Investment

» ECRI - Misleading Growth Rates

Hi All,

Sorry I've been quiet for a while, but I was on a trip to Japan. I did go onto CNBC this afternoon to discuss recent economic data and point out some problems with popular growth rates used. You can watch the interview here http://mms.tveyes.com/Transcript.asp?Ter...

Kind regards,
Lakshman

-- posted by ECRI

» Jas_Jain - FWC: Signs of a Stronger Economy

"If Achuthan is correct and there is a fading chance of a recession and lessened threat from inflation, then he could also be right when he states that "the Federal Reserve may stay on hold for a lot longer than people think.""

I am fading ECRI's forecast of "the risk of recession may be receding."

Jas

-x-x-x-x-x-x-x-x-x-x-x-

http://www.businesscycle.com/news/1071/

Signs of a Stronger Economy
20-November-2006

NEW YORK (Dow Jones)--The index of leading indicators increased for the second month in a row in October, a tentative sign of better economic times ahead.

Moreover, the Economic Cycle Research Institute's weekly leading index - which gives a more up-to-date view - moved further into positive territory in the week ended Nov. 10, for the second week in a row.

"We've still got lackluster growth between now and early 2007, but the risk of recession may be receding," said Lakshman Achuthan, managing director of ECRI in New York.

If Achuthan is correct and there is a fading chance of a recession and lessened threat from inflation, then he could also be right when he states that "the Federal Reserve may stay on hold for a lot longer than people think."

The Changed Nature Of Leading Indicators

Composite leading indicator indexes have fallen into some disfavor with financial markets, possibly for two reasons: (1) markets are more focussed on specific sectors that may be the chief sources of economic weakness - currently housing market indicators, at other times manufacturing indicators; and (2) leading indicator indexes are most valuable at signaling cyclical turning points and no such indication has been given recently.

To be sure, the Conference Board index has stuttered in recent months with little clear trend. Over the six months from April through October the index has drifted down by just 0.2%, hardly changed at all.

In October, the index rose by 0.2%, with six out of the 10 indicators up, led by a 0.43 percentage point contribution from real money supply, reflecting both an increase in nominal money supply and a decline in the consumer price index. Based on the decline in the CPI, the Conference Board presumed a decline in the personal consumption expenditures price index which it uses to deflate money supply. Offsetting some of the increase were declines, including a 0.27 percentage point decline in vendor performance and a 0.17 point decline in building permits.

At the same time there were revisions, including a fairly large one to September (now up 0.4% instead of the initially reported 0.1% gain).

Indeed, the tendency for frequent and fairly large revisions may be another reason for the lessened market interest in the leading index. (Three of the components - manufacturers' new orders for consumer goods and materials, manufacturers' new orders for nondefense capital goods and the real money supply - are not fully known and, so, the Conference Board makes imputations for them.)

ECRI's Index More Timely, Less Revised

ECRI's weekly leading index has the advantages of being more timely than the monthly Conference Board indicator. Its seven components are available at time of publication, so, there's less guesswork and fewer revisions.

The favored measure that the ECRI analysts look at to evaluate the index is not the index level itself or its month-to-month change, but rather the change in the index relative to its 52-week moving average.

On that basis, the WLI reached a 2006 peak of +5.0% in the week ended Feb. 10, drifted lower until it moved into negative territory in the week ended July 28, where it stayed for 14 weeks before showing a 0.6% increase relative to the 52-week average in the week ended Nov. 3 and an increase of 1.2% in the week ended Nov. 10.

Just as the early February peak signaled the drift through slower growth in the second and third quarters, the move back into positive territory - if it continues - could signal a return to more trend-like growth by the second quarter of 2007, according to Achuthan.

"The improvement in the WLI is pervasive, it's not just one component," said Achuthan, who looks for signals that are pronounced, prolonged and pervasive. "It takes a while before we can tell for sure, but it's beginning to look like there's something afoot. The WLI is like a one-armed economist."

That seems to mean that the signal is pretty clear.

-- posted by Jas_Jain

» ECRI - WLI Edges Up

Hi All, We're a bit early this week with the WLI because of the holiday -- Happy Thanksgiving! Also, for those of you up early, this Friday I'll be on CNBC's Squawk Box at 6:30 AM (ET).

NEW YORK, Nov 22 (Reuters) - A weekly gauge of future U.S. economic growth edged up in the latest period on higher stock prices and lower interest rates, a report showed on Wednesday.

