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June 16, 2010
Over the past few weeks, there has been a lot more talk of a double-dip recession on the horizon. Why is that?
Click here to read a pretty good analysis of an indicator that we watch, the ECRI’s “Weekly Leading Indicator Growth Rate”. This indicator has been falling since October 2009 – what many believe to be the official end of the last recession. As of last week - the June 4th reading - actually went negative. When this happens – and holds in negative territory for some weeks in a row – investors should pay attention. The next month or two will be important to watch.
Further, this analysis shows that in periods where this indicator incorrectly predicted an oncoming recession, the Federal Reserve promptly stimulated the economy by lowering rates. Beyond printing money, the Fed doesn’t have this tool any longer. Their past actions strongly imply that the Fed watches this ECRI indicator – or at the very least, a similarly created internal indicator. For anecdotal evidence of this, read this article to hear the Fed “quietly” worrying about what they’re seeing on the horizon.
The Fed worries because they can’t bring rates below zero, they really don’t want to print money any longer and they know that the politicians cannot or will not realistically introduce another fiscal stimulus package.
Finally, for another take on this ECRI indicator, John Hussman of the Hussman Strategic Growth Fund wrote in his weekly comentary about this subject. It is obviously on the radar screen of cautious investors.
