The traditional method for recession forecasting is to find an economic indicator or composite index that has a high correlation and adequately responds in advance to economic expansion or contraction. One then de-trends this indicator by taking a growth rate (straight or smoothed) over x-months and plotting that on a chart. When this growth rate (also called the first derivative) falls below a specific threshold you call recession. The value used for x depends on many factors but is normally […]

At the end of September 2011, ECRI made a recession call which left the impression recession was imminent. With a track record like theirs there was very little challenging argument. Two days later, the S&P-500 bottomed and rose and incredible 22% since. In December 2011, ECRI “dialled down” their call to “within 9 months”. Just how much recession warning is useful? It is understandable that long 10-12 month warnings would be useful for governments and some business leaders planning factory/infrastructure […]

This article was co-authored with Georg Vrba and first appeared on the popular Advisor Perspectives web site on 17 January 2012 In our last article on using the ECRI WLI, we described how best to use the growth figure of the Economic  Cycle Research Institute’s Weekly Leading Index (WLI) to predict recessions,  but we also highlighted an impediment to our research –an inability of  outsiders to replicate the index (and thus know its components) and its “growth  figure” which ECRI publishes […]

In September 2011, the Economic Cycle Research Institute  proclaimed a new U.S recession would begin sometime in the coming year. ECRI  based its prediction on a host of its own internal long-leading indexes,  together with its widely followed weekly leading index (WLI). I do not wish to debate the merits of ECRI’s recession call  here (I wrote on this topic last week), but since the ECRI WLI is so widely followed –  presumably because it is free to the public […]