When Good Economic News Goes Bad

(Yes, prices are down a bit, and there are inventory issues to contend with, all of which argue for getting more data before drawing a firm conclusion.)

There are, in fact, a number of reasons to be cautiously optimistic, says Lakshman Achuthan, managing director of the Economic Cycle Research Institute. In his latest report, Achuthan, who works with a large basket of leading economic indicators, says that his Weekly Leading Index has risen steadily for four straight months.

The implication? "Recession is not a serious concern; and remember, bear markets are almost always associated with recessions," he said in an interview.

Components of the WLI include money supply, housing activity, prices of industrial materials, bond market measures, stock prices and employment data.

Like the National Association of Realtors, ECRI's data supports a strengthening in the housing market -- its index of leading home prices has been up for two months. However, "I'm hesitant to say we are out of the woods. I'd need three or four months to say the market has really turned," Achuthan.

But measures of the strength of service industries meet the four-month test, and to some extent balance the weakness in manufacturing that most economists have noted.

Second-guessing the Fed is tricky, of course, but Achuthan believes that the available data is not definitive enough to force a major move on rates. "[The Fed is] are going to stay on hold longer than you think," he says. The board acts when it fears recession, but for now that worry is probably not on the front burner.