- by New Deal democrat
The Shadow Weekly Leading Index is an unweighted version of the presumed components of the ECRI weekly leading index. Based on weeks 1 through 5, it appears that ECRI gives extra weight to commodity prices and secondarily to credit spreads. Week 6 brings us a test of that weighting, because both had good positive moves last week, but were offset by other elements of the index.
To refresh, research has revealed that the WLI (per Lakshman Achuthan) has 7 components. We know that two are initial jobless claims and the JoC-ECRI commodity index. At least six of the seven are public record, and several of the six have alternative possibilities.
Here are the presumed components of the WLI, with several possible alternative measures:
The JoC ECRI Index rose from 124.41 to 126.20 +1.4%
FRB H8 real estate loans were up +1.1% to 3517.0
Alternatively, MBA Purchase Mortgage Applications down -8.4%
The S&P 500 fell -0.2% last week.
Wbaa bond yields* rose from 5.13 to 5.17 +0.1%
Alternately, the DJ Bond Avg increased +0.50 from 116.37 to 116.87 +0.4%
Credit spreads* declined from 3.25 to 3.18 -2.2%
Alternatively, Real M2 dencreased -0.1%
Initial jobless claims* declined from 358k to 348k -0.3%
[*Note: these are inverse relationships, so the higher the number, the lower the growth score]
This week the unweighted average change is -0.6%, using purchase mortgage applications and BAA bonds (but would not materially change if we used the DJB Index). This decline is almost entirely due to the decline in purchase mortgage applications. Using the FRB real estate loan update, the weekly unweighted change is +0.6% (although ECRI has given prior interviews indicating they have been using the PMA). If the WLI increases, that probably means that the PMA are underweighted relative to credit spreads and/or commodity prices.
Others have calculated that the WLI growth index appears to be a function of comparing the last 4 weeks' average with the 52 week average. On an unweighted basis, there should be a decline in the growth index as well. An increase in that average will likewise tell us that PMA's are relatively underweighted.
We'll see tomorrow.
