An economist with the Conference Board said, "The recession has been losing steam since the spring, although very large job losses continue. Nevertheless, confidence is slowly rebuilding. Financial markets are less volatile. Even the housing market is stabilizing. If these trends continue, expect a slow recovery this autumn.”
In my view, the sharp turnaround in the Leading Index seems to be suggesting a quicker rebound. However, with housing sales still near a bottom and home prices continuing to fall, coupled with stagnant consumer spending, a more gradual turnaround this year appears more likely.
One thing I'll be closely watching is weekly jobless claims. Claims have fallen sharply over the past two weeks. But the difficulty in adjusting for seasonal auto layoffs has been the chief reason, according the the Labor Department.
If we exit July and claims shake out near current levels or edge lower, odds of a stronger rebound will improve.
Components
For those interested, the Leading Economic Index is made up of ten separate components designed to telegraph future economic activity. The seven that flashed positive signals were:
- interest rate spreads
- building permits
- stock prices
- weekly initial claims (inverted)
- average weekly manufacturing hours
- index of supplier deliveries (vendor performance)
- manufacturers' new orders for consumer goods and materials
- real money supply
- manufacturers' new orders for nondefense capital goods
- index of consumer expectations.
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