ECRI WLI: Growth Has Stalled Further Last Week
The smoothed annualized growth rate of the ECRI Weekly Leading Index (WLI) fell from a downwardly revised 6.6% to 6.4% for the week ending May 6. The figures were in line with my forecast last week based on the smoothed annualized growth rates of the S&P500, US 10-year bond yields, metal prices and initial jobless claims - what I believe are major constituents of the ECRI WLI.
For the week ending May 13, the growth rate of the S&P was slightly down at 23.66% compared to the previous week's 23.91%.
Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.
The growth rate of the yield on the 10-year government bond came in lower at 14.27% compared to the previous week's 16.61%.
Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.
Despite the uptick in metal prices last week, I estimate that the growth rate will have lost further momentum to 27.25% from 28.42% the previous week.
Sources: Dismal Scientist; I-Net Bridge; Plexus Asset Management.
The contraction of the smoothed annualized growth rate of initial jobless claims reduced considerably from the low of -27.51% at the end of February to a paltry -0.93% in the week ending May 6. Should last week's initial jobless claims come in unchanged from the previous week's, the smoothed annualized growth is likely to register a positive 2.83%. To put it in another way, for the growth rate to remain at the previous week's level, the initial jobless claims must fall to 402,000.
Sources: FRED; Dismal Scientist; Plexus Asset Management.
With all of my major constituents of the ECRI WLI pointing south, it seems to me that the smoothed annualized growth rate for the week ending May 13 will reflect further downside momentum from the previous week's 6.4%, although only slightly.
It looks like the markets are correctly anticipating what is already noticeable in the underlying economy - lower but still expanding PMIs, industrial production surprising on the downside and falling housing starts. Like I said before, with the increasing number of black swans in the global pond, the markets will lead the way as coincident indicator of the US economy.
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Author: Prieur du Plessis
Dr Prieur du Plessis
investmentpostcards.com
With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.
He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).
Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.
Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.
Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.
In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).
Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.
Copyright © 2008-2012 Dr Prieur du Plessis
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