US: Leading Indicators

Thu Jun 18 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Leading Indicators - M/M change 0.4% 0.2% to 0.5% 0.7% 0.7% 0.7%

Remarkable strength is being posted by the index of leading economic indicators which surged 0.7 percent for a second month. The surge underway in building permits, which points to a big bounce for the new home market, continues to drive the index higher. The Fed's stimulative monetary policy also remains a big positive (reflected in the report's yield-spread component). Jobless claims are another positive as is the report's credit conditions component. Of the report's 10 components, none are in negative ground in the May report.

Other readings include a very subdued 0.1 percent gain for the coincident index which highlights this year's expected theme: weakness in the first half of the year followed by exaggerated bounce back strength in the second half. The lagging index is up 0.2 percent which is a reminder of prior softness.

Market Consensus Before Announcement
Leading indicators are sometimes the hostage of single components that can spike or plunge in anyone month, such as the April report when a big surge in building permits inflated the headline gain to plus 0.7 percent. This month the Econoday consensus is calling for a less spectacular gain, at plus 0.4 percent.

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.