A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be 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.

ECRI uses a highly nuanced “many-cycles” view to understand the complex dynamics of the global economy.
To monitor the U.S. economy alone, we use an array of more than a dozen specialized leading indexes in the context of the ECRI framework for incorporating various sectors and aspects of the economy.
The ECRI framework covers 21 economies, incorporating well over 100 proprietary indexes designed to be comparable across borders.

News

Reuters: Jobs, Wages & the Fed

See link below to watch the interview on Reuters TV.

The cyclical insight everyone (still) misses: in tight labor markets wage growth actually falls as economic growth rebounds, because hours worked rise faster than total pay. See chart tweeted this morning explaining the details.

The Fed minutes released this week reveal a fair amount of debate as they second-guess their Phillips curve framework. Some think it still works, and that they will fall behind the curve on inflation, while others extrapolate core inflation to guide their inflation expectations. Of course, ECRI doesn’t use the Philips curve or extrapolate, which is why many follow our Future Inflation Gauge instead.

In fact, for those who think that today’s economy somewhat resembles the late ‘90s, in that there’s growth without inflation, please recall that the FIG correctly described that period, unlike the Phillips curve which failed. Fast forward two decades, and the FIG has started to turn down.

As you can see, the FIG was spot on in anticipating the “reflation” trade a year ago with this big run-up, and some viewers may even recall that inflation expectations were at pretty extreme lows at the time. Today, as the Fed and other central banks get hawkish, the FIG is starting to turn down, flagging a change in the direction of the inflation cycle that they are likely to miss.