September’s Leading Economic Indicators

The Conference Board’s Leading Economic Index improved in September.  The 0.6 percent increase was just enough to make back all of August’s downwardly revised loss of 0.4 percent; the original tally was for a 0.1 percent contraction.

Contributions from building permits and the financial components added to the indicator.  Permits have been rather fickle lately as they have been alternating monthly between positively and negatively impacting the index since April.  After three months of subtracting from the index, common stock prices have added to the index in the last three.  The LEI seems to be able to count on the yield curve to help keep it moving up since the spread between the 10-year treasury and the federal funds rate has added to the index in each of the last 6 months.

New orders were mixed in the report, but new unemployment claims and consumer expectations weighed the index down.  The new order category itself has three components.  Of these, the one that negatively impacted the indicator was the only sub-index actually using collected data.  The other two, while having a positive impact on the overall total, were estimated from statistical models since the actual information is not yet available.  In addition, new unemployment claims took away from the LEI for the second consecutive month and have done so in 4 out of the last 6 months.  Finally, consumer expectations for business conditions continued to be a drag on the indicator, but the pull was not as significant as it was in the prior 3 months.

The LEI improvement has been slowing over the last 6 month. During that time, the increase in the index has been 0.3 percent.  To put that pace into perspective, the previous 6 month growth rate was 2.6 percent.  If a conclusion were to be drawn from this report, it would be that the LEI points to underwhelming growth in the near future.    (by C. Cox)