Monday, August 20, 2012

Leading Index Predicts Slow, Continuing Expansion

I'm reporting a few days late that The Conference Board released its Leading Economic Index for July last Friday, and the 10-component composite forecasting index is indicating a positive, but slow economic expansion going forward. Sound familiar? We've been hearing that a lot lately. Here are some of the details:

The U.S. Leading Economic Index (LEI) increased 0.4 percent in July to 95.8, following a 0.4 percent decline in June, and a 0.3 percent increase in May, matching the index level in May at the highest level in four years going back to June 2008 (see chart above).  Compared to its year earlier level, the July LEI is 1.50% higher, which is lower than the 6% annual gain last July compared to 2010, indicating that the pace of improvement in the LEI has slowed over the last year. 

Says Ataman Ozyildirim, economist at The Conference Board: “With this month’s increase, the U.S. LEI returned to its May level. The majority of its components improved, led by large contributions from housing permits and initial unemployment claims. The LEI’s six-month growth rate seems to be stabilizing, pointing to a continuing but slow expansion in economic activity for the rest of the year. Meanwhile, the coincident economic index, a measure of current conditions, has been rising slowly but steadily, with all four components improving over the last six months.”

Says Ken Goldstein, economist at The Conference Board: “The indicators point to slow growth through the end of 2012. Lack of domestic demand remains a big issue. However, back-to-school sales are better than expected, suggesting that the consumer is starting to come back. Retail sales this time of year are often an indicator of how the holiday season will turn out.”

MP: Like many other economic variables, indicators and forecasts, the LEI in July predicts ongoing, but moderately sluggish economic growth in 2012, but is not currently pointing to an economic slowdown that would be considered recessionary.  As Brian Wesbury's team at First Trust Portfolio has been describing it, we've got a "plow horse economy" that keeps moving forward, slowly but surely. 


At 8/20/2012 3:06 PM, Blogger Jon Murphy said...

The US Leading Indicator leads the economy by about 12 months (give or take). The relative flatness the indicator has demonstrated over the last few months indicates the earliest a recession could begin is summer 2013.

At 8/20/2012 3:55 PM, Blogger morganovich said...

this index worries me a bit in the time of zirp and qe.

the things driving it are largely manipulated rate spreads and the S+P being glutted with printed money.

.25 or the .4 increase (which was flat with may) was from those 2.

new orders were very weak as was business expectations (though claims was good).

that jump in rates and stocks alone was more just for the month that the whole index is up since feb.

i agree with the "slow" but i'm not so sure we can add steady to that description. this seems like a very fragile situation right now.

At 8/20/2012 4:07 PM, Blogger Jon Murphy said...

This comment has been removed by the author.

At 8/20/2012 4:08 PM, Blogger Jon Murphy said...

Fragile is probably a good word to use here. If our economy were a little heather, I doubt Europe would even be a blip on he radar.

At 8/20/2012 4:14 PM, Blogger juandos said...

Mark McHugh certainly doesn't agree: Shhhh…It’s Even Worse Than The Great Depression

Bernanke is the devil incarnate or some such...:-)

At 8/20/2012 4:51 PM, Blogger VangelV said...

this index worries me a bit in the time of zirp and qe.

I agree. Given what the Fed is doing why isn't the index showing more promise? The entire reporting process feels like a trap for the complacent and naive. I imagine that a coordinated intervention could lead to a very nice rebound in the equity markets but it is hard to see how that does not lead to a big problem down the road (after the election) for the much bigger bond market.

At 8/20/2012 7:43 PM, Blogger Benjamin Cole said...

Why is the Fed of feeble and dithering at a time of dead inflation, and a very limp recovery?

At 8/20/2012 9:23 PM, Blogger VangelV said...

Why is the Fed of feeble and dithering at a time of dead inflation, and a very limp recovery?

Because the bond market is on the edge. Even Bernanke knows that it does not take much to destroy a currency and is quite aware that the BLS statistical manipulation cannot change reality.


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