I am far from an economist, thank goodness, but with all the worry during the past week about the economic recovery coming unglued, I wanted to inject some facts (gasp!) into the conversation.  Twice before in Cabot Wealth Advisory I’ve touched on the lone economic indicator I follow regularly–the Economic Cycle Research Institute’s (ECRI) Weekly Leading Index.

In brief, ECRI has a good track record of economic forecasting, and I like the group because they approach their task much as I approach mine–by using tools that have actually worked in the past.  In ECRI’s case, they looked at decades of past recessions and recoveries, found the handful of economic data points that lead the cycle (i.e., they turn up or turn down months before the economy does, with few false signals), and combined them into one index … the Weekly Leading Index.

Anyhow, they offer a press release every Friday that states the Index’s movement and, more important, its growth rate.  When the growth rate runs above zero, it’s a sign of expansion; below zero, contraction.  And anything over, say, +10% signifies a very strong economic advance upcoming.

When I first wrote about the Index near the end of last year, it was forecasting the worst recession since the 1930s … pretty good call.  And even as late as this March, it really hadn’t turned up in any major way.  During the worst of the recession, the Index’s growth rate nearly fell to a stunning minus 30%; compare that to a worst-case minus 20% during the awful 1974 recession!  And you know the result–600,000 job losses a month and two quarters in a row of GDP shrinkage of more than 6%.  Yuck.

But all that is in the past.  As of last Friday, the Weekly Leading Index itself had risen sharply in recent months (including a streak of nine up weeks in a row, the first time that’s happened in 20 years!) and its growth rate now stands at plus 4%, the first positive reading in two years.

To quote Lakshman Achuthan, ECRI’s managing director, “We’ll definitely see the end of this recession this summer.  As unique and unprecedented as this recession has been, the transition to recovery is showing up in a textbook way in the leading indicator charts.”  My interpretation:  The odds are very much in favor of a recovery–possibly a powerful one–starting in the weeks ahead.

In the real world, then, you should keep your head up.  I’ve talked to many of my friends who are understandably worried about their jobs and their companies; many have recently gone through another round of layoffs.  But it’s very likely that worry is unfounded, and that the next big move by most employers will be to hire (even if that takes a few months, which is possible).

Now, don’t misunderstand me–I’m not saying you should use the Weekly Leading Index to make judgments about the stock market; the stock market and the economy are two separate animals.  I just wanted to pull out the factually based ECRI Index to debunk all the talk that’s popped up in recent days that our economic recovery is toast.  It’s not!  No one’s saying it’s going to be 1999 all over again, but better times are almost certainly on the way.