Saturday, July 17, 2010

ECRI Follow-up, and Related Updates

In the post immediately below, I commented that there was no press release yesterday for some reason from ECRI related to the release of its Weekly Leading Index. In the past few hours, notice of a Reuters press release dated yesterday has now been added to the "News" section of ECRI's website. Here is the release:

(Reuters) - A measure of future U.S. economic growth was unchanged in the latest week, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index stood at 120.6 for the week ended July 9, unchanged from the previous week, which was originally reported as 121.5.

The index was last below 120.6 in the week of July 24, 2009, when it measured 120.3, according to ECRI.

The index's annualized growth rate fell to minus 9.8 percent from minus 9.1 percent the previous week, originally reported as minus 8.3 percent.

So, ECRI was noncommittal re whether the worsening WLI growth rate in conjunction with the evolving proprietary data is pushing them toward a new recession call.

What I truly don't like in the data I am seeing is that Consumer Metrics has reported July 15 data. This was at 100 (average) on June 30 and now is 93. Its own 91-day growth index is low and dropping. At -2.7% it is the lowest since what that organization dates as a new consumer downturn began at the beginning of 2010.

It appears from the historical data on their website that all throughout the last "Great Recession", only 3 months had average readings below the current average of less than 96 for July (only half through this month, of course). So, leaving aside growth rates to focus on absolute levels of economic activity, the ECRI data, and the Consumer Metrics data are consistent with all sorts of other data such as Discover/Rasmussen's polling data of consumers and small businesses,'s "main in the street" polling of elective spending and hiring/firing, and others that that the cyclical upturn has been weak and may already have peaked.

The investing conundrum is that the reflex is to buy Treasuries on economic weakness. But are consumer prices really falling? Is the supply of Treasuries rising or falling? Does the Federal Government have a plan to protect its financial position if (when?) the economy fails to have its hoped-for rendezvous with Rosie (Expectations, that is)?

If your answers are similar to mine, then fundamentally you are uncomfortable with Treasury debt either to generate real returns or to safely preserve capital. Think Greece and Spain, even though right now things are looking Japanese. What happens if and when there is a run on the bank that is the world's effective central bank, meaning the Federal Reserve Bank of New York and its ally at Treasury?

These are dangerous financial waters the ship of state is going through.

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