The Economic Cycle Research Institute, an independent forecasting group, said its Weekly Leading Index edged up to a 27-week high of 138.2 in the week ended Nov. 17 from a downwardly revised 138.1 in the prior week.

Annualized growth rose to 1.6 percent from 1.1 percent in the prior period, slightly revised down.

"With WLI growth continuing to climb, U.S. economic growth prospects have improved, but promise only modest near-term growth," said Lakshman Achuthan, managing director at ECRI.

The index rise was marginally offset by lower housing activity, Achuthan said.

-- posted by ECRI

» SteveT - Just curious

.
Lakshman, I posted this question about the time you left on your trip so perhaps you didn't see it earlier, so I'll ask again.

I realize revisions are constants with economic data. At times I've noticed some of the ECRI numbers get rather large revisions. Are larger than normal revisions something that crop up randomly or are they more prone near turning points?
.

-- posted by SteveT

» ECRI - Just curious

In response to Just curious posted by SteveT:

Hi Steve,

Thanks for posting this question again. It seems that larger than normal revisions in gov't data do show up more frequently around cyclical turning points in the overall economy. Basically, there is some sort of estimation going on in the process of the data collection, and the error associated with estimation does systematically grow around turning points.

Having said that, in the case of the WLI there is only one component that has an input that is subject to revision. Furthermore, to the extent our inputs are subject to revision (relating to money supply in this case) it is unlikely that the revision shifts the TIMING of the inflection point in the series. Therefore, while a data revision can revise the level of an index like the WLI, it does not change the timing of cyclical turns in the index, and in our view this is the critical point.

I hope this helps.

Lakshman

-- posted by ECRI

» SteveT - Just curious

In response to Just curious posted by ECRI:

.
Lakshman Thank you very much.
.

-- posted by SteveT

» ECRI - Upcoming CNBC Interview

I'll be on CNBC at 2:30pm (ET) http://www.cnbc.com/id/15837857

Peter Tirschwell from the Journal of Commerce will also be on the show -- ECRI has a long-standing relationship with the JoC because of our commoditiy index http://www.joc.com/history/p18.asp

-- posted by ECRI

» Buyorsell - WLI Growth Rate Following the Scam Market Up

In response to WLI Growth Rate Following the Scam Market Up posted by Jas_Jain:

Quick note: Slowing US growth, weaker USD, 70% of recent economic reports missed, but market going higher, rationale, anyone other than momentum?

Also do you have the latest ECRI data?

Also in terms of liquidity, recent rise of JPY may put a crimp in the carry trade, lower liquidity a possibility??

Cheers & Thanks

-- posted by Buyorsell

» Jas_Jain - Re: WLI Growth Rate Following the Scam Market Up

In response to WLI Growth Rate Following the Scam Market Up posted by Buyorsell:

--

"Quick note: Slowing US growth, weaker USD, 70% of recent economic reports missed, but market going higher, rationale, anyone other than momentum?"

Mostly momentum. People are afraid to miss out! Also, people think that Fed would cut the rate in 2007Q1. It it does, it would be because the economy is weakening too much.

"Also do you have the latest ECRI data?"

Yes, I collect, mostly from here, religiously.

25-Aug-06 135.1 -1.7
1-Sep-06 135.6 -1.3
8-Sep-06 136.6 -0.8
15-Sep-06 135.5 -0.8
22-Sep-06 135.1 -0.9
29-Sep-06 136.4 -0.6
6-Oct-06 135.7 -0.8
13-Oct-06 136.5 -0.5
20-Oct-06 136.4 -0.1
27-Oct-06 -0.3
3-Nov-06 137.5 0.3
10-Nov-06 138.1 1.1
17-Nov-06 137.6 1.4
24-Nov-06 137.1 1.5

"Also in terms of liquidity, recent rise of JPY may put a crimp in the carry trade, lower liquidity a possibility??"

Things will happen when the US economy enters the recession; until then speculators might push Scams higher. MY forecast for the recession is on or before Feb'07. Four more months!

"Cheers & Thanks"

The same.

Jas

-- posted by Jas_Jain

» ECRI - CNBC Interview

Link to interview which should work for a few days at least: http://www.cnbc.com/id/15840232?video=15...

Topic was divergence in transportation companies, trucking, vs. trains, Fedex, etc.

-- posted by ECRI