Thursday, February 9, 2012

Beta testing the Shadow Weekly Leading Index (week 5)

- by New Deal democrat

As readers know, I am trying to reverse engineer the ECRI Weekly Leading Index. The Shadow Weekly Leading Index is an unweighted version of the presumed components of that index.

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 declined from 126.84 to 124.41 -1.9%

FRB H8 real estate loans were up +1.1 to 3484.9 flat
Alternatively, MBA Purchase Mortgage Applications up +0.1%

The S&P 500 increased from 1316.33 to 1344.90 +2.2%

Wbaa bonds* declined fro 5.28 to 5.13 -2.8%
Alternately, the DJ Bond Avg increased +0.10 to 116.37 +0.1%

Credit spreads* declined from 3.28 to 3.25 -0.1%
Alternatively, Real M2 went from 9763.8 to 9768.3 flat

Initial jobless claims* declined from 367k to 358k -2.5%

[*Note: these are inverse relationships, so the higher the number, the lower the growth score]

This week there is only one negative -- the JoC ECRI index. All the other components of the index were positive. The unweighted average change is +1.0, using purchase mortgage applications and BAA bonds (but would not materially change if we used the alternate measures).

In short, this should be a good week for the WLI. 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. If so, there should be a marked improvment in the growth index as well.

We'll see tomorrow.