August Leading Indicators

The Conference Board reported their index of leading economic indicators (LEI) fell a bare 0.1% in August.  We are used to seeing this data point see-saw up and down from positive to negative.  It has been up in two of the last five months, down in three, and this slight drop comes on the heels of a 0.4% July gain.

If we hope to derive a better sense of direction by turning to the individual components of this indicators which, taken together, comprise the monthly total, we come up a bit short.  For instance, the supply manager’s new orders index for August was disappointing, providing much of the drag influencing the total.  However, more recent data from some of the purchasing manager’s reports we follow suggest that figure may be turning positive.  Also contributing to the negative tone was a drop in consumer expectations.  This metric has suddenly turned positive, and in a big way.  Taken together, this leads us to expect a favorable reading for September.

Jobless claims, on the other hand, don’t seem to be getting appreciably better, so their negative influence will likely continue to be felt.  Also possibly adding some drag to any prolonged recovery will be interest rates which are being held low and engineered down further by the latest policy announcement from the Federal Reserve.  This latter category has been providing what we feel is an abnormal positive influence on the LEI total for years but, if long-term rates can be lowered still further, that benefit may go away soon.

All in, the August leading economic indicators index suggests a continuation of current conditions.  Goldilocks may have found a porridge to her liking, but to us this mix is neither hot nor cold, just bland.