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.
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. Building on that foundation, by the late 1990s ECRI had developed a sophisticated framework for analyzing international economic cycles that remains at the cutting edge of business cycle research and forecasting.
Unlike mainstream economists, who base their forecasts on econometric models, we have developed a robust leading indicator approach (not based on regressions or correlations), which is unrivaled in making accurate calls of turning points in economic growth and inflation worldwide.
Separately, ECRI is a truly independent research institution that is known to be objective and non-partisan: we have a broad membership base and are not constrained by dominant academic paradigms, political ideologies, or support from special-interest groups.
Cyclical risk rises and falls over the course of the business cycle. We alert our members to directional shifts in the cycle so they can better time critical decisions – whether those decisions involve asset management, hiring, production and pricing, or monetary policy.
For example, when working with our asset manager members we help boost their risk-adjusted returns by timing when cyclical risk is higher or lower than most realize.
Yes, we help our members manage cyclical risk regardless of how specialized their area of interest may be. First, a turn in the overall cycle may very well impact sub-sectors of the economy, and second, we maintain many sector-specific leading indexes.
How do I read the Weekly Leading Index (WLI) and Future Inflation Gauge (FIG) "dials" shown on the public Reports and Indexes page?
The WLI is a forward-looking indicator of turns in the economic cycle, while the FIG is a forward-looking measure of cyclical peaks and troughs in inflation. The boldest arrows within the dials reflect recent data, while the more faded arrows indicate past readings. The progression of the arrows reveals whether the cycle is strengthening or weakening.
Our track record in forecasting cycle turning points has been unparalleled for decades. The Economist magazine noted in 2005 that: "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."
We created the Weekly Leading Index (WLI) not to be an infallible, stand-alone recession-forecasting machine, but as part of a much larger array of leading indexes. Below are two consecutive detailed discussions about the WLI from 2010, and ECRI's controversial "no-double dip" recession view at the time.
WLI Widely Misunderstood, June 23, 2010
WLI (Still) Widely Misunderstood, August 4, 2010
The convergence of lower trend growth and higher cyclical volatility results in more frequent recessions, keeping the jobless rate cycling around high levels.
Background & Methodology
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.
Yes, there are private individuals who are professional members; however, all members pay the same rate.
Our members receive access to private advisory sessions and complete access to all ECRI professional reports and data. Learn about our services.
As a public service, ECRI provides limited free access to the U.S. Weekly Leading Index (WLI), U.S. Future Inflation Gauge (FIG), and U.S. Leading Home Price Index. In other words, the public has limited access to the tip of the iceberg.
Yes. Private advisory sessions are included as part of our Level A professional services.
We hold regular advisory sessions with our members via phone, video conference, Webex, and in-person meetings. These meetings are tailored to your specific area of interest: we discuss the nuances of our outlook alongside your own concerns, regardless of how specialized those questions may be. The sessions also provide an opportunity to discuss how to dovetail ECRI's insights into your firm’s existing decision-making process.
Advisory sessions are the forum for "kicking the tires" to gain full conviction about ECRI's turning point calls and divergences from the consensus view. This conviction is key to unlocking the full value of our work.
We are continually updating and releasing new information to our professional members via our professional member server and advisory meetings. On Friday mornings we issue selected updates to our publicly released data.
Most of the over 100 ECRI indexes are updated monthly; however, there are a handful that are available weekly, or even daily.
ECRI principals make presentations primarily to our Professional A membership. On occasion, special speaking engagements can be arranged.
We encourage new members to contact ECRI and schedule an introduction to the information provided via the professional member server. We provide a walk-through of the report library, index downloading, and charting features to help new members gain familiarity with our services.
Understanding that our reports are substantial, we strongly recommend that you read the two to three introduction pages of the monthly U.S. Cyclical Outlook and International Cyclical Outlook reports. This is where we will clearly justify shifts in our cyclical outlook.
Separately, each monthly report also includes a so-called "focus section" that tackles contemporary issues from a cyclical perspective. Our report archive includes an evergreen section highlighting past focus sections on perennial concerns. For example, this includes the relationship between economic and stock price cycles, corrections, equity risk premia, interest rates commodities, currencies, real estate, and debt cycles.
Professional members please call us at +1 212 557 7788 or +44 207 060 1223 for this information.
Our principals regularly travel throughout the world to visit professional A level members. It is likely that we will visit a location near you. ECRI's headquarters are located in midtown Manhattan, so we also regularly host member meetings.
For a sample listing of where we travel, please see our News & Events.
Members can download index data into an Excel file with one sheet or an Excel file with multiple sheets. These downloads can be done manually or they can be automated.
Once you log in, look for Download Index Sets on the home page and click Create a new set. You can specify the region, index type, and update timeframe for your index set. After you create an index set, you will be able to quickly access it for download from the home page and Reports & Indexes pages.
There is a standard color code used for the line colors in our charts:
Green denotes a leading series.
Blue denotes a coincident series.
Pink denotes a lagging series.
Red denotes a leading price (level or growth) series.
Black denotes a coincident price (level or growth) series.
Grey-shaded areas represent business cycle recessions, or cyclical downswings in the level of a series.
Orange-shaded areas represent growth rate cycle downturns, or cyclical downswings in the growth rate of a series.
Green-shaded areas represent cyclical downswings in a price level series.
Blue-shaded areas represent cyclical downswings in a price growth rate series.
Other colors and shaded areas may be used very occasionally for data that do not fit any of the above descriptions.
The clarity and conviction to break from the crowd at the right time.
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.
For ourselves, in this cycle, we'll line up with ECRI.
ECRI has had a very stellar record. They've been making pretty bold calls and going against the conventional wisdom. So far their record has been one of the most impressive, and has been written up in the press as well as talked about in policy circles.
ECRI can justify a certain smugness now that business cycles are back in fashion. The institute called the last two recessions and the current recovery months ahead of the pack.
ECRI continues to be an important resource in determining our tactical allocation. For over a decade their economic cycle forecasts and detailed research topics have been a critical part of our decision making process.
No one speaks with more authority about the economy's turning points.