June 2015 Leading Economic Index

According to the Conference Board’s Leading Economic Index (LEI), America’s economic expansion is poised to continue.  This 10 component indicator improved 0.6 percent in June 2015, following May’s uptick of 0.8 percent.  Since April, this indicator’s readings have been strong.

Nine of the LEI’s components were either unchanged or positive while one was negative.   The usual suspect, interest rate spread, made the most significant change to the headline, accounting for nearly 40 percent of the entire uptick.  Building permits were the next largest contributor, providing over 34 percent of the improvement.  Positive contributions were also made by two measures of new orders, credit availability, and consumer expectations for business conditions.  The only negative sign in the monthly tally came from the performance of the stock market.

The latest LEI figure leaves Atlas with mixed feelings.  The strength of the past three months is encouraging, but the contributions are so concentrated that it creates some concern.  In particular, the concentration is centered on the Federal Reserve’s manipulation of the yield curve as the central bank keeps the overnight interest rate nailed to zero.  One cannot help but wonder about the impact the Fed will have on this indicator once the lending rate banks charge one another for 24-hour loans is increased.  At the very least, the current monetary policy and the jawboning by the central bank about the desire to raise the rate create some doubt in my mind over the validity of LEI’s headline figure.  Nonetheless, building permits have been strong since April and temper some of this concern.  For now, the odds of continued economic expansion appear to be better than even.              (by C. Cox)