US: Leading Indicators

Thu Mar 19 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Leading Indicators - M/M change 0.3% 0.1% to 0.5% 0.2% 0.2% 0.2%

Growth in the index of leading economic indicators held steady at 0.2 percent in February, pointing to moderate growth for the economy over the next 6 months. Once again the yield spread is the biggest positive for the index reflecting the Fed's near zero rate policy. The stock market is the next biggest positive followed by the report's credit index, an index that has however consistently been pointing to healthier borrowing conditions than government reports. Consumer expectations are also a positive in February but are very likely to reverse in March given the mid-month plunge in the consumer sentiment index.

Other readings include a 0.2 percent rise in the coincident index, which points to moderate ongoing growth, and a 0.3 percent rise in the lagging index, which points to moderate past growth. Growth may be slow but it is sustainable, reducing the risk of overheating and keeping the Fed's rate hike at bay.

Market Consensus Before Announcement
The Conference Board's index of leading indicators in January slowed to a not-so-strong plus 0.2 percent versus a slightly downward revised plus 0.4 percent in December. Once again the yield spread was the biggest positive for the index reflecting the Fed's near zero rate policy. But outside rate policy, gains were less than spectacular led by credit indications and also consumer expectations which however may be slipping this month based on the twice-monthly consumer sentiment report.

A composite index of ten economic indicators that should lead overall economic activity. This indicator was initially compiled by the Commerce Department but is now compiled and produced by The Conference Board. It has been revised many times in the past 30 years -- particularly when it has not done a good job of predicting turning points.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the index of leading indicators, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. The index of leading indicators is designed to predict turning points in the economy -- such as recessions and recoveries. More specifically, it was designed to lead the index of coincident indicators, also now published by The Conference Board. Investors like to see composite indexes because they tell an easy story, although they are not always as useful as they promise. The majority of the components of the leading indicators have been reported earlier in the month so that the composite index doesn't necessarily reveal new information about the economy. Bond investors tend to be less interested in this index than equity investors. Also, the non-financial media tends to give this index more press than it deserves.