Thursday, January 26, 2012

Beta testing the Shadow Weekly Leading Index (week 3)

- by New Deal democrat

As readers know, I am trying to reverse engineer the ECRI Weekly Leading 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. Six of the seven are public record.

Since the possible early monthly reports were reported two weeks ago, they wouldn't count in any event. This week we can begin to find out if the components are weighted (almost certainly they are) and their relative weights, since several components had significant moves in opposite directions,

Here are the presumed components of the WLI, with several possible alternative measures:

JoC ECRI 122.01 123.87 +1.5%

FRB H8 real estate loans flat
Alternatively, MBA PMA -9.7%

sp 500 1289.09 to 1315.38 +2.0%

wbaa bonds* 5.21 to 5.20 0.0%
Alternately, DJ Bond Avg 115.05 114.90 -0.1%

Credit spreads* 3.26 to 3.24 -0.1%
Altrnatively, real m2 9733.8 to 9756.1 0%

Initial jobless claims* 352k to 377k +7.1%

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

The unweighted average change is -2.2 if purchase mortgage applications are used, and -0.6 if the alternative real estate loans is the metric. The predicted week over week change is therefore predicted to be negative in either event. A positive result would suggest that commodity prices are weighted more heavily compared to initial claims and either real estate metric.

We'll see tomorrow.