Leading Economic Index Increases for 24th Month, 1st Time in 40 Years; Recovery Remains on Track
Says Ataman Ozyildirim, economist at The Conference Board: “The U.S. LEI continued to increase in March, pointing to strengthening business conditions in the near term. The March increase was led by the interest rate spread and housing permits components, while consumer expectations dropped. The U.S. CEI, a monthly measure of current economic conditions, also continued to rise, led by gains in industrial production and employment.”
Says Ken Goldstein, economist at The Conference Board: “The U.S. LEI continues to point to sustained economic growth through year end. Global disruptions, including unrest in the Middle East, rising oil prices and the Japan earthquake, may have some repercussions. However, it remains to be seen what the impact of these shocks will be on the United States and the broader global economy.”
4 Comments:
The LEI seems to signal direction, but not magnitude:
Economy struggles for momentum, data shows
Apr 21, 2011
"Data on Thursday showed steep declines in home prices in February... On a year-over-year basis, home prices fell 5.7 percent...The Philadelphia Federal Reserve Bank's business activity index fell to 18.5 in April, pulling back from March's 27-year high of 43.4 and far exceeding economists' expectations... the Labor Department said initial claims for state unemployment benefits fell 13,000 to a seasonally adjusted 403,000 last week, well above economists' expectations.
The reports came a week before government data is expected to show growth slowed significantly in the first quarter. The economy grew at a 2.0 percent annualized rate, according to a Reuters survey, after a 3.1 percent pace in the last three months of 2010.
The Fed's policy-setting committee will meet April 26-27 to assess the economy and is expected to reaffirm a June end date for purchases of $600 billion of government bonds."
Federal budget cuts (i.e. higher taxes and lower spending), along with continued state and local budget cutting may slow the U-shaped recovery:
"A survey by Blue Chip Economic Indicators issued on April 10 found that economists on average had downgraded their estimates for real GDP growth in the United States in 2011 to 2.9 percent, down from 3.1 percent only one month earlier."
q1 GDP growth will be lucky to come in at 2% and then only because the deflator will be so low (in Q4 it was about half of CPI) and waaaay under measures like the BPP.
that's hardly awe inspiring growth.
further, this index is not terribly useful in times of massive monetary stimulus.
pull up the weightings: (page 3)
http://www.conference-board.org/pdf_free/economics/bci/hospRM.pdf
1/3 of the index value comes from 1 variable, M2. it's hardly surprising that with QE growing money supply so rapidly, this index has kept churning upward.
add in another 10% weighting from the interest rate spread, and you quickly see that 43% of this index is just fed manipulation.
if this index was ever predictive, it certainly is not now. this number is predominantly reflecting the fed buying bonds like a drunken sailor, not the underlying economy.
indicators like M2 and rate spreads are only reflective of the underlying economy if they are driven by the underlying economy.
if instead, they are set by aggressive and unprecedented fed policy as opposed to "natural" demand, then they are economically meaningless.
I am sorry but it is hard to be optimistic when for the first time ever the government gave more money to households ($2.3 trillion) than it got in taxes ($2.2 trillion) from households.
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