Most economists use models that reduce a complex economy to a rigid set of largely backward-looking relationships. Simply put, they try to predict the near future based on what has happened in the recent past. This can work for a while – until the critical moment when a turning point approaches, and such models reliably fail. This is because extrapolating from the recent past is a sure-fire recipe for being surprised by the next turn.
Economists who are aware of this problem fall back on a common belief that the best forward-looking information is found in market prices – even in the face of compelling evidence that markets are not the best predictors of what's around the bend. By this logic it should be impossible to anticipate broad market moves.
Monitoring the Business Cycle
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.
An essential component of our understanding is our ability to distinguish between leading, coincident and lagging indicators of the business cycle, so that we are not distracted by the 99% of economic data that does not fall into any of these categories, i.e., they are simply misleading indicators.
- 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 confirming role.
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 developed a far more sophisticated framework for analyzing international economic cycles that remains at the cutting edge of business cycle research and forecasting.
ECRI's forecasting framework is the state of the art.
The ECRI Difference
Our indicator systems are designed to predict the timing of future changes in the economy's direction. They signal those turns before the fact, and well before the consensus. ECRI's focus is on identifying when those changes in direction will occur.
ECRI is an independent research institution, acknowledged for its objectivity and non-partisan nature. We have a broad membership base and are not constrained by dominant academic paradigms, political ideologies, or support from special-interest groups.