BondSquawk

July 16, 2010

The Economic Cycle Research Institute released its Weekly Leading Indices for the week ending July 9.  The latest reading continues to decline and is standing on the edge of a cliff.  The Weekly Leading Index dropped to 120.63 from a downward revised level of 120.64 in the prior week.  More importantly, the Weekly Growth Rate Index came in at -9.77 percent from a reading of -9.15 in the previous period.  This latest reading marks the 10th decline in a row and 6th straight week in negative territory, dating back to the first week in June.

Gluskin Sheff’s Chief Economist, David Rosenberg said several weeks ago when the ECRI Growth Rate Index started to slide, “to keep an eye out for the -10 threshold, for at that level, the economy has gone into recession… only 100% of the time.”  With today’s latest reading, we are within spitting distance of that threshold and a drop next week could signal an even bigger drop in economic activity for the U.S.

In addition, ECRI’s Managing Director, Lakshman Achuthan said before that there needs to be a “persistent” decline in the index in order to determine the possibility of a double dip in the U.S. economy.  In our analysis, the average lead time of negative growth rates is about 19 weeks in foreshadowing recessions.  Achuthan did say that the economy at the very least, is headed for a slowdown.  Stay tuned.