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ECRI WLI: Growth Has Stalled Further Last Week

The smoothed annualized growth rate of the ECRI Weekly Leading Index (WLI) fell from a downwardly revised 6.6% to 6.4% for the week ending May 6. The figures were in line with my forecast last week based on the smoothed annualized growth rates of the S&P500, US 10-year bond yields, metal prices and initial jobless claims - what I believe are major constituents of the ECRI WLI.

For the week ending May 13, the growth rate of the S&P was slightly down at 23.66% compared to the previous week's 23.91%.

S&P500 versus ECRI Smoothed Annualized Growth
Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.

The growth rate of the yield on the 10-year government bond came in lower at 14.27% compared to the previous week's 16.61%.

US 10-Year Bond Smoothed Annualized Growth
Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.

Despite the uptick in metal prices last week, I estimate that the growth rate will have lost further momentum to 27.25% from 28.42% the previous week.

Metal Price Index Smoothed Annualized Growth
Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.

The contraction of the smoothed annualized growth rate of initial jobless claims reduced considerably from the low of -27.51% at the end of February to a paltry -0.93% in the week ending May 6. Should last week's initial jobless claims come in unchanged from the previous week's, the smoothed annualized growth is likely to register a positive 2.83%. To put it in another way, for the growth rate to remain at the previous week's level, the initial jobless claims must fall to 402,000.

Initial Jobless Claims Smoothed Annualized Growth
Sources: FRED; Dismal Scientist; Plexus Asset Management.

With all of my major constituents of the ECRI WLI pointing south, it seems to me that the smoothed annualized growth rate for the week ending May 13 will reflect further downside momentum from the previous week's 6.4%, although only slightly.

It looks like the markets are correctly anticipating what is already noticeable in the underlying economy - lower but still expanding PMIs, industrial production surprising on the downside and falling housing starts. Like I said before, with the increasing number of black swans in the global pond, the markets will lead the way as coincident indicator of the US economy.

 


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