Leading Index signals slow growth through the fall

The Leading Economic Index put together by the Conference Board jumped a surprisingly strong 0.8% in May, following a 0.4% decline in April, and a 0.7% increase in March.

“Modest economic growth is being buffeted by some strong headwinds, including high gas and food prices and a soft housing market. The economy will likely continue to grow through the summer and fall, however it will be choppy, Ken Goldstein,” an economist with the Conference Board said.

Although I’m not in the camp that believes a recession is imminent, May’s upbeat reading must be tempered by some of the components that drove the outsized gain.

The largest contributions came from the interest rate spread, consumer expectations, building permits and real money supply.

Interest rate spreads and money supply are extremely intangible, while consumer expectations in May were mixed and housing continues to struggle.

In the meantime, consumer sentiment, as measured by the University of Michigan’s survey, unexpectedly fell from 74.3 in May to 71.8 for the mid-June reading.  A survey by Bloomberg had called for 74.5.



Consumers sentiment remains in a downward trend amid weak job creation and elevated jobless claims.

Though prices have receded somewhat, the spike in gasoline prices earlier in the year has also been a negative, while uncertainty in housing is likely playing a role in depressing sentiment.

LEI dips in April

Thursday’s economic calendar was marked by a number of economic reports, but I would be remiss if I did not talk about yesterday’s release of the Conference Board’s Leading Economic Index.

The Leading Index is not typically a market-moving event because analysts can generally peg where the numbers will hit because the ten components that make up the index are generally known prior to the monthly release.

The Conference Board’s Leading Economic Index

The LEI fell 0.3% in April following an upwardly revised 0.7% rise in March and a 0.9% increase in February. April’s dip is the first decline since June 2010, when the already sluggish recovery temporarily entered a period of slower growth.

Six of the ten components that make up the index fell, with the largest being weekly jobless claims.

Ataman Ozyildirim, an economist at The Conference Board, noted, “Overall,  the composite indexes still point to strengthening business conditions in the near term, although the path may be uneven.”

Ken Goldstein, also at the Conference Board, added, “Economic growth will likely continue through the summer and fall, but the pace of economic activity may be choppy.”

The decline in April is consistent with much of the recent data, which has been pointing to a slowdown in economic activity.

Weekly jobless claims – an excellent barometer of economic activity – have risen in recent weeks and are holding at an elevated level above 400,000.

The ISM Services Index detected a deceleration in activity last month, while housing continues to struggle and regional surveys of manufacturing during May have detected modest weakness.

Further, a $1 per gallon jump in gasoline prices from a year ago has complicated the recovery in consumer spending.

A new recession seems unlikely at this point, but any moderation in economic activity will probably hinder job creation. And that may put policymakers at the Fed on edge, as the contemplate the end of their second round of QE.

Leading Index points to further gains

The Conference Board’s Leading Economic Index rose an impressive 1.1% in November, generally matching analysts estimates, as the index designed to forecast future trends gained ground for the fifth straight month.

Ataman Ozyildirim, economist at The Conference Board, said, “November’s sharp increase in the LEI, the fifth consecutive gain, is an early sign that the expansion is gaining momentum and spreading.

"Nearly all components rose in November. Continuing strength in financial indicators is now joined by gains in manufacturing and consumer expectations, but housing remains weak.”



Ken Goldstein, also an economist at The Conference Board, added, “The U.S. economy is showing some sparks of life in late 2010. Overall, the indicators point to a mild pickup after a slow winter. Looking further out, possible clouds on the medium term horizon include weaknesses in housing and employment.”

The latest rise is a hopeful sign that the burgeoning economic recovery might be broadening and gaining momentum heading into early 2011.  With the uncertainty about the tax situation out of the way and a two percentage point cut in the social security taxes assured, the outlook is set to improve even further.

However, a bit of caution is in order.

The LEI did an excellent job of turning up just a few months before the recession ended, signaling the impeding recovery but the strong rise in the LEI has not been matched by activity in the real economy (see chart).

Likely reason: the interest rate spread and stock prices, which make up two of the ten components, have performed in a way that suggests a solid economic recovery would be on the horizon.

But these historical indicators of future activity, which normally might provide a sneak peek going forward, are more intangible indicators of what might be coming down the road.

Rising money supply may have also contributed to big rise in the LEI.

In the meantime, the Coincident Economic Index (CEI), which measures current economic activity, has done a good job of capturing the fragile economic recovery that has been in place for over a year. The CEI rose 0.1% last month, following a 0.2% increase in October and a 0.1% decline in September.

Leading Economic Index reflects slow growth

The Conference Board’s Leading Economic Index continues to suggest that slow growth is the most likely course for the recovery.  The index designed to forecast future trends rose 0.3% in September, which follows a 0.1% increase in August, and a 0.2% increase in July.






















“The LEI remains on a general upward trend, but it is growing at its slowest pace since the middle of 2009. There isn’t any indication of a relapse into another downturn through the end of the year, according to Ataman Ozyildirim, an economist with the Conference Board.

Ken Goldstein, economist at The Conference Board, said, “More than a year after the recession officially ended, the economy is slow and has no forward momentum. The LEI suggests little change in economic conditions through the holidays or the early months of 2011.”

Though the Leading Index is pointing to further gains in economic activity, the largest positive contributor, interest rate spread, and the third largest contributor, real money supply, come more under the heading of intangibles.

Notably, the Coincident Economic Index held steady for the second-straight month after a 0.1% rise in July, which is a reflection of the slowdown over the summer. The Coincident Index, which measures current economic conditions, hit a bottom in June 2009, the month the recession ended.

A look at the Leading Index

The Conference Board’s Leading Economic Index increased 0.3% in August, and as the graph from the Conference Board shows, the recovery remains intact but the pace is expected to be sluggish.



Interestingly, the Coincident Index, which measures economic data that reveals how the economy is currently performing (as opposed to the LEI which is future oriented), began its rise when the recession ended in June 2009.

Gains in the CI have been gradual, reflecting the slow recovery. Over the past three months, the CI has increased an anemic 0.1%, as growth slowed over the summer.

Another perspective is available at my page on Examiner.

Leading Index climbs higher

The Conference Board's Leading Economic Index jumped a strong 1.4% in March, which comes on top of healthy upward revisions to fairly lackluster increases in January and February.

“The U.S. LEI has risen steadily for a year, and its six-month growth rate has remained fairly stable in recent months – led by improvements in financial and labor market indicators.

"Payroll employment made its first substantial contribution to the coincident economic index, suggesting a recovery that is beginning to gain traction, according to Conference Board economist Ataman Ozyildirim.

Ken Goldstein, economist at The Conference Board, added, “The indicators point to a slow recovery that should continue over the next few months. The leading, coincident and lagging series are rising. Strength of demand remains the big question going forward. Improvement in employment and income will be the key factors in whether consumers push the recovery on a stronger path.”

Agreed, in my view. Without gains in employment, income growth will be anemic. And anemic income growth will require consumers to dig into savings (or look to credit) in order to fuel sales among the nation's retailers.

There may be some pent-up demand that could be unleashed, but uncertainty abounds. Without rising employment, growth will likely be modest at best.

What's moving

Manufacturing is experiencing a V-shaped recovery, while housing has stabilized and is starting to perk up due to the expected expiration of the tax credits. And business and consumer spending has improved modestly.

Based on what the Leading Index is telling us, we appear set to see further gains in economic activity and a broadening of the recovery.