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Economy in Brief

· The LEI is weak and faltering. One very reliable signal from the LEI is its year/year growth rate. Since the early 1960s, with one exception, significant year/year declines have foreshadowed the onset of recession. The sole exception was in 1966. Although in January 1996 a minor year/year  reading of -0.1% also was recorded. Currently the LEI is off by 0.8% year/year – a worrisome signal.
Leading Economic Indicators
  LEADING COINCIDENT LAGGING
Month-to-month
Mar-07 0.1% 0.1% 0.1%
Feb-07 -0.6% 0.2% 0.2%
Jan-07 -0.3% -0.1% 0.0%
Dec-06 0.6% 0.3% 0.7%
SAAR
3-Mos -2.9% 1.0% 0.9%
6-Mos -0.3% 1.8% 4.0%
12-Mos -0.8% 1.7% 3.2%
U.S. Leading Indicator Weak
by Robert Brusca April 19, 2007

However, the signal for recession is not only a weakening in the LEI but also in the coincident index of economic indicators (COIN). The COIN is weakening only by a very small amount and at a very moderate pace, in effect blunting the weakening signal from the LEI itself…at least so far.

The blown up chart on the right allows closer inspection of the recent LEI and COIN trends. The ongoing and disturbing weakens in the LEI is clear, although its RATE OF DESCENT is not very pre-recession-like. The faltering in the COIN index after a spurt earlier in the year is also put in its less worrisome context, at least for the moment.

Moreover...if we look at short-term (3-month) growth rates of the COIN components, they still seem to be relatively firm. The coincident index does appear to be about to collapse. It seems still solid.

On balance what we have is evidence of ongoing weakness in the economy. The slippage of the year/year LEI growth rate, below zero and into negative territory, is very disturbing by itself given the reliability of that growth rate as a recession indicator. Yet the LEI itself is slipping at a very slow – almost slow-motion - speed compared to other pre-recession periods. More to the point, for recession to occur the coincident index must decline and the components of that index are showing no sign of doing that. The coincident index itself has undergone some slowing but the index is a product of its components and even three-month growth rates of its components still look quite solid.Verdict: worry but do not grieve for growth. A downturn still looks less than probable.

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