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Signs of a Difficult Spring

But indicators show the recession is still a ways off from the worst-case scenario.

The Weekly Leading Index (WLI), an indicator that has accurately predicted directional changes in economic growth for 60 years, saw its growth rate slip to -25% on Feb. 6, following seven consecutive weeks of year-over-year improvement.

Developed by the Economic Cycle Research Institute (ECRI), the WLI's growth rate dropped as low as -30% in December 2008, the worst on record and about three times as bad as during the 2002 tech crash.

"We cannot yet say that a recovery is in sight," says ECRI Managing Director Lakshman Achuthan.

Composed of different drivers of economic growth... that tend to make directional changes as a group before the economy does, the WLI had stopped falling in December, after a severe six-month drop. The improving growth rate is "better than plunging. But [the WLI] is still highly negative," says Achuthan.

How Low Will It Go?

The creation of the WLI was overseen by Geoffrey H. Moore, whom Alan Greenspan (a former student) called "a major force in economic statistics and business cycle research."

Because no one knows which one economic indicator... will be first to indicate a turning point, and since the hallmark of a cyclical turn is that it will be pervasive, the index, which looks at many drivers, is good at predicting when the economy is about to change course.

Achuthan believes that the current recession, going strong for 13 months now, is likely to exceed 16 months. "The fact remains that when the dust settles, this is likely to be the most severe recession since World War II," says Achuthan.

How low will it go? Hard to say. But the good news is the economy is currently a ways off from the worst-case scenario: The WLI's annual growth rate would have to plunge to -40% to -50% before it suggested depression. And, as Achuthan points out, "Cycles do always turn."