US: Leading Indicators

Thu Nov 19 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Leading Indicators - M/M change 0.5% 0.1% to 0.7% 0.6% -0.2% -0.1%

The rise underway in long-term interest rates, as an indication of strength in borrowing demand, gave a big boost to the index of leading economic indicators which rose a very strong 0.6 percent in the October report. The rebound in the stock market and yesterday's gain for housing permits were also positives and point to rising strength for the economy.

This report had been dead flat since July and October's gain is a sudden indication of acceleration ahead. And though the gain is centered in interest rates where a counter-intuitive strain runs, that is high rates will tend to limit economic growth, most components are solid. Other data in today's report include moderate readings for both ongoing and lagging indicators, at plus 0.2 percent each.

Market Consensus Before Announcement
Leading indicators have been soft, down 0.2 percent in the October report following two unchanged readings. The Econoday consensus for November is a gain of 0.5 percent. Though manufacturing components in the report have been especially soft, the gain for the ISM new orders index does point to support for November. And a steepening yield curve could point to increasing strength for the report's interest rate component.

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.