Indicators See the End of the Recession

The end of this recession -- the most severe downturn since World War II -- is finally in sight. This is the clear message from Economic Cycle Research Institute's array of leading indices of the U.S. economy.

What are these indicators? One is the ECRI's U.S. Long Leading Index (USLLI), which has the longest average lead times of any U.S. leading index. Another is the Weekly Leading Index (WLI), which has a shorter lead over the business cycle but is very promptly available.

The growth rate of the USLLI turned up in November 2008 and has now advanced for four straight months. The growth rate of the WLI turned up soon after that, in early December 2008, and as of mid-April 2009 it had been rising for more than four months (see the top two lines in the chart below). A rigorous examination of the data affirms that both USLLI growth and WLI growth have been in cyclical upturns for at least four months.

Therefore, the economy is on the cusp of a growth rate cycle upturn - i.e., a cyclical acceleration in economic growth. In other words, U.S. economic growth, which, according to ECRI's U.S. Coincident Index growth rate, is still plunging deeper into negative territory (bottom line in chart), will start becoming less negative in short order.

Signs of Recovery Ahead

Not Just Green Shoots

But so what? Isn't this tantamount to the growing conventional wisdom about the slowing descent in economic activity? Indeed it is, but those who dismiss this development don't understand its implications for a business cycle recovery.

In fact, over the last 75 years, growth rate cycle upturns during every recession were followed zero to four months later by the end of the recession itself. No exceptions.

Actually, there's been only one solitary exception in the data we have examined, which go back well over a century. This was the growth rate cycle upturn of 1930-31, which gave way to a renewed downturn. But when this growth rate cycle upturn was beginning at the end of 1930, USLLI growth was turning back down, warning that the firming in growth would soon be reversed, effectively opening the door to depression. That's not the case today.

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Anirvan Banerji is the director of research for the Economic Cycle Research Institute, which was founded by Dr. Geoffrey H. Moore, creator of the original index of leading economic indicators (LEI) for the U.S. Department of Commerce. Banerji serves on the economic advisory panel for New York City, is the co-author of Beating the Business Cycle: How to Predict and Profit From Turning Points in the Economy and is the president of the Forecasters Club of New York. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Banerji cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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