Friday, May 14, 2010

ECRI Rings a Bell

From the Economic Cycle Research Institute:

WLI Growth Falls to 40-Week Low
May 14, 2010

(Reuters) - A measure of future U.S. economic growth fell to a four-week low in the latest week while its annualized growth rate hit a 40-week low, indicating a slowdown in the recovery in the coming months, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 132.0 in the week ended May 7, from 134.7 the previous week.

The latest figure is the lowest level since April 9, when it stood at 131.3.

The index's annualized growth rate fell to 12.2 percent, from 12.7 percent, its lowest level since July 31, 2009, when it stood at 11.2 percent.

"With WLI growth falling to a 40-week low, the pace of improvement in the overall economy is set to slacken in the months ahead," said Lakshman Achuthan, managing director of ECRI.

As has been pointed out interminably in this blog, economic reality is what it is. Rising stock prices mean little. The above press release says it all. Stocks are falling because the second derivative of growth in the economy has already occurred, it would appear, and not at a very high level. Now we are looking at decreased exports to Europe as the euro collapses; worries about oil production and damage from the Gulf oil spill, and the like.

Most important to the leading indicators is the drop in the 10 year Treasury yield. As the economy grows, the case for ZIRP recedes. Most of the leading economic indicators are interest-rate related. Whoops! The classic pattern after a recession is for a decline in the rate of growth of the economy as the growth continues in a decelerating fashion. Think lift-off of a rocket ship from Cape Canaveral. It's a two-way market now. But it is NOT a new recession--though if oil prices skyrocket related to the spill, all bets are off.

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