ECRI Leading Index

There is a large debate surrounding what the ECRI leading index is saying. Taken at face value it is saying we are headed into a double dip. However, my understanding is that a large part of the index is based on weekly mortgage applications. A year ago applications were artificially high because of the first time home buyers tax credit. Currently applications are artificially low because demand was stolen forward, similar to the drop off in auto sales immediately following Cash 4 Clunkers. Thus making the year over year rate of change look artificially negative.

I am in the camp that believes the economy is slowing. But the ECRI's indicator might not be working properly at the current juncture so I am not certain that it is a reliable indicator at present as to the trajectory of the decline.

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