US: Leading Indicators

Thu Jul 23 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Leading Indicators - M/M change 0.2% 0.1% to 0.7% 0.6% 0.7% 0.8%

Housing permits for a second straight month fed an outsized gain for the index of leading economic indicators, up 0.6 percent in June and just shy of the Econoday top-end forecast. Adding to the strength is a 1 tenth upward revision to May which now stands at an exceptional plus 0.8 percent. Boosted by the outlook for the housing sector, these readings point to building momentum for the second-half economy. Interest rates are also a positive, at least until the Fed raises its policy rate which is expected sometime later this year. Other readings include a 0.2 percent gain for the coincident index which points to no more than a moderate pace for ongoing growth.

Market Consensus Before Announcement
The index of leading economic indicators is expected to post a slight gain of 0.2 percent in June though forecasts vary widely with the high end at plus 0.7 percent. And 0.7 percent was the outsized gain for May which benefited from housing permits where their surge extended to June.

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.