US: Leading Indicators

Thu Aug 20 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Leading Indicators - M/M change 0.2% 0.0% to 0.4% -0.2% 0.6% 0.6%

Swings in housing permits have been distorting recent LEI readings including for July, down 0.2 percent vs gains of 0.6 percent in the two prior months. Permits, which fell 16 percent in Tuesday's housing starts report, more than offset what are a run of mostly neutral readings among other components. The strongest component, as it usually is, is the rate spread which reflects the Fed's stimulative policy. Also pointing to strength are initial jobless claims, which are at rock bottom lows, and the report's credit index which points to a rise ahead for lending.

Putting aside the pluses and especially the rate spread, however, points to a mostly flat outlook for the economy six months from now. Other readings include another modest reading for the coincident index, at plus 0.2 percent which points to modest ongoing growth, and a 0.3 percent rise for the lagging index which, following a 0.7 percent in the prior month, points to further upward revisions for first-quarter GDP.

Market Consensus Before Announcement
The index of leading economic indicators has been getting a strong boost from housing permits where an expected dip for July, however, is holding down forecasts. The LEI is expected to take a breather in July, up a moderate 0.2 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.