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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.

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Jan 31 2018

The Best Way to Use the Weekly Leading Index (WLI)

Generations of business cycle research have taught us that successfully managing cyclical risk requires confirming signals from an array of leading indexes designed to anticipate cycle turning points. Because no single leading index is infallible ECRI relies on a multi-layered cyclical framework of over 100 indexes to monitor and predict turning points. The Weekly Leading Index (WLI) plays a key role in our understanding of U.S. cyclical prospects.



Central to our approach is the monitoring of long leading, short leading and coincident indexes designed to work in sequence. For the U.S., real-time warning signals come first from a turn in Long Leading Index growth. When such a turn is followed by a turn in the growth of shorter-leading indexes, like the WLI, the conviction in the turning point call increases. A cyclical turn in the economy is then formally recognized when coincident index growth itself finally turns. For the overall U.S. economy, the sequence we monitor is comprised of the U.S. Long Leading Index (USLLI), the WLI, the U.S. Short Leading Index (USSLI) and the U.S. Coincident Index (USCI).

This means that a decline in any one of the indexes within a sequential system, absent corroborating downturns in the rest, is insufficient for ECRI to make a cyclical call. Again, this is because any one leading index is fallible. In other words, the WLI is just one part of an array of leading indexes of U.S. economic growth which, taken together, make up a formidable defense against surprise cyclical upturns and downturns in economic growth.

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