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Tuesday, October 14, 2008


leading economic indicators

it's probably no surprise in the aftermath of the stock market crash of the last three weeks, but one should note the dramatic deterioration of the ECRI leading economic indicators (LEI).

A measure of future economic growth in the United States fell to a five-year low and its annualized growth rate fell to a 33-year low, hitting severe recession levels, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 120.6 in the week to Oct. 3, down from 122.2 in the previous period. That's the lowest level since April 18, 2003, when it stood at 120.3.

Its annualized growth rate slid from minus 13.3 percent to negative 14.7 percent, its lowest since Feb. 14, 1975, when it was minus 15.8 percent, according to ECRI data.

"With weekly leading index growth plummeting to a new 33-year low, the U.S. recession is set to rapidly worsen," said Lakshman Achuthan, managing director at ECRI.

The index level ticked lower due to higher interest rates weaker stock prices and money supply growth, partly offset by lower jobless claims.

nouriel roubini confirms as much via bloomberg.

``The stock market is going to stop rallying soon enough when they see the economy is really tanking,'' Roubini added.

chain of couple of nonsequential paragraphs to get at the core of roubini's judgement of the rejiggered TARP.

Roubini said total credit losses resulting from the meltdown of the subprime mortgage market will be ``closer to $3 trillion,'' up from his previous estimate of $1 trillion to $2 trillion. The International Monetary Fund estimated $1.4 trillion on Oct. 7. Financial firms have so far reported $637 billion in losses, according to data compiled by Bloomberg.

... The economist said the recession will last 18 to 24 months, driving unemployment to 9 percent, and already depressed home prices will fall another 15 percent. The U.S. government will need to double its purchase of bank stakes and force lenders to eliminate dividends to save them from bankruptcy, Roubini added. Treasury Secretary Henry Paulson said today he plans to use $250 billion of taxpayer funds to purchase equity in thousands of financial firms to halt a credit freeze that threatened to drive companies into bankruptcy and eliminate jobs.

``This will be the first round of recapitalization of the banks,'' Roubini said. ``The government has to decide to intervene much more directly in the provision of credit and the management of these companies.''

UPDATE: via naked capitalism -- on the heels of reports of goods piling up in ports for lack of letters of credit, the baltic dry index has collapsed. the guardian implies the onset of real economic difficulty in china, which is something i've (as others have) been expecting. but that may be too specific a conclusion to draw here.

UPDATE: via the ft -- rio tinto warns on the chinese economy.

Mr Albanese said there had been a marked reduction in Chinese commodity demand from the overheated levels of 2007 and added that the “vast majority of Chinese aluminium producers are now making operating losses.”

While domestic demand would remain strong, he said: “China is not completely insulated from an OECD recession and we will see an impact on Chinese exports”.

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