Know How to Read WLI
Sir, “Out on a limb, the ECRI weekly leading indicator ... suggests a double-dip recession is imminent,” according to James Mackintosh (The Short View, August 4). This is a popular misconception pushed by pessimistic pundits.
Let’s review what the Weekly Leading index (WLI) has done this year. After rising to a two-and-a-quarter-year high by end-April, it plunged for all of two months – before flattening out and finally edging up to a six-week high by end-July. That’s hardly a recession signal.
Imagine flying in an aircraft that hits a huge air pocket and plunges 5,000ft in 10 seconds. That would leave you quite shaken up, but it doesn’t mean the aircraft’s about to crash – unless it keeps falling. That’s pretty much what’s happened with the WLI. Unless it turns down again and then keeps falling, it wouldn’t make sense to predict an imminent recession.
Many self-proclaimed experts have been back-fitting our data, looking at the WLI the wrong way, and screaming that the end is near. This is like people saying they don’t remember an aircraft dropping so fast and not crashing, while blaming the instrument makers for not trusting their own altimeter. Well, we do trust it. Bottom line, the gauge is just fine – as long as you know how to read it.
When there really is danger of an imminent recession, it will be signalled by a cyclical downturn in the WLI itself rather than its growth rate. But that hasn’t happened yet.
Lakshman Achuthan & Anirvan Banerji
Co-founders, Economic Cycle Research Institute (ECRI),
New York, NY, US