Monday, April 19, 2010

Leading Economic Index Rises 12th Straight Month

LA Times -- The index of U.S. leading indicators rose in March by the most in 10 months, a sign the economy will keep growing into the second half of the year. The 1.4 percent increase in the New York-based Conference Board's measure of the outlook for three to six months was more than anticipated and followed a revised 0.4 percent gain in February.

Manufacturers are ratcheting up production and factory workers are putting in longer hours as companies rebuild inventories and ship more goods overseas. Further improvement in the job market will help sustain the economy's recovery from the worst recession since the 1930s.

"The economy really seems to be gaining momentum, with better-than-expected data coming from a wider variety of sources," said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. "The sectors that were doing well appear to be doing even better and those that were struggling appear to be seeing signs of renewed activity."

MP: The Leading Economic Index has now increased in each month since last April, which is the first 12-consecutive month increase since mid-2004, almost six years ago. The unadjusted 1.5 point increase in the index from 108.1 in February to 109.6 in March was the largest monthly increase in the history of the index back to 1970, and on a percentage basis, the 1.4% increase was the highest in six years, since March of 2004.


At 4/19/2010 1:23 PM, Anonymous Benny The Man said...

Die, recession, die, die, die!

Actually, I think it is finally dead, and now the doomsters will have to start talking about a double-dip for their next fear-mongering platform.

Dudes, except for the Great Depression, every recession ended after a while.

And I think federal fiscal and monetary policies are better than in the Great Depression days.

With inflation very low, abd getting lower, the Fed has license to print money until the plates melt.

We may see a property boom in a few years.

At 4/19/2010 2:35 PM, Blogger The Smoky Mountain Hiker said...

No doubt federal fiscal and monetary policies are better than in the Great Depression, however, if we pass Cap & Trade, as well as VAT tax, this economy will likely take a major hit.

It's a "V" recovery until it turns into a "W"....

At 4/19/2010 4:50 PM, Anonymous Anonymous said...

happy days are here again

At 4/19/2010 5:53 PM, Anonymous morganovich said...

2 of the top 3 components of LEI are M2 and treasury spreads. (together they are .43 of the weighting)

m2 is not a predictor of real activity.

treasury spreads are currently hopelessly adulterated by federal reserve intervention and banking reserve rules.

another .27 is manufacturing hours worked. this becomes a less important indicator every year.

does anyone have any evidence that LEI provide any sort of accurate prediction of future economic activity?

they seem to be predominantly driven by rates, money supply, and stock market prices, all of which can be easily influenced by overly loose monetary policy that is driving little real economic growth.

i'm pretty suspect of this measure.

i don't know anyone on the street that pays attention to it or uses it in models.

anybody have any data?

this index trends up nearly all the time and i don't see a clear relationship between it's increases and GDP growth.

At 4/19/2010 8:22 PM, Blogger KO said...

Interesting. That website that Anon posted links back to the St. Louis Fed as one source.

Check out the available graphs of construction employment, durable goods manufacturing, education & health services, etc.

In construction and manufacturing, it looks like if you have a job the average hourly earnings are at record levels. But they're a couple million jobs below the peak.

At 4/19/2010 9:44 PM, Blogger Unknown said...

Construction and manufacturing earnings at record levels in this huge recession.What is going to happen to them when economic activity increases over the coming years. Looks like certain earnings inflation to me further down the road.

At 4/19/2010 11:30 PM, Blogger bobble said...

"In construction and manufacturing, it looks like if you have a job the average hourly earnings are at record levels."

i could looking at the wrong chart but, i don't see where that data is adjusted for inflation. i tried adjusting for inflation and it appears that the wage is not really at a record

for construction the 2010 wage is about $23/hr

in 1981 the wage was about $10/hr. adjusted for inflation thats about $23/hr.

so it's been flat for 30 years.

in 1971 the wage was about $5/hr. adjusted for inflation thats about $26/hr.

so over 40 years the wage has declined.

At 4/19/2010 11:51 PM, Anonymous frank said...

I'm so glad Obama is leading us out of the economic disaster left behind by George Bush.

At 4/20/2010 1:55 AM, Blogger PeakTrader said...

March leading indicators rise; recovery seen continuing
April 19, 2010

The slow economic recovery should continue over the next few months, the Conference Board said Monday.

The index of leading economic indicators rose 1.4% in March, marking 12 consecutive gains.

Going forward, the strength of demand "remains the big question," said Ken Goldstein, economist at the Conference Board.

"Improvement in employment and income will be the key factors in whether consumers push the recovery on a stronger path," Goldstein said.

The coincident index, which measures the current economy, rose 0.1% in March, matching February's rate.

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

In March, seven of the 10 leading indicators were positive. However, some of the positive components "look unsustainable," wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics, in a research note.

"We look for a much smaller increase in the index in April," Shepherdson wrote. "The index, in our view, fails to reflect the ongoing disaster in the small business sector, so it is very likely overstating growth substantially. Taken at face value over recent months it suggests the economy is booming. It isn't, and it isn't about to start, either."

