May’s Leading Indicators

The Conference Board’s Leading Economic Index (LEI) grew 0.4% in May.  The difference between short-term interest rates and long-term interest rates, as measured by the Federal Funds Rate and 10-year Treasury yields respectively, provided the biggest push for the indicator.  With the Federal Funds Rates near zero and likely to remain there for an extended period, the Federal Reserve’s policy will continue to help this indicator.  The money supply also helped add to the index.  As the crisis in Europe continues to develop our country is seen as the safest place to keep reserves.  This current flight to safety may have been a contributing factor to the growing money stock.  In normal environments, the extra money held on deposit would be lent out.  Time will tell if banks will lend the excesses or not.  While it is not a large part of LEI, building permits for new private homes are interesting to look at these days.  They fell 36,000 to 574,000 on an annualized basis the month after the home buyer stimulus expired.  The LEI has been growing since April 2009 but is starting to show signs of fatigue.  The chief economist of The Conference Board, Bart van Ark, said “the index points to continued, though slower, U.S. growth for the rest of the year.”  This parallels what another indicator we follow, ECRI, has been saying for several months.