Thursday, June 17, 2010

Largest-Ever 14-Mo. Increase of the Leading Index

June 17 (Bloomberg) -- "The index of U.S. leading indicators rose 0.4 percent in May, signaling the world’s largest economy will keep expanding in the second half of the year. The Conference Board revised April data to show no change rather than the previously reported 0.1 percent drop."

Remember all of the gloomy headlines after last month's original estimate of a 0.1 point decrease (Note: the Bloomberg report incorrectly calls it a 0.1 percent drop, when it should have been a 0.1 point drop, or a 0.09 percent drop), which has now been revised to show no change in April?

"Key US indicators point to economic recovery losing steam"

"Leading indicators drop, experts still expect “sluggish” economic growth"

"US Economy: Leading Index Signals Recovery to Cool"

"Uh oh: Leading economic indicators slip in April"

"US: Leading Index Dips; Slower Growth Ahead"

MP: Given today's revisions, the leading index has increased or stayed the same for the last 14 months, which is only the third time that has happened since 1998.  The 12-point increase in the leading index from the most recent March 2009 low of 97.9 to the all-time May high of 109.9 is the largest 14-month point gain in the history of the Conference Board's leading index going back to 1959 (see chart above).  In percentage terms, the 12.26% increase over the last 14 months is the highest since 1984.   

Also, market maven Dennis Gartman strongly emphasizes the "Ratio of Coincident to Lagging Indicators" as an accurate metric to assess turning points in the business cycle, and featured a graph of this ratio back to 1958 in today's "The Gartman Letter"turned higher in early 2009 and it has been trending higher ever since."  Today's Conference Board report shows that the "Ratio of Coincident to Lagging Indicators" increased from .9314 in March to .9351 in April to .9397 in May. 


At 6/17/2010 2:15 PM, Blogger Mark J. Perry said...

Note: It's takes up to an hour for each post, to collect the data, creates graphs and charts, write commentary, etc. So the reports can't just be generated instantly, it takes time for each one, please be patient.

I spent all morning testifying before a House Committee and I'm just catching up on today's reports.

At 6/17/2010 2:16 PM, Anonymous morganovich said...

is the claim of "largest ever 14 month increase" in points or in %'s? 10 points is not as meaningful as it used to be.

should we take into account the fact that it just had its largest ever decline as well? how does it look as a % of the decline in comparison to other recessions?

looks to me like in both of the last 2 recessions, the LEI got back to pre recession levels more quickly than this time.

At 6/17/2010 2:54 PM, Blogger Kenny said...

I'll point out that 70% of the Conference Board's leading index is made up of Average Weekly Hours in Manufacturing, the interest rate spread, and M2.

Thus, their other seven indicators, which are not faring as well, make up for only a small part of the index.

They have good reason for this (an indicator's weight is inversly related to its standard deviation), but it limits what this number actually says.

At 6/17/2010 3:42 PM, Anonymous morganovich said...

interest rate spread is a dangerous indicator to use in a time of unprecedented intervention by the fed into the US bond market.

the current spread is not indicative of the same things it has been in the past.

might that not put the whole function of this indicator into doubt?

At 6/17/2010 4:42 PM, Blogger Benjamin Cole said...

Mark Perry:
As much as I at times disagree with your views, you almost always put together a good blog, very readable and informative.

At 6/18/2010 9:08 AM, Blogger juandos said...

To quote Glenn Reynolds: "That’s because states can’t print money, and thus can’t live in a cloud of denial, as our leaders in Washington, D.C. still do"...

At 6/18/2010 4:22 PM, Anonymous Anonymous said...

The ECRI WGI as of June 11 continues its death spiral signalling a double-dip recession. If the Index touches -10 a recession is near at hand (well at least the prior 7 recessions).


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