into any of these categories, i.e., they are simply misleading indicators when it comes to cyclical turns in growth, inflation, and employment.
• Leading indicators consistently turn before the economy does.
• Coincident indicators turn in step with the economy and track the business cycle’s progress.
• Lagging indicators turn after the economy turns, and play a confirmatory role.
The components of ECRI's composite indexes are proprietary.
More importantly, our ability to forecast turning points is not predicated on some "special" ingredient that we use. Rather, it's the co-movement of our indicators that is most revealing. This is to say that, when thinking about our approach, focusing on components that we may use actually misses the forest for the trees.
The clarity and conviction to break from the crowd at the right time.
[T]he Economic Cycle Research Institute [is] a private forecasting group with an excellent track record.
ECRI [is] the most accurate forecasting institution in the world.
I have to pay attention to those people and indicators that have pointed in the right direction – even when they've gone against the crowd (and my opinion at the time). One such outfit is the Economic Cycle Research Institute, whose various leading indicators actually have done just that – lead where things were headed.
This approach works like a charm.
Over the last 15 years, [ECRI] has gotten all of its recession calls right, while issuing no false alarms.
In March , the month the market scraped bottom, ECRI went forth with [a] tablepounding historical observation… The implication could not have been clearer that a market rally, when it started, would be no sucker's affair but the real McCoy.