At 4/20/2010 2:22 AM, Blogger Unknown said...

Peak Trader If the recovery gains traction how are they going to reduce the money supply to keep inflation under control.

At 4/20/2010 2:54 AM, Blogger PeakTrader said...

Grant, the quick answer is the same way it was done from 2004 to 2006 when the Fed Funds Rate rose from 1% to 5 1/4% (0.25 basis points at every meeting), although the Fed kept a restrictive stance for too long in 2006 and 2007.

Economists Split Over Inflation
APRIL 16, 2010

On average, the 56 surveyed economists, not all of whom answer every question, expect tame inflation, forecasting consumer prices in December will be just 1.8% above year-earlier levels.

"The Fed doesn't want to start raising rates when you haven't got really solid employment momentum," said economist Kurt Karl of Swiss Re, who doesn't see much risk of inflation amid widespread unemployment.

On average, the economists expect the unemployment rate, currently at 9.7%, to fall to just 9.3% by December while the economy adds around 1.9 million jobs over the next 12 months. The survey found that, on average, the economists expect the U.S. economy to expand at about a 3% annual rate in each of the four quarters of this year, although three-quarters said growth is more likely to be stronger than weaker than their forecast.

At 4/20/2010 3:25 AM, Blogger Unknown said...

Peak trader, What bothers me is this avalanche of stimulus funds sitting in banks as surplus funds to their everyday needs if these funds got into everyday circulation there would an absolute explosion of economic activity leading to inflation.

At 4/20/2010 9:54 AM, Anonymous Anonymous said...

It would be nice to see the chart go back to the 50s. It looks like the line takes off like a hockey stick after the dollar was taken off the gold standard.

By the way, the same report had the coincident index still in the toilet.

A coincident index is a single summary statistic that tracks the current state of the economy. The index is computed from a number of data series that move systematically with overall economic conditions. A rise in the index indicates an expansion of economic activity and a decline in the index indicates a contraction in economic activity. Each of the regional indexes is computed using data on employment, real earnings, the unemployment rate and average weekly hours worked in manufacturing.

At 4/20/2010 9:57 AM, Anonymous Anonymous said...

And you over looked that CEO confidence dropped.

At 4/20/2010 10:55 AM, Anonymous morganovich said...


i suspect the "hockey stick" you see is for a good reason:

LEI cannot tell growth from inflation.

if you look at it relative to reported inflation, its post 50's performance was heavily correlated to CPI until the early 90's when the CPI calculation was changed in such a way as to report lower inflation.

the correlation remains strong from the early 90's if you keep using the old (pre clinton) calculation methodology.

At 4/20/2010 12:18 PM, Blogger KO said...

Bobble, it is most definitely a peak in nominal terms. I get a decrease in real terms for even recent years using the CPI through the BLS link below the charts.

Which brings up the question: If an industry with so much excess capacity and so much short term projects does not show a nominal decrease in wages, is there really low inflation?

It was $21 back in mid-2007 when construction employment started dropping. In spite of a drop in jobs to levels from 15 years ago, average hourly wages increased 10% in nominal terms in the last 3 years. Maybe the ones out of work are just the low skilled ones, but I doubt we'll see a reduction in the average when they start getting back to work.

Check out the Canadian dollar today. Those Canadian pennies that show up in change are worth a US penny again. And the Euro? What Greek debt crisis?

At 4/20/2010 12:23 PM, Blogger KO said...

Opps, I had the Euro chart the wrong way. The Euro did get weaker.

At 4/20/2010 1:43 PM, Blogger bobble said...

OA, why would you ever use nominal wages when real wages are available? it's going to be misleading one way or another.

that aside, i agree that it's strange that construction wages have not declined, given the excess capacity.

perhaps it has something to do with much of the 2000's construction work going to low cost day labor, not reported to BLS?

At 4/20/2010 3:49 PM, Blogger KO said...

bobble said...
OA, why would you ever use nominal wages when real wages are available? it's going to be misleading one way or another.

Why not ask the Fed why they don't use real wages? They get paid to put that stuff out. It's pretty time consuming to convert all their stuff to real terms, and even then there's those definitional changes in CPI over time to consider.

People are paid in nominal dollars and have costs, including taxes in nominal dollars. If the IRS starts letting me pay taxes on my real gains rather than nominal gains, I'll start converting to real terms.

At 4/20/2010 5:10 PM, Blogger KO said...

Wow, something I didn't know until this week. Tax tiers have only been inflation adjusted since around 1984. Before that, they appear to have been fixed unless changed by legislation.

So the marginal rate on $10,000 was 32% from 1963 all the way through 1976. So that construction worker making $5/hr in 1970 and maybe in the 25% or 28% tier after deductions, was in the 37% tier by 1980 with no gain in real hourly wages.

After 1976, $10,000 was 2 years at 28%, then 2 at 24%, 3 years at 22%, then a mix of tier changes and rate changes thereafter down to 15%.

Two sources I found for historical rates. The Tax Foundation one has an Excel spreadsheet that can be downloaded, or pdf. The Citizens for Tax Justice one has not been updated for the health care taxes.


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